Payments: process improvements or game changers?
There have been many many changes in the payments industry over the years which seemed big at the time, but on reflection were merely ‘process improvements’ in the guise of gear-gnashing transformation. When I first started in banking, most payment instructions were transmitted by telex (hence the moniker ‘wire transfer’), which was an incredibly slow and error-prone way of transmitting debit and credit details by cable. As volumes grew – and new technology hit the scene – the banks got organized around machine readable SWIFT standards and automated processing. Eureka! An inflection point I thought. The world really has changed. And so it had. Though in reality this turned out to be more of a process improvement – a profound and necessary one – but, in fact, the basics of the payment industry were no different.
Fast forward through a litany of new dawns in banking technology including electronic banking, the fax machine (!), the internet, the ubiquity of mobile phones, and so on – and each time the press heralded a ‘once in a generation’ game changer. They certainly seemed so at the time, but one quickly realizes that it is actually the baseline of innovation that is the thing that is always changing.
Banks adapted to this shifting landscape with numerous process improvements but without fundamentally changing their model or culture. Mobility, in particular, has the hallmarks of being a game-changer as physical bank branches were eschewed by clients as their epicenter for doing business. Out went the elegant granite architecture that was so important in inspiring confidence and security as core brand attributes, and in came the tactile convenience of 24/7 finger-tip banking. It also appealed to a new generation by saying “I’m not your grandfather’s bank,” which was a convenient repositioning after the events of 2007; a year in which the onset of the financial crisis coincided with the introduction of the iPhone.
Was this a true industry transformation? Perhaps. Certainly, the reach, scale and appeal to millennials, often cited as the harbinger of future tastes and preferences, means that mobility has re-shaped the payments industry by shifting control to device-toting consumers. At first banks feared this new environment in which customer experience, not a traditional hallmark of big old banks, would shift outside of the traditional banking value chain. Banks felt they would be left with only the drudgery of mechanical processing, settlement and attendant regulatory burdens.
So what, then, is transformational change?
In my experience, the deeper determinant of an inflection point is when the fundamental business model changes in conjunction with the technology that supports it. In the payments industry this means a realignment of activities around customer centricity, and the redefinition of a bank’s role as intermediary in serving their needs in an open and interconnected world (the so-called ‘API economy’). It requires deeper cultural mindset changes to take advantage of new business drivers in recognition that the ‘level playing field’ of yore, which featured only bank-to-bank competition, is now coming to be dominated by new entrants who are ‘born in the cloud’ without the shackles of legacy design and the economics that support it. In this new reality, insights, simplicity and anticipation of client needs frame both customer expectations and how they wish to be served.
As Dorothy said to her dog Toto in The Wizard of Oz: “We’re not in the same place we used to be.”
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