Innovating to compete

The need to develop new customer propositions has become more important recently because of the new market entrants that many claim are eroding the traditional bank’s business in the payments space. It is a common topic of conversation at industry conferences, but in reality these new entrants invariably work with banks to deliver final settlement. The far more pressing concern is that these new entrants are talking directly to customers. What’s more, as new players push harder to offer competitive banking services, we can expect legislative demands to be increased and the playing field to be leveled. To ensure innovation, it is important to explore and establish ways of working alongside these new players.

Part of the challenge here is that banks are not often regarded as innovators or leaders of innovation. New entrants find it much easier to adopt these titles, and are able to move with greater agility and come up with unique propositions. Traditional banking houses are still thought of as being the safest environment to move money in, but this level of trust needs to be seen alongside innovation.

Small value cash and card retail payments between consumers are the target, and person-to-person (P2P) payment service providers like PayPal and now Facebook are already strong competitors in this space. However, as already noted, revenues are low for these types of payment.

Remittance services are also popular among a significant consumer cohort, and payment companies are keen to offer services that front-end the traditional banking systems. The key target of international payments – those with high value and strong revenues – are the ones that really need protection. Critically, that will only happen if the banks provide the products and services that customers want to buy.

Thus, banks should not shy away from working with these new players, particularly as they can still take the most important role, that of settlement. Since settlement must be performed in a secure, risk-free and guaranteed manner, traditional banks are still best placed to provide it. Currently, only the banks offer that platform, alongside the legislative constraints of doing business. Banks should provide exemplary settlement services, ensuring that the new players are treated as well as any other customer. In this more diverse marketplace, banks need to ensure that their innovation is directed towards providing a seamless service to all existing and potential customers, regardless of the nature of the contact point.