Mobile Wallet Comparision by Mckinsey

Topmost Challenges in Payments

Greater payments visibility 

The siloed systems that handle multiple payment types deprive banks of the holistic visibility they want across the full environment.

Many institutions lack reporting and analytics that would enable them to spot trends, better manage liquidity and risk, and pinpoint anomalies amid vast transaction volumes. Banks face new payments challenges in a fast-changing industry Poor visibility is not just an internal liability.

It also means that banks are hard-pressed to satisfy customer demand for real-time transparency into payment status, particularly across a wide range of payment types, and risk a competitive disadvantage that can drive churn and revenue loss to more advanced rivals.

Increased operational efficiency

Banks pay a high price in operational inefficiencies in managing fragmented payments environments. Duplication of data and effort across systems is not uncommon, driving up administrative costs and introducing the risk of discrepancies in information.

The IT resource requirements to maintain and evolve a sprawling payments infrastructure are also high. Dozens of technical interfaces, transactions, database schema message types, and standards such as ISO 20022, SWIFT and ACH are costly and time consuming to maintain update.

Many custom integrations developed over many years are critical to operational integrity, yet are often poorly documented and difficult to manage when the individuals who developed them move to another role or company.

Improved compliance and risk management 

The limited visibility in siloed legacy payments systems also compromises a bank’s ability to maintain regulatory compliance and to effectively manage risk. Financial institutions devote substantial resources to document information to comply with anti-money laundering (AML), FATCA, Dodd-Frank, SEC, Basel III and a host of other ever-changing requirements.

Payments infrastructure consolidation can significantly ease the compliance burden and improve confidence in regulatory reporting. Similarly, internal risk management is complicated by the sheer volume and speed of payments data across heterogeneous systems.

As the financial services world evolves towards real-time or faster payments processing, the importance of greater transparency to track and assess risk is magnified.

Readiness for real-time payments 

In the U.S. and other nations, Banking needs to prepare for the adoption of real-time payments.
The U.S. is well behind other nations in payments speed, including the U.K., Japan and Singapore.

Yet driven by business and consumer expectations for immediacy and strongly advocated
by the U.S. Federal Reserve, NACHA and the Clearing House, real-time payments in the U.S. and elsewhere are becoming more a question of when, not if.

Banks in the U.S. and other nations are understandably apprehensive about the transition.
The consultancy McKinsey estimates the cost of supporting real-time payments in the U.S. is between $4 billion and $7 billion, including the cost of adapting legacy systems and introducing new technology to facilitate the change.

As it is, payments infrastructure generally lacks the flexibility to accommodate such a large-scale change, and makes it difficult for banks to take advantage of opportunities to deliver innovative products and services oriented around real-time payments.

Blockchain : OPEN LEDGER FRAMEWORK

Linux Foundation, has started a OPEN LEDGER FRAMEWORK project to support Blockchain with enterprise grade functionalities.

Blockchain has the potential to transform how business is done, providing a new streamlined way to create an official record of transactions without going through a central point of control. 

The possible uses can vary from verifying payments and contracts to validating stock trades and marriage licenses.

Blockchain got its start several years ago as a key ingredient of Bitcoin, the crypto currency, but, it turns out, the technology can make a difference whenever valuable assets are transferred from one party to another.

Why does most of the Banks/FIs need Transformation in their payment systems?

7 habits of highly successful digital bank

The 7 habits of highly successful digital bank are:

1. Be customer centric
2. Eliminate silos
3. Be a challenger
4. Embrace cooperation and coopetition
5. Work with Fintech startups (or buy them)
6. Build an open IT architecture
7. Strive for a faster innovation planning cycle

1. Be Customer Centric

This may sound obvious but: a) it is not always true for a traditional incumbent; b) it carries along some key components that are often under evaluated. Being customer centric means that you:

– Change your mindset. You need to build a digital, customer-oriented culture inside the bank. Not just profits, but profits as a result of a successfully differentiated and long term sustainable customer strategy. Marketing is not just about spending, but should relate back to its original ‘go-to-market’ meaning.

Being ‘digital’ is not just something trending, but is going to be forever and a core part of the organization. Implementations should not be a second level job execution, but must be smart, agile, smooth and consumer-oriented and designed. Start thinking about the right organization structure and interactions, with the right people to digitally lead the change with customers in mind. Find the right skills.

– Reengineer your business to consumer processes. Start with the end in mind, using overall customer experience you want to achieve as opposed to starting from a legal and regulatory constraint perspective. This may sound impossible in an over-regulated industry, but if someone tells you “this is impossible to do,” you can always find a way.

In addition, you should inject a “Yes we can” culture. Engage your legal, compliance and risk managers upfront in the process and product design, making them work with others on the team toward the solution. They will become part of the solution instead of a hurdle.

– Win customer preference. Do not start with market share or business objectives. Start with how to get the customer preference you need in order to achieve your business objectives, and make the objectives compatible. Competition will only become more intense going forward, so don’t forget your brand image and values.

Trust is key in financial services, and trust is determined first of all by reputation (brand image and customer experience) that is becoming more and more digitized. Improving your reputation and satisfaction scores will bring you additional clients at lower costs. It is not enough to say that your bank is ‘solid’ or ‘local’, or ‘global’. You need to work on your brand strategy to attract customers. This has to be part of your competitive advantage.

2. Eliminate Silos

This is organizationally key for a digital bank. This is not just important from the legal or risk perspective. This must be extended to the whole organization. Some keys to eliminating silos:

– Eliminate staff and business departments. From the most obscure back office department to state of the art front office deployment, it is important to deploy agile across functional teams. Cross fertilization and mutual understanding of the agile concept will help to achieve your business goals.

– Build objectives and incentives from a multichannel customer perspective. Find a way to align objectives across channels and neutralize organizationally driven internal competition. Break the conflicts.

– Make IT the center of your strategy. Put your COO and CIO at the heart of your business, working alongside finance, marketing, etc. Since IT organizations are usually built in silos, break these silos – making them work agile – in teams. Make sure innovation teams are not logistically miles away from who runs the daily business.

3. Be a Challenger

Challenge your own business model and your traditional way of working. Firms that failed to challenge their incumbent businesses include Kodak, Blockbuster, Nokia, Blackberry and many others. Incumbent managers and organizations tend to defend their own profit sources, and their well-proven (in the past) business models.

Financial service barriers to entry are falling and newcomers are already making inroads, encroaching on traditional lines of business. While the size of newcomers may look small and banking may still feel safe, you need a long term competitive perspective. This is a business revolution not just a technological evolution.

It is time to start thinking about ways to evolve your business model … speeding up innovation and behaving like a new entrants. If you were a FinTech how would you behave? What business model would you build to destroy an incumbent? How would you attack the most profitable sources of your business. Use a challenger mindset if you want to survive in the long term.

4. Embrace Cooperation and Coopetition

It is time for a complete rethinking of the banking business model, IT architecture and systems, since digital banks will mainly serve as IT companies dealing with customers’ money in the future. Banks will need to be much more open and ready culturally and infrastructurally to share business, clients platforms and solutions with external partners.

The time where banks could run their business in isolation, with very little sharing of cross-industry platforms is over. Banking is under a massive attack from internet giants and legacy-free Fintech startups, creating the need for systematic cross-industry alternative digital solutions.

One very good example of how the banking future should be reshaped is given by the UK-based Paym P2P payment network. Forced by the Payments Council, it has reached a coverage of 9 out of 10 current accounts and processed nearly £44 million in less than one year. As a result, banks and building societies in the UK have been able to work together to develop a new fast payment solution that will make the life harder for new entrants.

This is the new way forward. Building new digital common platforms, with competition based on customer preferences around branding, customer experience, value propositions and add-on value propositions. This is what is happening in the auto industry and will eventually happen in banking.

5. Work with Fintech Start-Ups

Incumbent banking organizations need to streamline their operations and narrow business and product development focus. They can’t be all things for all people, but instead, need to cut oversized operating and distribution costs.

There will continue to be smarter and faster players in a better position to deliver state of the art vertical solutions and user experiences … eating away at the edges of incumbent organizations. With regard Fintech start-ups, it may be better to partner than to compete. In other words, part of the product/service development of a successful digital bank should be outsourced.

As with many of the 7 habits, this is a complete change of mindset. It is not just about setting up an incubator or even a $100m VC fund. It is about integrating third party customer solutions into your offering. Or, if you want and can, it is about buying them entirely and having their solution as a key part of your own business proposition. An example of such a partnership in the U.S. and overseas is with Apple Pay.

6. Build An Open IT Architecture

If you want to build your competitiveness on agile web-scale innovation and open up your offering to partners and third parties, you need to completely rethink your IT architecture. Openness is the key word – you need an open programmable, agile architecture.

You need an API-centric platform capable to deliver:

• Consistent omnichannel experiences
• Dialogue in a plug and play scalable manner with third parties software solutions
• Hosting for new outsourced marketplaces
• A new digital CRM that will enable you to interact and learn in real time with your customers

7. Strive For a Faster Innovation Planning Cycle

The seven habits book ends with a discussion around the capacity to continuously improve, balancing and renewing resources for long-term well being. Successful banks in the digital word need to do the same … striving for continuous improvement and renewal. In order to do so, organizations need to get much much faster in the way they learn, act and react.

Many recent presentations by large banks show their new innovation labs, teams and work-plans. While impressive few are producing game changing innovations … quickly. The standard approach to innovation continues to include internal debates, committees, small pilots, more committees and so on.

Using traditional new product development and approval processes is a non-starter in the new digital world. The innovation planning cycle is far too slow for today’s high speed digital banking environment.

Today’s big digital players in other industries test and learn as part of an iterative process. They are not afraid of renewal and failure in doing so. They are agile and experiment in real time with their own customer base. The decision making process is much faster and the roll-out is fast … very fast.

There is one fantastic sentence from Jacques Séguéla, the famous advertising man behind François Mitterrand’s successful electoral campaign in 1981. In one of his books, when talking about market research, Seguela wrote: “less tests, more testicles”

Payments Trends and Buzzwords of 2016

3 topics/trends rose to the top:

 

•  Mobile wallets
•  Pay trend Real time payment initiatives in the US
•  US’s long awaited toe in the water with EMV or as so many wrongly call it today, Chip & Pin. 

 Buzzwords of 2016

 Wearables – and I am not talking about fitbits and Apple Watches. Wearables are going to have a new family member join the fray, Virtual Reality headsets. Samsung made a move to bring Oculus Rift to the masses with Samsung Gear VR. In a replay of everything that Samsung and Android have gotten to market with first, VR could be the one that they keep attention and market share away from Apple, only 2016 and beyond will tell.

Biometrics – we saw biometrics slowly and discreetly enter the payments arena with Apple’s Touch ID or Samsung’s Fingerprint Scanner. Whether to unlock your bank’s mobile application or pay for goods at the POS, fingerprint scanning was the first step into using biometrics to authenticate a user. Look for facial recognition to be the next big piece, say it with me… Pay by selfie!

BankingAPIs – with PSD2 around the corner (and across the pond), the fight for opening up banking APIs to third parties will come home to roost; you saw the initial battle lines drawn this past week from both Chase and Bank of America (with likely more to follow) in terms of dealing with account aggregation sites and sharing customer data. I think this is going to be a hot topic as the year kicks off and likely stay at a rolling boil throughout the year