How banks can regain market share by adding value across all payment channels


As banks assess how they can reignite growth and better serve customers this year, they must first look at how changing consumer payment preferences are impacting market dynamics and opportunities.

Until recently, most banks have focused on traditional sources of revenue, including interchange revenue generated from card transactions, account fee revenue, and loan programs. At the same time, they have allowed non-bank players and card networks to dominate the POS environment with elegant payment solutions and alternative payment options such as Buy Now, Pay Later (BNPL), whose payment value was predicted by Insider. Intelligence. will reach $75.6 billion by 2022, with double-digit growth each year to reach $143.44 billion by 2026. In doing so, banks are being replaced by other solutions that get to the point of customer need first, more elegantly or more quick.

According to a McKinsey survey, 69% of US consumers use a digital wallet when shopping online. This mass adoption of digital payments has inspired several of the big banks behind Zelle to consider launching their own digital wallet as another source of revenue and marketing. The move would compete with established services Apple Pay, Paypal and others, however, if successful, big banks could reclaim a piece of the pie that tech companies have captured in recent years.

As these seamless payments continue to find new use cases, banks should look for new ways to get closer to the customer and reassess the value they bring to businesses as other financial services companies follow suit.

The bank revenue model is changing

While existing payment options such as ACH and emerging solutions such as real-time payments do not provide the interchange revenue that card programs provide, the adoption of real-time payments (RTP and/or FedNow) used in the form of payment by bank will help banks overcome declining revenue from debit and credit card interchanges, and these capabilities can be leveraged to bring banks back to the point of need and be a gateway to other value creation.

Let’s look at two ways banks can meet consumers at the point of need to acquire new customers (often at lower cost) and retain existing ones, drive adoption of new services, and ultimately fuel growth. long-term.

Best BNPL: Banks have an opportunity to recapture market share by offering BNPL directly to consumers and generating incremental revenue without major investment in technology or capital. For existing customers, banks have access to rich data internally on customer payment history, but they are also connected to external sources of creditworthiness to inform their lending decisions for non-customers. By looking at a more complete view of each client’s financial picture, financial institutions can make BNPL offerings that allow clients to expand their resources in a way that supports their financial journey rather than increasing debt and risk to the bank or the consumer. Banks also have an advantage over fintech players due to their robust set of processes and operating systems for handling loans, as well as their regulated role in legally accepting customer deposits, which are by far the least expensive way to finance. BNPL loans.

This type of loan allows banks to compete successfully, fueling new and profitable growth and customer retention by supporting, rather than detracting from, financial well-being. Data shows that clients prefer to obtain BNPL loans from their bank, and by offering BNPL loans that are well-matched to each client’s financial profile, banks can help clients build their financial future and qualify for future financial products that help build wealth.

Banking as a Service (BaaS): Banks can work with BaaS platform providers to offer financial services to business customers, end users or employee base. By embedding payments, loans or other services into a business website or app, banks reach the point of need for the end customer and help the business increase customer engagement and loyalty and create new revenue streams.

For example, an airline might add travel and related financial services to a website and add the ability to transact for these services through APIs. This allows consumers to choose and pay for comprehensive services, from travel and medical insurance to car rentals, hotel reservations, tours and more, all in one place.

Consumers could also benefit from a wide variety of payment options, such as a BNPL-like installment plan, a card payment and, now emerging, a real-time “pay by bank” option, i.e. a bank that avoids the rails of card networks. and use The Clearing House or FedNow Futures Rails to enable near-instant payments.

Because banks enable options for all types of payments, they can work with businesses to determine the best application for each type of payment, including when payments actually benefit from real-time or when another payment method may be more beneficial. To continue our travel example, the bank and airline would likely prioritize the ability to pay an insurance claim in real time to a traveler whose luggage needs to be replaced quickly, but could enable traditional ACH for a booking refund on a canceled excursion.

While each payment option holds a different financial opportunity for banks and their business customers, enabling these options drives more business and builds better customer relationships.

As with most facets of our lives today, we can anticipate that the demand for instant and convenient money movement will continue to increase. By leveraging payment innovations to get closer to customers, financial institutions can regain prominence and improve the customer experience for their customers. Enabling a variety of digital banking capabilities, from BaaS and integrated payments to real-time payments, gives businesses access to new revenue streams, operational efficiencies, and the ability to delight their customers.

This year, banks need to get back to the point of need for highly digital ways to create these clear competitive advantages. Those who do will see the greatest success in 2023 and beyond.

Author: Michael Haney Head of Digital Core, Galileo

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