The banking industry knows it needs to compete, to contend with FinTechs. Banks need to keep customers happy.
Easier said than done when strategy takes its cue less from blueprint than from patch quilt.
In an interview with PYMNTS, Cheryl Gurz, director of CGI’s Payments Solutions, said that the payments infrastructure, as defined by and used by banks, could use some updating. The only problem is that the payments ecosystem is a tangled web of old and new. Infrastructure in place — the pipes and processes that have become entrenched over decades — do not meet the changing needs of payments players and the customers they serve.
Think of payments modernization as being spurred by a simple case of supply and demand, said Gurz, where the consumer is, of course, the demand side of the equation and the payments system is that of supply, via banks and their attendant infrastructure.
In the U.S. marketplace, banks have been delivering payments in the same fashion for decades, across checks, credit cards, ACH and wire transfers. In a nod to stability and reliability, and as an illustration, she noted that ACH started in the 1970s, and some banks still have some of the same legacy platforms in place, marked by COBALT and mainframe programs with resilient code.
With change comes a sense of urgency, perhaps, and here a changing consumer should be leading banks to design their payments offerings from the customer’s perspective. In other words, said Gurz, historical thinking should not be top of mind for banks.
“The FinTechs are saying, let me ‘listen to the customer,’” she told PYMNTS, and it is the end user who is looking for different experiences across retail, marked by speed and intuitiveness. The banks, according to Gurz, are mindful of what consumers want but, fearful of wholesale change through innovations such as eInvoicing, are just tweaking already extant processes.
The upshot? Customers feel that banks are not listening to them. That leaves room for FinTechs to lure business away from banks.
“Fast followers” have been a hallmark of payments, where a herd mentality dominates. Gurz explained that for a payments system to work, it must be ubiquitous. In the U.S., she said, operating across wire transfers, checks or any other type of money transfer conduit, all banks need to work together. They share infrastructure, such as clearinghouses, based on the cost of ownership (a cost that spans decades). The shared cost becomes shouldered and cheaper as payments volume increases.
As instant payments technology, such as eInvoicing, becomes cheaper and more agile, services become more specialized and valuable. Banks, according to a recent “CEB TowerGroup 2015 Payments Showcase Survey,” unanimously know that “meeting evolving customer needs” is either very important or important, outranking all other priorities.
The benefit is that a firm can become unique and innovative with the customer base, reaping revenue benefits — if only the leap is taken.
A roadmap for innovation lies within segmentation, which Gurz said ties in with the fact that in payments, one size does not fit all. Some segments “will never even care where the payment is,” as the bank is “behind the curtain” — a mindset especially true in eCommerce. Banks become a utility in the background, she said, and that may spur banks to expand their value chain. To boost the value chain, banks will have to reexamine their technology to break out beyond mere back-end processes, which are becoming cheap and fungible.
The battle, then, moves to the origination side of the payments equation, where the Facebooks and the Apples and the Amazons of the world are all conducting eCommerce at a brisk pace — even as payments settle through banks due to regulation.
“You need volume to make money,” she said.
But in the hunt for volume, complexity can be, well, complex for banks, especially when the discussion in the industry at large has shifted to instant payments.
“There are so many moving legacy components,” said Gurz, who illustrated for PYMNTS in a metaphor tied to architecture, that, once a blueprint for infrastructure was established, banks just built rooms on top of rooms, with processes replicated repeatedly.
A “hub model” for banks can reduce complexity, she said, where the blueprint can once again shine through. “It’s really about having a common shared services [model across mobile, SWIFT, branch and Fed], where you share processes that you do to every single payment type.” Routines that involve checks and watchlists and stymie workflows are streamlined. The hub brings transactions through “one way, one program, one area you need to change, if necessary.”
Added CGI’s Gurz, “if you are building a new network today, that is how you do it.”
The banking industry will come to this realization as faster (and especially instant) payments schemes are adopted following the trend in eCommerce. When what had been done in a batch process in a 24-hour cycle now has to be done in 10 seconds, “that is where the hub will make its business case.”