Understanding the realities of payment data monetisation

The number of banks identifying payments data monetisation as a key strategic priority has doubled in the past two years. The growth of real-time payments (RTP), ISO 20022 migration and open banking regulations have provided the carrot, while thinning margins and intense competition from fintechs have provided the stick. Yet, it is clear that banks’ expectations don’t always match the reality when it comes to payments data monetisation. Time for a reality check.

EXPECTATION: Payments data is easy to monetise

REALITY: Payments data isn’t inherently monetisable

We have all heard the cliché that data is the new oil, but although payments data is increasingly seen as a core strategic asset by banks, it is not easily commodifiable. As Krystal Ritchens, Executive Director, Head of EMEA Payments Industry, Regulatory and Network at J.P. Morgan noted in our recent webinar: “You hear the term payments data monetisation thrown around, but you can’t actually take someone’s data and sell it back to them…and you can’t sell it to a third party.”

Rather, the value of payments data comes from leveraging it to improve operations, products and services. With corporate clients increasingly demanding solutions that make their lives easier, more predictable and fault free, leveraging data to increase operational efficiencies is how banks can unlock new revenue opportunities. Thomas Halpin, Managing Director, Global Head of Payments Product Management, Global Liquidity and Cash Management, HSBC, explains that “there will be an aggregation to the banks providers who do this best […] and simplify the experiences.”

EXPECTATION: Banks need to create new services for corporates

REALITY: It’s all about doing the basics in real-time.  

There is a perception that payments data monetisation equals secret sauce algorithms and raiding campuses for PhD data scientists. And while innovation is undoubtedly important, a recent report examining failed data projects in banks found that the inability to derive value was due to an “infatuation with data science solutions”, where overly-complex approaches did not meet the actual business need.

Put simply, banking doesn’t need to fundamentally change. The gap in expectations, however, is in the speed of services. For example, corporates still want cash balances. The difference is that they expect them in real-time, not at the end of day with intraday forecasting. And they want information to be available to them on a Sunday afternoon, not just Monday to Friday.

Rather than investing resource in moonshot data projects (which may also serve to unnerve customers and regulators as global data privacy laws tighten up), attention should be focused on executing the basics really well. This means banks doing what they are already doing, only in real-time, 24/7 and cheaper. Standardisation in the form of ISO 20022 is foundational for this process.

EXPECTATION: Corporates will pay for data services

REALITY: Many services have already become table stakes, but opportunities remain.

Demand for value-added services and willingness to pay for them are not the same thing. Previously, corporates were less willing to try third party-providers so accepted deficiencies in the bank offering. However, fintechs are changing this attitude. Customer retention is now much harder for banks, with 69% of corporates indicating they would switch providers for a better service.

With this increased competition, services that have been earmarked as revenue generators have become ‘table stakes’ so should actually be seen as churn preventers. For example, corporates do not expect to pay for services such as virtual accounts and ISO 20022 compliance support and will walk to access them.

But there are still opportunities. The demand for real-time is reflected by the fact that 84% of corporates are willing to pay for real-time cash balances, and 70% would pay for a single real-time balance dashboard across multiple bank partners. There is also a clear need for enhanced security and fraud prevention, with 74% of corporates willing to pay for the experience and technical know-how that banks can offer.

EXPECTATION: Revenue growth through offsets investment in payments data monetisation

REALITY: Banks need to dramatically reduce costs as well

The fact that many services have already become table stakes is wake-up call for banks who imagine there is a lot of easy money to be made through data.

Banks must be realistic about the revenue opportunities. This requires a clear vision to identify where banks want to compete across the value-chain (and where they don’t!) and the business rationale for doing so. It is then far easier to align technology roadmaps with the business objectives, and ensure capabilities match the strategy.

However, banks should be under no illusions that they also have to dramatically lower the cost of delivering standardised, accurate and complete payments data in real-time. Cloud technologies will be integral to this process, and deliver the flexibility, agility and scalability that outdated legacy infrastructure simply cannot provide. And given that most of those back-office processes firmly live in the commoditised part of the value chain we are talking about factors, not percentages.  

EXPECTATION: Payments data monetisation is a stand-alone product initiative

REALITY: Data monetisation is a strategy, detailing a clear partnership approach

The real long-term objective for payments data monetisation initiatives should be to move the relationship with corporate clients away from banking being about consumption of products, towards acting as true partners for customers. As Kieran Hines, Senior Analyst at Celent explains: “The opportunity for banks in payments data monetisation is in adding value in a number of different ways.”

Shifting to a partnership approach requires flexibility and innovation from a business model perspective. By embracing collaboration with fintechs and specialist third-party providers, banks can focus on their core competencies while tapping innovations from across the payments ecosystem to enable the delivery of a range of best-in-class services through a single provider.

Back to basics

In the Netherlands we have the expression: The course ‘Dealing with disappointment’ has been cancelled again.

You don’t need a rulebook (or course) when expectations do not match reality. You reset, go back to basics and do what you’re good at. Which for banks, means offering trust, advice and standardised information. Just in real time.