Payments present threats and opportunities for banks

In our latest Executive Report, BAI outlines how a safe, fast and easy-to-use payments solution can help banks and credit unions maintain a position of primacy in the customer relationship.

Fintechs have had tremendous success in penetrating the payments area of financial services—PayPal rakes in more than $20 billion in revenue annually, and it is far from the only large player in the space. For Big Tech companies like Apple and Google, payments is the first access point into banking services.

Mobile payments, peer-to-peer, contactless cards and buy now, pay later—these are just a few of the innovations introduced in payments in recent years. The sector has relatively low barriers to entry compared with other areas of financial services, making it likely that new competitors with new ideas will continue to stream into the market.

For traditional banking institutions, there’s a lot at stake when it comes to payments. Creating a fast, safe and easy-to-use payments solution can help banks and credit unions maintain the all-important position of primacy in the customer relationship.

In this month’s BAI Executive Report, we explore how some institutions are rising to the payments challenge.

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In our lead article, BAI contributing writer Lauri Giesen explores some of the new products banks and credit unions are embracing in their quest to catch up to customer expectations. These include using APIs to deliver payments faster and providing visual confirmation of transactions via screenshots.

But complicating matters, she writes, is that customers often give the credit for these solutions—and any accompanying loyalty—to the fintech partners of the banks and credit unions, rather than to the banking institutions deploying them.

And on the security side, the growth of e-commerce has somewhat weakened the protective powers of EMV chips and other upgrades that fight credit-card fraud. One of Giesen’s industry experts advocates that U.S. financial institutions pool their efforts to develop better authentication methods, particularly for card-not-present situations.

Jens Audenaert from Diebold Nixdorf focuses his article on how financial institutions contending with the rising demands of digital banking can successfully transition to a more modern payments platform, and then future-proof that platform by preparing for payment types that will inevitably emerge in the years ahead.

He writes that cloud-based technology can allow banks and credit unions to work around legacy systems while simultaneously updating important operational elements to become more agile and reduce the risk of future obsolescence.

Tammi Shapiro from ServiceNow makes the case that financial institutions should devote more attention and spending to bring middle- and back-office operations—often a lower priority for resource allocation—up to the level of their slick customer-facing capabilities.

“To stay relevant and remain competitive, financial institutions must deliver superior experiences through the end-to-end customer journey,” she writes. “Banks need to invest just as much in the back end by empowering employees with the connected tools and information they need to be more effective in servicing customers when there are issues, such as a failed or disputed payment.”

Also in this month’s Executive Report:

Open to the future: BAI contributing writer Dawn Wotapka writes about a new peer-to-peer payments initiative led by a group of community banks working together to create a less expensive and more open option to the more established P2P providers. Only a handful of institutions are currently on board, but expansion plans are in place for 2022.

More transparency in buy now, pay later: My interview with Greg Wright from Experian highlights his company’s plans for a new credit bureau that will focus on buy now, pay later transactions. The rapid growth of BNPL, particularly among younger Americans, is increasing the need for credit-related insights for lenders seeking to participate in the market while managing their risk.

Ending pulp friction: Chris Clausen from Deluxe writes that checks as a payment solution are not going away any time soon, but he says there are ways to make them faster at delivering funds and cheaper to issue and process. One way to do this is by innovating the lockbox network to get rid of paper and make everything electronic from end to end.

From just plastic to simply fantastic: Nicole Machado from Vericast explores how financial institutions can deliver effective customer engagement through card programs. She says emerging technologies are enabling innovative marketers to redefine the value proposition of cards: from hard-working but largely generic rectangles of PVC into powerful brand differentiators.

BAI looks at the payments landscape and shares valuable intel on emerging methods, technologies and competition in “Payments: Increasing competition in the fast lane.”

Terry Badger, CFA, is the managing editor at BAI.