Over the last 20 years we’ve seen power, gas, water and phone, mobile and internet suppliers be reduced to nothing other than commodities.
Brand loyalty has been eroded away and the result is companies and consumers with little loyalty chasing the lowest price. Payments will be no exception to this trend.
For those of us not in the industry the average consumer often has little idea that companies have to pay a bank as well as visa/mastercard/amex a fee to be able to accept card payments.
This creates friction when companies choose to oncharge these fees to customers. We’ve al probably experienced a company charging 2-3% to be able to use your Amex card.
With Fintechs constantly disrupting the banking infrastructure and market every day, banks are struggling to keep up with their customers needs.
New technology, simpler integrations, complex payment workflows and global selling have all seen banks do one of two things; drop the ass out of there pricing or partner with these fintechs.
Globally, banks are worried. They make their money from deposits and transaction accounts but they are seeing fintechs disrupt in many areas that are starting to impact on how funds are settled or bypassing using traditional bank accounts altogether, like leaving funds in digital wallets.
Why haven’t banks innovated?
Much like the services and telcos in the examples above, without innovation, their only option is a race to the bottom. Making merchant services free, along with other bank fees, to entice customers based on price to keep their money in traditional bank accounts providing benefits to the bank from a funding and liquidity perspective.
This strategy can only last for so long before fintechs begin to capitalise on the funds they have stored with them, potentially becoming banks themselves to offer lending, transactional accounts and offline ways to access their funds.
This has already happened with Square, WeChat and Alipay introducing traditional banking services after ‘wow’ing’ customers with more innovative solutions, digital wallets and simpler payment integrations that solve the problems of SMB’s.
They’ve created genuinely happy customers and are now capitalising on that attention by offering new, more profitable offerings. Likely because they too, know that banks will soon begin their race to the bottom.
Even Amazon has joined this change by offering a traditional Visa card linked to a customers digital wallet, which keeps their customers in their ecosystem, but allows them to still transact offline in traditional retail stores.
How can banks compete?
It’s not all doom and gloom. I believe that payments should be free and welcome the onslaught and competition facing banks and fintechs.
It’s needed to truly transform an archaic infrastructure that the banks have relied upon for too long and kick them into becoming more customer focused once again.
Partnering with fintechs that both understand the problem and also know how to work with banks and their processes is the only way banks can innovate in this environment.
Not all fintechs are the enemy
Not every fintech has plans to ‘destroy’ banks. A lot of fintechs can help banks compete by being fast, agile and quick to market at a cost substantially cheaper than a bank will ever be able to undertake a major project.
They will be able to provide value added services, creating new revenue streams, like omni-channel payments, reporting, cashflow lending based on combined transactional data and fraud protection.
Irrespective of innovation or partnerships, in 5 years payments as its charged today will be free!
Free for merchants and free for consumers. The fees will be earned from value added services that help create extraordinary, frictionless payments experiences for consumers and businesses.
June 4, 2018