Digital payments volumes have soared overall, partially driven by accelerated consumer migration to digital channels and payments forms. The payments segment is performing well for banking—but not for banks.
Banks have felt the full force of the crisis. Whether it’s the move to remote working, handling unprecedented call volumes from stressed customers, or trying to get funds to businesses as quickly as possible. Globally, nearly 10% of customers say they are likely to switch banks in the next six months, while more than 40% are not sure if they will stay with their bank in the next six months. The quality of overall service becomes the primary factor that drives customers to leave their bank. Hence, it becomes crucial to preserve customer relationships. Ever-stricter capital and liquidity requirements by regulators have reduced banks’ balance sheet leverage. Low-interest rates and low economic growth intensify the pressure. Gartner estimates that banks on average spend roughly 60% of their IT budgets to maintain legacy IT systems vs. just 24% to grow the business and 16% to transform it.
Traditional revenue sources, such as interest margins on current accounts, revolving credit lines, interchange revenues, and cross-border fees, are under pressure in the current environment. Interest rates are at historically low levels globally and are not expected to rebound soon. Credit-card losses are exacerbated by the economic downturn. Legacy financial institutions have been slow to catch up due to complex core infrastructure and lack of agility in their operations.
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The industry’s rapid changes and the increasing investments require banks to rethink their payments operating models. Success for banks will depend on digital investment, the need for customer engagement and smart technology to remain competitive in the market and offer a compelling value proposition to determine their strategic role and provide simple, secure, and seamless digital payments.
This momentum of digitization of the payments ecosystem is likely to persist as the next normal develops. The question now persists regarding the scalability and sustainability of these models and how to do traditional banks stay relevant in the market. To grasp a wider perspective about the new age of banking and how traditional banks can stay relevant in the banking sector, TechCircle organized the third edition of its Pay-IT Conclave 2021 sponsored by Hewlett Packard Enterprise and Intel. The digital conclave was powered by Mint and was held on January 21, 2021, where the keynote speaker, Ms. Praveena Rai, COO of National Payments Corporation of India shares her insights on three pillars of digital banking to encourage growth and relevance for the banking sector in the new age banking system.
Ms. Rai firmly believes in customer-first experience in providing an overall service to go over and above their expectations. The needs of customers are ever-changing which compels traditional banks to provide a connected seamless digital experience from onboarding, documentation, and access. Furthermore, traditional banks need to acknowledge that they now have the opportunity to leverage the new ecosystem that is available as a distribution base to manage channels and maintain customer relationships that can prove to be a major opportunity for them to scale out.
Ms. Praveena Rai adds “there are consumers who get onboarded onto platforms because they like the experience of the platform, the user experience on the platform, the simplicity with which they can operate on that platform, the ease with which they are able to operate the ubiquity of the kind of services and products that the platform gives them. So when you put all of this together, payments itself becomes a customer acquisition model.” She stresses the importance of full-fledged experience by focusing on the core need of the customer which will ultimately act as a mode to retain consumers.
With an ever-evolving digital payments climate, smart middleware integration can act as a framework to enhance delivery and distribution as well as eliminate friction and simplify user journeys. Ms. Rai noted ‘banks will need to move forward in looking at infrastructure that is agile, being able to go to market quickly with the production services they wanted to handle, being rapid in responding to the market.’ To achieve a certain level of scalability and sustainability the model of an open-source, multi-cloud architecture, as well as digital-native applications and platforms, can allow financial institutions to launch new service capabilities.
For more details on this exciting keynote by Ms. Praveena Rai, log on to payit.techcircle.in