Innovaties in de financiële sector | FinanceInnovation

The future of paying

The payments divisions of banks have evolved from boring departments into the most sexy places around. After years of status quo, suddenly this is where the magic happens. Both as a result of EU-regulations and competition of tech-driven newcomers, banks are presented with a challenge.

For a long time, the payments division was the most stable place within the banking organisation. This domain of payment specialists never saw a large turnover of staff and nothing sensational ever happened in its field of expertise. The contrast with the current situation could not be any bigger. Regulation and technology shook up the playing field and took it to a higher, international level. “SEPA has big consequences for the financial sector. Europe is creating a new playing field, on which the game is about processing large volumes of payments.” According to Irine Gaasbeek, Managing Director Financial Services at Accenture Netherlands, the talk of the day in banking is about the big ‘payment factories’ that will meet this need. “These do not exist yet, mainly as a result of the complexity of European politics and the banking system itself. But we are certainly heading this way.”

New competition
The challenge banks are facing becomes even bigger because of disruptive, technological innovations that new players are launching in the payment market. “The likes of Paypal, Amazon, Google and Apple are looking to become an intermediary between consumer and bank. An example is online payments with Xbox. You hook up the system at home, login on your Microsoft-account and pay with PayPal. Another example is buying an e-book or music with your Apple-account. These accounts are linked to credit cards, but the consumer his password is the actual authorization. New players are pushing the banks backwards in the payment chain.

The bank may very well process the payment, but the purchase data stay with intermediaries like Apple or PayPal. Bad news for the bank, because data provides opportunities. “Processing the payment earns them very little. Just think of it: as consumers we don’t pay very much for our payment services. The real value is in the data. A bank that wants to stay relevant, needs to obtain this data so it can offer the personalized products its customers need.”

Know your customer
Big data is the magic word. Banks and tech-driven newcomers are competing for consumer and purchase data. The newcomers appear to have the winning hand. “Companies such as Google and Apple are extremely good at collecting and marketing data. They now their users through and through and are able to make money with this knowledge.” According to Gaasbeek, banks are now facing a dilemma. Should they cut their losses and choose for a smaller role in the purchasing process of the consumer, by only processing the payment? Or should they develop new products that the newcomers cannot offer? “For example, the bank can become a part of the purchase process of the consumer, by offering additional products next to processing the payment. Maybe it can offer its customer a loan for purchasing a replacement washing machine. If you now his financial situation, you are in a position to do this.” 

In the traditional world of brick & mortar retail, the consumer is largely paying with his (or hers) banking card or even cash. But in the world of e-commerce, banks are facing fierce competition. Dutch banks however have formed an alliance in order to stay relevant to their customers. “The Dutch banks are leading the way with the development if iDeal. Other countries lack a standard for quick and easy payments and banks have lost some market share to PayPal and other newcomers.” Another important Dutch initiative is introducing instant payments before 2019. “This should be seen as an answer to the disruptive innovations of tech-companies. Offering transactions on your mobile device that are completely processed within seconds are an important new feature where banks can make a difference.”

Picking up the gauntlet
The million dollar question is, of course: who wins the fight? What will the future of paying look like? As yet, this is still very unclear. For example, the effect of Apple’s great successes with Apple Pay in the United States is hard to determine. “Now Apple authorizes payments, it can process these as well. This is not happening yet, but it is a possibility.” For banks, it is essential to make a choice, Gaasbeek thinks. They have to choose between downsizing and prepare their payment divisions for a smaller role, partnering with new parties in order to be cost efficient, or pick up the gauntlet and think of new business models. For anyone who hesitates, the situation can quickly become dire. When part of the market is lost, banks are at risk to remain with payment factories nobody needs and massive overhead costs.

Downsize, cooperate or innovate? That’s the question for banks. The Dutch financial sectors’ answer is already visible. “The joint development of iDeal is a best practice in Europe in how to process payments. Introducing instant payments is also an example of bold decisiveness. Dutch banks are making a leap forward, where other European countries and banks are waiting.” However, cooperating with other parties is a scenario Dutch banks should explore better. Gaasbeek calls Moben, a service that collects and sells online payment data to banks for integration in their mobile offerings. Several non-European are using this service. “Working together with such a new party is an interesting option. This makes the reality not just black and white – traditional bank versus innovative tech-company. The reality is much more complex than that.


Over de schrijver

Koos Plegt

Koos Plegt is journalist en schrijft veel over (o.a.) IT, finance en innovatie.

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