Financial services may be on the cusp of change in the very nature of how funds are stored and moved between people and enterprises. The evolution of the industry, however, is not likely to be a linear one — wholesale change rarely is.
In an interview with Karim Ahmad, TSYS executive vice president of global product and innovation, PYMNTS’ Karen Webster delved into the very nature of change, marking what once might have been a staid industry. There’s low-hanging fruit to be grabbed and longer-term challenges to address when it comes to payments firms changing to suit consumer demand.
“I’m a pretty prosaic guy when it comes to … innovation,” said Ahmad. “To me, the core of it is solving problems in new ways. It really is nothing more than that,” he said. If imaginative approaches are used to solve those problems that prove to be effective “and somebody makes a lot of money or gets famous, then that’s called innovation,” continued the executive, tongue in cheek. “Good innovation,” he said, “makes an idea — and the execution of that idea — look easy.”
As for payments, financial services may have overlooked a few key areas, said Ahmad, in terms of opportunities to solve problems in new ways. “The overlooked part,” he said, “is driven by a few different factors,” industry-wide, he said. Among those factors, the fact remains that payments as an industry remains heavily regulated, “and that gets in the way of innovation.”
“It’s easy to experiment with software and other parts of our world,” and if, for example, the software does not work right 20 percent of the time, that is a passable and permissible failure rate. Of course, in payments, such a failure rate is simply not OK.
“The [payments] industry, for a long time, has held customers captive,” continued Ahmad, “through a variety of different mechanisms. Whether it’s the fact that you have your money within a bank and, as soon as you do that, you are beholden to that institution for all kinds of other services — or now, increasingly, you have your data captive in an application or a particular institution … That has been the basis of competition rather than true problem-solving features.”
But there are glimmers of change on the horizon, maintained the executive. Some regulations are easing, as evidenced by Europe, along with technology that is more creative. Those trends, said Ahmad, are functions of the aforementioned competitive advantages being destroyed.
For TSYS, a healthy respect for regulation is necessary, along with the recognition that such regulation acts as both strength and restraint. Open access can help stakeholders working with the firm “who are facing competitive pressure to grow.” The pressure comes at a time when the user behavior itself is changing, across cardholders and other parties. For millennials, for example, expectations for financial services and payments are different from the expectations held by previous generations.
In addition, said Ahmad, “all of the new technology that we now have available to us … to find a way to make compliance and regulation … reliable is a second defining factor.” Against that backdrop, said the executive, TSYS looks to help customers (including banking customers) figure out where to go next.
Figuring out where to go next can be difficult, said Webster, when there is lack of clarity about what consumers really want. Banks must be anticipatory about what consumers want. “As an industry, we have a lot of catch-up to do,” said Ahmad. “We’ve probably got three to five years worth of process to do as the banking industry to get to where the rest of the software industry has gotten.” One arena for potential comes in areas like India where there is lack of infrastructure, which, in fact, allows financial institutions to leapfrog into areas like authentication and the use of mobile money.
“We have lots of models in front of us that can get us where we want to go,” said Ahmad. “Once we get there, we fall back on process,” he continued, with building up a memory within an organization, working with what that client is struggling with and then bringing that information into problem solving — with an eye on mobile money and cross-border payments.
The most obvious opportunities in front of the company and in front of payments in general exist within fraud and risk management, said Ahmad, with threats growing faster than businesses facing those threats. People buying services through connected devices demand new authentication methods, he continued. The consumer experience also needs a boost in order to cement banking relationships.
Longer-term investments will bear fruit a few years out, said Ahmad, with new initiatives coming as card-based transactions may be an ecosystem that is going to disappear. The trend, he said, is for non-financial institutions to come in and displace that model, allowing consumers to perform transactions and borrow money, among other actions. “We have three to five years to prepare for this,” he said. “But you are already starting to see leading indicators of this starting to happen … whether it’s alternative lenders or underwriting models … We are seeing those services coming from places that are not banks or traditional financial institutions. That is increasingly where innovation is going to happen.”
For the younger generation, people are very comfortable transacting in public, he said, “and the notion of financial services as a walled garden is disappearing really fast.”