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But payments also contribute to all-important relationships. Here are nine factors to consider for your payments strategy.
It’s not news that revenue from payments is at risk. According to Accenture Research, by 2025, nearly 15% of retail payments revenue will be at risk from card displacement by real-time payments, competition from non-banks and digital disruptors, and pricing compression.
But it’s not just the revenue that is being lost. And it’s not just the behind-the-scenes ACH processing that financial institutions must still perform. Payments also are important—possibly most important—because of the opportunities to deepen relationships directly through transaction interfaces and indirectly through the use of payments data to personalize interactions with customers.
A recent JD Power study showed that satisfaction is significantly higher among customers who have linked their bank accounts to digital payment services (e.g., Zelle, Apple Pay, PayPal, Venmo) than among those who have not. Among P2P (person-to-person) payment providers, direct integration with Zelle generates the highest boost in bank customer satisfaction. Perhaps this is because in this age of automated deposits and payments, banking fades into the background except when paying a friend or making a purchase.
These realities call for strategic decisions about how payments will fit into your business model in the years to come. These decisions are highly dependent on your unique target markets and their behaviors. Here are nine things to consider as you reach for clarity on your payments strategy:
- Are you OK with being the back-end processor as your customers direct deposit their paychecks with you and link their accounts to Venmo, PayPal, and cash app? If not, what strategies could be effective in combating this?
- Can you identify alternative ways to develop relationships if customers consider the institution an invisible processor?
- How do members in your target market think of banking, and how are they using other payments providers? What can you glean from your data? Do they use PayPal as their main banking relationship? Is Venmo only used to split the occasional dinner with a friend?
- What is the reason to try to compete in the payments area? It can be expensive. Are the relationships and revenue worth it?
- How will you make up the lost revenue if current trends continue?
- People want easy, fast and free services. Can you offer competitive services that truly meet expectations? A sub-par service can create more reputation risk than not offering the service at all.
- Is your institution trying to be the primary financial institution? If so, what does that mean in today’s world? What does it mean for payments?
- Technologies and the usage of them can change rapidly as one method is abandoned for the next great thing. Are you prepared to re-think your payments strategy if the technologies you’re invested in fall out of favor?
- How do digital wallets fit into your strategy and are you incentivizing customers to link your cards? Would you consider incentivizing customers to link your cards to capture that small slice of interchange that happens when balances are reloaded in apps such as Starbucks? Would you create cards with special features for these purposes?
The payments question is worth giving significant strategic thought. There is much more at stake than a shrinking revenue stream. Thinking about this in a cohesive way, from a customer experience perspective, and what it could look like in the long term includes weighing what it could bring in terms of revenue and loyalty as well as what it could cost. The consumer behavior changes are real and happening now. There’s no better time to develop a strategy around how payments will fit into your business model.
c. myers helps financial institutions take control of their future by linking strategy, desired financial performance, and consistent execution with the right talent. Their experience and thought leadership allows them to work as a strategic collaborator and help uncover opportunities that result in continuous business model optimization. They have the experience of working with over 600 financial institutions, including 50% of those over $1 billion in assets and about 25% over $100 million. c. myers helps credit unions think to differentiate and drive better decisions through strategic planning & business model optimization, strategic solutions and implementation, strategic leadership development, real-time ALM and financial planning, education, and thought leadership.
