In a rapidly changing payments environment, new players entering the market threaten the bank account’s hold at the center of payments. However, banks have a number of strengths as well and are well-positioned to not only survive but thrive in the rapidly changing payments landscape, argues a new white paper from the NACHA Global Payments Forum and payments consultancy firm Lipis & Lipis.
The white paper, "What Will the Role of Bank Accounts Be as Payments Evolve?” examines emerging payments trends and banks' role, or potential roles, in this space. Banks need to understand the impact that trends such as payments convergence, alternative accounts, mobile payments, automated account switching, and real-time payments have on customer expectation and will need to leverage these trends to keep the bank account at the heart of the payments industry, the paper notes.
"I think banks have a bit of trepidation but also see an opportunity," says Samantha Carrier, Senior Director of Advanced Payments Solutions & International Programs at NACHA, who directed the development of the white paper. "There's a sense of concern that non-banks are better positioned for payments innovation --they're not dealing with legacy systems, for example -- but at the same time, banks are aware that they have an opportunity to capitalize on the consumer trust and security they can offer in the payments space."
Perhaps most importantly, banks must forge relationships with younger generations and the unbanked populations, or risk losing these potential account holders to non-traditional payments providers like PayPal or telecom companies that provide mobile money services, notes Carrier. Developing mobile payments services, which some banks have begun to do, is the key to accomplishing this, she adds.
"I think in the conversations we have with our members, banks are focused on payments innovation and having competitive offerings for their customers," Carrier says. "It's important they stay competitive in emerging payments areas, which are dominated by non-bank players."
Another key, notes Carrier, is lowering barriers to bank account access so banks can better reach the younger and under-served demographics. While reaching these potentially low-income consumers may strain resources, as payment behavior changes, and traditional bank customers give way to a younger generation, the existing relationship between a customer and its bank will help secure that banks are relevant, the paper posits, and banks will need to leverage that relationship and find new ways of doing business with them.
Of course, the regulatory scrutiny banks face compared with non-bank competitors also can't be ignored. Leo Lipis, founder of Lipis & Lipis, notes that "regulatory compliance is a large burden, and one not applied equally to these young startup payment solutions."
Considering regulatory compliance eats up a large amount of a bank's IT budget, Lipis says that "Over time, banks just need to fight for the fact that these regulations need to be applied to players of all kinds, not just entities of a certain legal type but to all providers of certain financial services."