A digital payments strategy can offer guidance on where to start and what’s right for your community bank amid an avalanche of emerging payments technology.
By Colleen Morrison
Emerging technologies—from real-time payments and blockchain to artificial intelligence—are already disrupting the status quo, and the payments market continues to evolve at an alarming rate. In the U.S. alone, fintech deals in 2018 surpassed previous records, with 659 investments worth $11.89 billion.
The constant churn of industry change emphasizes the importance of community banks establishing a payments strategy. This plan will serve as a steadfast guide amid the deluge of new technology offerings. Having a payments strategy also allows a bank to discern which offerings best meet the institution’s needs.
“Emerging technologies are the tools that support and align with your plan,” says Tina Giorgio, president and CEO of ICBA Bancard. “If you don’t have a plan, how will you know which technologies to pursue?”
As community banks explore emerging financial solutions, they should start by evaluating the expectations of their audience—both current and future customers.
“We’re always asking the question, ‘What can we do for our customers to make it easier for them to do business with us and the world?’” says Chris Doyle, president and CEO of $1.1 billion-asset Texas First Bank in Texas City, Texas. “But what about those customers you don’t have? You need to survey the customers you’re trying to gain as well.”
investments worth $11.89 billion were made in fintech deals in 2018
And in today’s world of instant gratification, customer expectations are on the rise. Personalized service has become increasingly pivotal for banks, and a CB Insights report suggests that by 2020, customer experience will overtake product and price as the key brand differentiator.
The fact that community banks thrive in relationship banking makes them poised to strategically address customer payment needs. Yet, it’s diving into data that will unveil opportunities for customization. While daily customer interactions offer insights, backing up those anecdotal experiences with data will bolster the internal case for a new payments solution.
“Transaction data can be extremely helpful in knowing what technologies to take to market,” Giorgio says. “By determining where and how your customers transact, you can determine if solutions like faster payments and p2p are important to your customers.”
Culling transaction data in and of itself may be an opportunity to leverage new payments technologies in the form of AI and machine learning. These solutions offer internal-facing ways to enhance the customer experience. For example, if a customer has begun purchasing diapers and baby food, there may be an opportunity to offer a savings account for their new addition.
Making the business decision
Beyond the technology, there are business considerations like cost that factor into a go/no-go product decision. To that point, a bank’s payments strategy should incorporate guardrails around ROI. In most cases, a payments product may function as a requirement of industry evolution and will not directly produce revenue. However, looking at the full picture, strengthening the customer relationship may be worth the investment.
For example, research from the Temkin Group found that a modest improvement in customer experience for a $1 billion company could result in a gain of $775 million over three years. “In these times, because technology is so advanced, we need help in making these decisions,” Doyle says. “If you don’t have the expertise in the bank, you need to go outside to understand the market.”
While every bank is different in how it approaches and implements new technologies, a payments strategy will guide the decision. Ultimately, that strategy offers the foundational point to navigate today’s evolving market.
How Fairfield County Bank’s payments strategy drove its p2p decision
With the U.S. p2p market estimated to be upwards of $1.2 trillion, community banks’ payments strategies should offer solutions to capitalize on that opportunity.
Take $1.5 billion-asset Fairfield County Bank in Ridgefield, Conn. Two core principles comprise a key part of its payments strategy:
- The bank will provide the same level of service that its customers would expect from the nation’s largest banks
- Ubiquity is key to any payments product offering. When the community bank evaluated p2p solutions through that filter, it concluded Zelle was the most viable solution.
“P2p is probably one of the last truly unsolved portions of the payments marketplace,” says Stephen Wooters, executive vice president of marketing, digital banking and payments for Fairfield County Bank. “For payments solutions to work, it takes a broader market ubiquity. Zelle is the appropriate answer [for us].”
Fairfield County Bank plans to go live with Zelle in the third quarter of 2019.
Colleen Morrison is a writer in Virginia.