Building an Enhanced Customer Experience in the Era of Digital Payments

While the concept of payments has been part of society for centuries, the industry is making significant advances and continues to change in the digital era. With this transformation in mind, and to avoid falling behind, banks must quickly adapt to meet the everchanging demands of their customers.

The payments industry fundamentally revolves around the exchange of goods and services, placing the customer front and center of the entire process. Quite simply, evolving customer expectations are putting immense pressure on banks to redefine their value propositions while modernizing aging systems, infrastructure, and processes.

The banking industry is facing significant change with providers of goods and services embedding payments directly into their business model, leveraging Banking as a Service (BaaS) to achieve this. However, banks hold a key advantage - their unique regulatory permissions and established technological capabilities. Banks can use these advantages and in turn provide BaaS solutions to businesses wanting to break into this space. This is now key for banks as they look to remain competitive and grow beyond their own distribution channels and address a broader set of customers’ requirements for fast and convenient integrated payment platforms.

In doing so, banks will need to carefully evaluate their systems and the partners they work with to ensure the right fit. Once banks establish a clear BaaS strategy, it will leverage their resources, allowing them to focus more closely on changing customer demands in many areas, ultimately leading to new revenue streams.

While BaaS solutions may be today’s hot topic, it is important that banks embrace another global phenomenon — the rise of real-time payments. In many countries real-time payments are already in place, and they continue to be implemented across the globe as governments continue their quest to make their payment systems more efficient, seamless, and ubiquitous.

Despite this inevitable shift, the near-term business case for real-time payments can be challenging for banks to articulate, especially since adoption requires a greater embrace of digital infrastructure. However, we all know the change is coming and will be non-negotiable, therefore banks must find ways to leverage instant payments and new messaging capabilities to create value-added services that their customers are willing to pay for.

Additionally, real-time payments were initially aimed at consumer markets, but now businesses are increasingly leveraging this service to improve their liquidity and risk management. With the customer experience in mind, banks can embed the payment experience into transactions their customers are doing and can reduce or eliminate the need for costly intermediaries or liquidity reserves, which were traditionally necessary to mitigate the risk of completion of a transaction.

With both B2B and B2C opportunities, banks have a profitable path for inclusion of real-time payments into their suite of services. To achieve this growth, financial institutions need a payments infrastructure that is nimble, scalable, and agile enough to meet emerging customer demands. Without it, an enhanced customer experience will be difficult to achieve.

The conversation around the new era of digital payments would not be complete without bringing digital currencies and their processing systems into the discussion, as they will inevitably become part of the payments ecosystem over time. Many banks are skeptical, and for good reason, but the industry must keep a close watch on emerging trends around digital currencies.

One reason? In this world, where the customer is king and enhanced customer experiences across industries offer both optionality and individuality, providing the payment types that customers are looking for is important. If a new generation of customers expects cryptocurrencies and stablecoins to be available in their digital wallets, banks must be prepared with a solution to meet this need or risk their customers going elsewhere to have this need met.

Discussing why banks must adapt their payments strategy is in many ways easier than addressing the how, but one of the answers is clear — embracing cloud technology helps banks avoid falling behind. The cloud has been widely adopted across various industries as the business community worldwide works to quickly modernize. However, some banks have been slow to make this same move.

This trend is changing, and many more banks are migrating at least some of their payments systems onto the cloud as the benefits begin to outweigh the perceived risks. While financial institutions historically viewed security as an obstacle to cloud adoption, many now see data, IT protection, and ease of deployment as some of the prime reasons for embracing the cloud.

Lastly, today’s consumers are much more mindful of data protection and the need to approve use of their data. By creating a more efficient system on the backend and an easy, secure way for data use to be permissioned, there can be benefits for the customer and their bank. With more useful data and the necessary permissions to use the data for defined use cases, banks can now spend more time understanding their customers, enriching their services, and innovating for a better customer experience overall.

As the payments ecosystem continues to evolve, it is important that banks embrace BaaS, real-time payments, and digital currencies with the right technology behind them. So much has changed in the payments industry over the last few years. While it is an exciting time of evolution in the industry, it is critical to embrace this change now so that the customer experience that drives much of the need for change is met.

About the Author:
Barry Rodrigues is Executive Vice President, Payments Business Unit, at Finastra