Refocusing On Payment Adoption and Transformation

Aris Jerahian, AVP Card Services, Orange County’s Credit Union

Aris Jerahian, AVP Card Services, Orange County’s Credit Union

2019 saw rapid progress in disruptive technologies that brought a paradigm shift in the thought process of financial institutions towards payment adoption and transformation. New players unbundling banking services and removing existing inefficiencies in the processes are forcing financial institutions to refocus on their operating and service delivery models to retain wallet share and maintain healthy customer engagement. Understanding the current state of payment transformation will help define which initiatives will drive financial institutions to success.

Money movement will always remain the primary function of a financial institution, as payments are the bonding solution for customer engagement. Additionally, payments produce valuable data insights that could help monetize supporting services through automation, forecasting, and potentially productize payments.

Just as there is no unique definition of the transformation of payments, there is no unique definition of success. One of the most frustrating aspects of digital transformation is that the journey never ends. It can take decades to prove any change in scalability, resilience, and flexibility of efforts towards transformation. However, the core of success for most financial institutions will always be the ability to serve their customers’ future needs.

To help define success while serving customers’ future needs, financial institutions need to evolve and apply key initiatives to maintain healthy customer experience.

1. Legacy batch processes are no longer sustainable and cannot support the demands of future infrastructures. Once attractive for their ability to process high volumes of transactions, these legacy systems are difficult to integrate and do not scale efficiently. An open API gives financial institutions the control, scale, and insight to build their perfect payment experience without the complexity of legacy issuer processors. API’s will create the financial ecosystems of the future.

2. 24/7 data demands and real-time payments are the primary drivers of transformation efforts.

Funds availability, settlement finality, instant confirmation, and integrated information flow solves many of the longstanding challenges.

3. While real-time payments suggest absolute immediacy, the ultimate advantage may lie in the powerful unlocking of shared transactional information. By coupling information with the transaction, there is an abundance of insight to help customer engagement, enhance operational efficiencies, monitor fraud, and manage risks.

4. Payment transition must include a shift in the revenue model from transactional services to data-driven, value-added services. Unless you can develop new, differentiating solutions that closely align with your customers’ needs and desires, how else can you create new revenue streams, gain competitive advantage, and boost customer loyalty?

Looking at these initiatives, reactively without coordination, will cause your institution to risk valuable clients and transaction volume. To limp, along with older business models until technology stabilizes and funding is available, is a dangerous risk to take.

As payment profitability is on the decline, tighter margins will force financial institutions to invest in new technologies that may not generate immediate cost savings or new revenue but are an important part of future growth. The accelerating pace of technological change is the most creative yet destructive force in the financial ecosystem. Financial institutions must take a realistic view of their situation to understand their current state and be prepared to quickly understand, leverage, and operationalize emerging technologies.

Collaboration has never been so important for the success of a financial institution. Future minded vendors could relieve some demands on internal resources and bring expertise and perspective to help execute more effectively. The regulatory environment is supportive, and the technology is in place. There is a fertile ground of third party providers to collaborate with, and customers are demanding new experiences with a wider range of payment products. However, the key question is the same as always: do financial institutions have the stamina and willingness to partner and collaborate with others?

To navigate these changes successfully and be able to support your business strategy by the end of the decade, try to understand your customers’ expectations better, and focus on refining your payment transformation program to support your market opportunities and innovation strategy

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