Appeared on FT.com, 28 May 2009
Thursday, May 28, 2009
The banking sector is waking up to a new age and many banks are reaching the conclusion that the road to future success lies in going back to basics.
This involves banks returning to their roots, which essentially means payments – indeed The Boston Consulting Group’s report “Weathering the Storm” of March this year says payments account for between a third and a half of most banks’ revenues.
Yet making money out of payments is no easy task. Revenue per transaction is decreasing while costs are increasing, primarily due to rules and regulations.
But one possible solution lies in increasing the number of payments that customers make.
So how can this be achieved?
Technology is at least part of the answer. Investing in innovative technologies aimed at encouraging existing customers to make more payments, more often, is worth consideration.
New payments technologies have emerged, for example contactless and mobile payments, but they could be embraced more widely. For example, Barclaycard’s OnePulse card became the UK’s first integrated travel and payment contactless card enabling purchases of everyday items under £10 and acting as an “Oyster“ travel pass to access the London transport network.
As a result, Barclaycard has been able to attract new customers from the 10m Oyster card holders in London and increase its payment volumes.
Mobile banking and payments services are another area for investment by banks looking to increase transaction volumes. Last year, the European Payments Council agreed to accelerate the deployment of services that enable consumers to pay for goods and services in shops, restaurants and other locations using their mobile phones.
This is in large part due to demand from increasingly technology-savvy consumers keen to have instant access to the full range of banking services from their phone. Forward-looking banks are considering how they can work with other players to iron out the challenges associated with mobile payments, which should also lead to enhanced payment volumes.
In addition to encouraging traditional customers to make more payments, banks are looking at how they can harness technology, such as the mobile phone or pre-paid cards, to target the wealth of currently unbanked consumers around the world.
Pioneered in Zambia, flourishing in Kenya, and recently introduced to parts of southern and west Africa, money transfers using mobile phones and other forms of telephone banking are taking off across the continent.
Helped by the rapid take-up of mobile phones in Africa, mobile banking and mobile payments have seen enormous growth in the region. The number of mobile users in Africa has already exceeded the number of people who have bank accounts. Indeed, more than a quarter of unbanked adults in South Africa already use or have access to a mobile phone.
For those living in more rural areas, the mobile phone infrastructure is accelerating access to financial services that they might not otherwise have enjoyed – which could be a real opportunity for banks.
As banks seek to introduce new technologies to increase revenue, they are also considering how they can use technology to automate previously manual processes in order to reduce costs.
Fraud analysis is one area for review. There are numerous techniques available to make this process more efficient but one gaining in popularity is IP intelligence. Using this technique, the bank identifies the IP address someone is using to log on to a bank account and compares it against known fraudulent addresses, and also against that individual’s usual activity. This can help identify and prevent fraudulent attempts to access a bank account online.
As well as automating back-end functionality, such as fraud analysis, many banks are focusing on creating an environment where customers are comfortable with a much more “automated” relationship with their bank, so that they have the potential to deliver even more significant efficiency savings.
Arguably, banks have not been at the cutting edge of technology adoption in years gone by. While the current downturn may not provide an ideal environment for technology investment, it does in many ways hold the key to many of the banks’ present challenges: driving efficiency savings, encouraging customers to make more payments and regaining customer confidence through better consumer-centric services.
By Jim Woodworth, head of business services, ACI Worldwide (EMEA)