It’s time to level the playing field in cards payments

Market dynamics in payments are being redefined by changing consumer expectations and technology adoption, and 2018 is proving to be a critical year for banks and card issuers looking to be their customers’ brand of choice.

It’s a common misnomer that only the larger financial institutions (FIs) with deep pockets and innovation labs or emerging fintech players will come out on top. A closer look reveals that with the right mix of technology and planning, FIs of any size can be nimble enough to innovate, compete, and win with products and features that resonate with new market demands.

The right IT infrastructure and payments technology can prove to be a critical investment that must be made now; when leveraged correctly, technology is a great equaliser for banks of any size.

Get ready

FIs know they must innovate to stay in lock step with consumer expectations and the hyper-competitive and changing payments and banking landscape.

Whether large or small, they are eyeing opportunities to keep customers happy and loyal. Of course, it’s not easy. Innovation and rapid technology adoption are compressing timelines for FIs to get the right product roadmap to market, and the future is nearly impossible to predict.

Moreover, margins are compressing in the credit card business. According to a Mercator Advisory Group, the return on credit card assets (ROA) is projected to decline in 2018, putting pressure on card programme profitability.

All of this underscores the urgency to field new, truly differentiated card programmes and features that boost profitability and growth. That’s why 97% of banks surveyed in a new report say that have focused on new payments features or products in the past three years; however, only a handful have truly outperformed their peers.

This report, the “Innovation Readiness Playbook: The Top Payments Performer Edition”, reveals why some FIs are getting to market faster than their peers. Innovation labs are not the answer.

The top innovating banks in the survey develop clearly defined plans and priorities for their innovation efforts, budget for them effectively, and innovate quickly. 80% of the top performing banks develop products or features within six months compared to just 54% of their peers.

Naturally, better planning and funding would produce good results. But what really separates the best from the rest? It’s their technology and how they use it.

60% report having IT infrastructure that makes innovation easier compared to just 12% of the average performing banks. That’s five times as many!

Moreover, 73% of the top performers said their core payments systems are well-suited for innovation. The good news is that the size of the bank is not a gating factor. The top innovators are evenly spread across the general population of FIs in terms of asset size.

A shot across the bow

Change is defining payments, and you can’t predict the future. You’re far better off arming yourself with the tools you need to be ready for it. That’s what the top performing FI’s are doing; they have the IT and core payments infrastructure in their arsenal that makes them agile and capable to quickly execute innovative payments strategies.

The results outlined in the report are a shot across the bow for our industry. Agile banks are outpacing their competition when it comes to innovation. 2018 is the year FIs of every size need to get the right payments infrastructure and best business practices in place to address the competitive risk to their payments business. What are the next best steps forward?

Make innovation a core competency

• Align your IT strategy with your payments business: The first order of business is to take a critical look at your IT infrastructure and make sure it aligns with your mission and the strategic roadmap for your payments business.
• Flexible technology makes your business nimble. Flexible and configurable core payments and IT infrastructure create agility and help make innovation an everyday practice. They enable iteration of ideas, creation and testing of new innovations, and rapid scale to market. Configurability and flexibility of core payments processing systems are key success factors. 60% of top performing FIs in the “Bank Innovation Readiness” study enjoy configurable processing platform. Only half as many (31%) of the mid performing banks do. Multi-function payments processing systems – those that support any form of debit, credit, or prepaid forms of payment – add another dimension of flexibility and can help future-proof a company’s payment strategy. More than 50% of top performers have that capability available compared to a third of middle performers.
• Ditch the innovation lab: Rapid innovation can be found in a sandbox, not in a lab. Sandboxing lets you test new product and features, incorporate real-time customer feedback, scale them in market. Make sure your payments processing platform supports sandbox environments.
• Planning – mind the gap: There is a gap between where most banks are in their innovation execution and where the top innovating banks will be focusing their resources. The vast majority of top performers have implemented digital wallets and P2P technology in the past three years – their peers not necessarily so. These features are table stakes, and make sure your company has those in place. Moving forward, the most successful payments innovators say they are focusing on customer engagement, user experience, data analytics, and payments technologies like contextual payments.
• Use multiple methodologies to gain insight: Top performing FIs leverage a broad range of methods to gauge the best path forward, including testing with customers and employees and cash and ROI calculation.

In payments, technology can be the great equaliser

With PSD2 and other market changes like real-time payments, the time to act is now. 80% of the most successful FI innovators can get to market in six months or less with new features or products, compared with 54% of the average performer.

At the same time, their success provides a roadmap for the industry. They make innovation a core competency by setting priorities and planning strategically, listening to their customers, and monetising their innovation plans.

Most importantly, they leverage payments technology as a key competitive advantage: infrastructure that is flexible, configurable, and enables testing of new features in a sandbox environment.

The good news is that banks of any size can be successful. The right technology is a great competitive equaliser, and an arrow you’ll need to have in your quiver now and in the future.

Find out more in our The Innovation Readiness Playbook; Top Payments Performer Edition.

Peg Johnson, Executive Vice-President, Global Client Success, i2c Inc

Johnson leads the global operations of the company’s client services and customer success organisations. She has over 20 years of experience running global service delivery teams in the payments industry, working with the largest credit, debit, and prepaid issuers in the world. Before joining i2c, Johnson was senior vice-president of business operations for First Data Corporation, where she led client services for the company’s Financial Services Business organisation, managing 400 employees responsible for the strategic interface between the company’s executive, legal, and product teams and its clients.