Study: Pressure Intensifies on Banks to Innovate or Lose Competitive Edge (May 5, 2015)
As new payments technology seeks to disrupt the industry status quo, pressure is intensifying for financial institutions to adapt through innovation, or risk losing their existing leadership in the value chain, a new study from ACI Worldwide suggests. And while retailers and billing organizations are eager to collaborate with financial institutions in developing new payments approaches, including contactless and mobile, security concerns and fears that new technology may complicate the payments processes could put a damper on spending needed to innovate, according to the study. ACI, in conjunction with Ovum, surveyed 1,119 executives from financial institutions, retail and billing organizations in November and December 2014 in 25 global markets.
More than half, 56 percent, of survey respondents plan to boost their payments investments over the next 18-24 months, the data suggest. Respondents cited these areas of development as priorities:
- Reducing the number of fee-collectors in the payments value chain (44 percent)
- Providing real-time confirmation of available funds (41 percent)
- Targeting customers with offers and rewards (41 percent)
- Providing mobile payments via smartphone or tablets (39 percent)
Obstacles preventing payments industry participants from investing in infrastructure and innovation include:
- Security concerns (52 percent)
- High cost of maintaining legacy systems (42 percent)
- Customer protection requirements (38 percent)
- Escalating complexity in new payments technology (31 percent)
ACI concludes that financial institutions still hold a competitive advantage in the payments ecosystem versus other types of players, but without aggressive development, it might not last. For example, 66 percent of survey respondents currently look most often to banks to provide real-time clearing and settlement for payments, while 20 percent look to a third-party payment specialist like PayPal for that service, ACI said. But banks’ lead shrinks a bit in respondents’ perceptions of the most capable providers of dedicated mobile payments apps. Less than half, or 46 percent, of respondents said a bank is most capable of providing such an app, while 29 percent pointed to a third-party specialist like PayPal to provide mobile payments via an app.
“Financial institutions’ position as the natural provider of payments won’t last without constant development,” according to the report. “Retailers and billing organizations, meanwhile, will quickly lose out to the competition if their customer experience does not exceed that of their rivals.”