Internal and external forces are driving most financial services providers to become more digital. In the Front Office, mobile and internet access and financial planning portals are edging aside branch visits and live conversations. Onboarding and credit approval are becoming more automated in the Middle Office. And IT systems in the Back Office are migrating from batch processing to cloud services. These transformations typically take place overlaid on traditional business practices.
The area of financial services focused on payments is already highly digital, spurred by recent entrants that have from their start been created in the digital world. We can observe how these newer companies are operating and in what way consumers are adopting their services. This also allows us to see what traditional payment players are doing to respond, providing us early insight into how a digital-centric world looks in financial services.
Several major factors motivate the digitization of financial services:
All financial services businesses will feel and respond at varying speeds to this change. Newer payment companies meanwhile since inception have developed corporate cultures that grab opportunities arising from going digital.
Computop, for example, is a payment service provider operating globally and whose growth has tracked the increasing popularity of eCommerce. eCommerce is, by definition, a digital service so payment gateways extend that digital interaction as far as possible into the customer’s world. Yet Computop still must offer interfaces that adapt to notable regional differences worldwide. The company’s Head of International Business André Malinowski observes, “The trend we see in China or in the US is mobile payments becoming more and more relevant. Social media apps are posed to overtake players tied to a specific platform like Apple Pay and Samsung Pay. China’s WeChat Pay is particularly strong, while it got its start as a popular social media platform. But in Germany for example cash has been king over cards, so mobile payment evolution there may skip over cards.” It is evident that even in the parts of Computop’s services coming closest to traditional payments like cash, future development will build on digital infrastructure forming the foundation of the company.
As a company and user of financial services itself becomes digital, it will inevitably persuade its service providers to play along. Businesses with an eCommerce component—even if not yet most their revenues—increasingly find themselves adopting enterprise-level software platforms that extend to end customer payments. Businesses themselves often become the focal point for coordinating logistics and compensation to suppliers in the ‘gig economy’, be they small storefronts (Etsy), transportation providers (Uber), furnishers of overnight accommodation (Airbnb) or delivery services (Postmates). The fintech company Zipmark offers payment technology services to merchant acquiring banks and payment services companies that equips them to handle complex payments, mobile and eCommerce through modern APIs and software modules. Zipmark’s CEO Jay Bhattacharya comments in describing his company, “Our services target complex payments via merchant-acquiring banks and payment processors serving independent software vendors (ISVs). ISVs provide industry specific software with fully integrated payments, reducing friction from merchant boarding to checkout. This is the part of the payments industry whose revenues deliver the greatest portion of incremental flows to payment processing.” By specializing in the areas of payment most dependent on digital processes, Zipmark not only accelerates the adoption of electronic payments in traditional institutions but also reinforces its internal best practices as a digital financial services company.
The fast-moving nature of the digital payments world and its ability to seed new types of customer interaction have not gone unnoticed by banks and other legacy institutions. These organizations have rarely been instigators of new customer trends nor or they always known for creating world-class digital experiences. However, the wide range of payment-related interactions possible presents several starting points to become more digital. Banks often can leverage a strategic advantage of complying with know-your-customer (KYC) and anti-money-laundering (AML) laws and having relatively good relationships with regulators. This leaves them well-positioned to become a solid, back-end financial services partner. Indeed, global players such as BBVA, Capital One and HSBC have already launched Open API initiatives. In Europe, the Payment Services Directive (PSD2) will anchor these trends in legislation. Bank-centric infrastructure supports one of the core brand values of popular, consumer-facing payments services such as Interac in Canada, PingIt in the UK, iDEAL in the Netherlands and Swish in Sweden. In addition, local examples of Sofort in Germany and global ones such as PayPal owe some of their success to their links to traditional banking interoperability.
In addition to marking the overall rise of digital in financial services, the payments developments described here are made possible by digital-centric operations and companies. Digital influences how customers act and how service providers respond and operate. To understand how the 100%-digital financial services organization of the near future meets the market, look no further than payments providers now.