- July 6, 2017
- Posted by: Rolland Johannsen
- Category: Innovation, Payments, Strategy
By Rolland Johannsen, Senior Consulting Associate
July 6, 2017
Recently we completed a comprehensive survey for the American Bankers Association on how the banking industry is positioned to address the current and emerging threats and opportunities in both consumer and commercial payments and presented the findings of the survey at the ABA Payments Forum recently held in Washington, D.C. As a result of that survey, we determined that the threats to the banking industry’s dominant role in payments are greater now than ever before. And, importantly, based on the results of the survey, it is clear that many banks of all sizes are not prepared to respond adequately and effectively to these threats to their market positions, customer franchises, and deposit businesses.
This lack of preparedness is most acute among community and regional banks. The reasons are straightforward – limited resources, technical integration issues, and a heavy reliance on third-party core processors to set payments priorities and provide needed capabilities. Yet, these are the banks that are most at risk of losing their customers to larger banks who are investing heavily in new payments services, partnering with Fintech innovators, and leveraging payments-related data to create new value propositions for their consumer and corporate customers. Clearly, given the challenges faced by smaller banks, it is neither reasonable nor possible for them to outspend and out-invest large, national providers. It is not surprising, therefore, that over 90% of survey respondents characterized their strategic approach to payments as either “Wait and See” (54%) or “Fast Followers” (36%). These percentages were even higher for community banks.
The survey responses indicated that most banks view payments as a critical strategic priority. Yet, the vast majority of all banks (87%) do not have a formalized payments strategy and have not included payments issues within their strategic plans. They have not yet assessed fully emerging products and technologies and determined how to focus their limited resources on those that will protect their customer franchises and enhance their competitive positions. This is even more surprising given that 70% of all survey respondents ranked payments as either “very” or “extremely” important for both their consumer and commercial value propositions. Without clear strategic guidelines it will be very difficult for smaller banks to choose among the vast array of new technologies, provide input to their core providers, and concentrate their efforts on those capabilities that have the greatest likelihood of helping them achieve their overall strategic and financial objectives.
While smaller banks face many difficult challenges in creating value-added and competitive payment services, we believe they also have a number of inherent advantages. The most important of these are more streamlined and flexible organizations, faster management decision-making, and the potential to focus investment on proven technologies without chasing a myriad of solutions that may never work. The survey clearly points out that management governance and decision-making around payments opportunities is a key challenge for many banks. This challenge is most significant for larger banks that operate across multiple business lines, numerous management silos, and wide geographic markets, providing smaller banks with potential strategic advantages in terms of market focus, business line integration, and time to market.
The survey covers many additional areas, including risk management, planned investment trends, the role of Fintech partnerships, marketing approaches, and the industry’s view of emerging technologies such as API and Blockchain. It also includes a number of recommendations that we believe banks of all sizes should consider as they evaluate and create their approaches to payments, including:
- Develop a Strategic Payments Plan
- Establish an Enterprise-Level Governance Structure
- Evaluate Open Banking Platforms
- Collaborate with Fintechs
- Invest in Analytics to Support Payments
We believe that the results of this survey provide valuable insights to all banks as they deal with the current and emerging threats and opportunities related to payments and the payment system. A full copy of the survey report is available through our website at (insert link). To help our clients understand more fully the issues and risks uncovered by our research, and to discuss ways to increase preparedness, we have developed a presentation for management teams and boards of directors highlighting our findings and recommendations. We have also developed an action-oriented planning process to help our clients identify payments-related priorities and focus resources and investment consistent with their overall market and business strategies. To schedule a personal presentation for your management team or Board of Directors please contact me at or Mary Beth Sullivan.