Call it agility. Or, in a more long-winded fashion, that nimbleness which brings together new and existing rails, melding legacy systems with new layers of functionality.
Done right, such integration enables participants in the payments ecosystem to accommodate payment flows across mobile conduits, account-to-account, person-to-person, person-to-merchant and any number of permutations yet to even be realized.
Almost one year after Mastercard completed its acquisition of Vocalink — and in an interview with PYMNTS’ Karen Webster — Chief Executive Officer Paul Stoddart said that 2017 was focused on “completing the transaction and starting the integration of the business.”
Vocalink, of course, provides and operates the central payments processing infrastructures that power the U.K. economy. Now as a part of Mastercard, the combined business is the first global network to be able to support both bank account and card-based payments, offering more choice to its customers.
This year, he said, as a combined entity operating in a payments world adapting to change, expect the companies to build on the success of prior years — with an even greater focus on innovation, particularly around the digital economy, which is increasingly being embraced by banks, corporates, governments, financial institutions (FIs) and consumers, and in which change is constant.
“We are going to have to do everything we had been doing, had planned to do, and, together with Mastercard, we have some new exciting opportunities,” he told Webster.
“We have a whole bunch of new competitors. It’s not just the usual suspects anymore; it’s Alipay and Tencent and Amazon Pay … all of which are digital giants of big, established payments players from big, established markets, and they’re not wasting any time at all in exploring new territories,” he added.
He said the company’s traditional customers — banks — need help to compete against those firms and deliver great customer experiences even as they “fight a battle against the ever-increasing compliance and technology investment requirements.”
The pace is fast, to be sure — and jumping into the swim lane (as in, sink or swim) is all about agility.
Begin with the acknowledgement, said Stoddart, that products may not be fully developed out of the gate, but the key is to get it out and get people using it and create that fast feedback loop. “You have to prepare the organization for that fast swim lane, and you have to do that; otherwise, you will drown. We are going through that [with] Mastercard, as we’re investing a lot in our own agility,” he said, noting that, industry-wide, “we are not just talking about product innovation; we are talking about process innovation.”
A bank or FI has a limited capacity for technology investments, at least internally. Management must consider the options of choosing to participate in change (or drown if it dives into the pool too late) and if it has the money to at least partially outsource some of its transformation. If a bank brings to the table customers and money, that means someone else can offer ideas and technology development — hence partnerships like Mastercard/Vocalink.
“That is what I am trying to do,” he told Webster, “to create that win/win by tackling the problem and helping the banks leverage their own assets better.”
The conversation turned to lessons learned from the U.K. market. No sea of FIs there, and fewer banks in number. He mentioned that the company has deployed real-time payments in two markets — in Asia and most recently in the U.S. — with nascent opportunities in Europe, Africa and Latin America, among other locales.
“The same basic requirements are there in all those markets,” he said. Ultimately, customer demand has changed significantly and requires banks to adapt at a pace they have not encountered before.
“We’ve seen that fast movers really do win,” he said of firms that have been early to embrace, say, peer-to-peer (P2P) initiatives. Those intrepid enterprises gain market share and can differentiate themselves in their engagements with their customers.” These banks serve as examples to their peers who might just now be tiptoeing toward new payments functions.
Working with the reach and scope that Vocalink provides enables banks to gain customers and reduce costs. “Those that go in with the mindset of, ‘I am not just going to do this project alongside everything else,’ but, ‘I am also going to replace my legacy and aging systems that I have been patching up for the last 10 years,’” said Stoddart, will ultimately survive.
These firms have realized, among other things, the cost benefits of straight-through processing and how to manage 24/7 payments operations through leveraging digital channels such as mobile banking.
For new entrants into the payments ecosystem, the challenge — then as now — will be the trade-off between ease of use and security. Consider the challenge, he said, of having robust security measures in place but at the same time making it as easy for a local bank with six branches to serve customers in the same way a national bank can serve a thousand branches.
The opportunities are there for all players within banking. As to what lies over the horizon, and whether ubiquity may be in the offing, Stoddart said the end lies nowhere in sight. It would be great to “pat ourselves on the back and go on a long holiday. But the reality is that will never be the case. We have to continue to invest in what has been implemented, as well as the new stuff … which has an enormous amount of potential.”