The Shift in Payments Transformation: Customer Demands for Real-Time Homogenous Payments Lead to Service Enablement and Unlocks Greater Value

I was delighted for the opportunity to speak and moderate a session on back-office payments transformation at the recent BAI Payments Connect conference on March 2, 2015 in Phoenix.  I’d like to share some of the perspectives put forward by my panelists, Rick Kuhn and Jon Manly from First Niagara, and Valerie Hoffman from Silicon Valley Bank.

Transformation drivers have shifted over the past 20 years from efficiency to customer demand for consistent view of payments.  All the payment types – checks, debit, prepaid, etc. – the customer doesn’t know or care but expects the same processing for each.  This expectation drives faster processing.  This homogenization of payments unlocks new potentials for bigger add-on services we hadn’t dared to dream of before, including same-day settlement and consolidated reporting.

So, customer centricity, not so much drive for efficiency, is key to transformation, forgetting how banks are “supposed” to work and reimagining how banks must work to meet customer expectations.  For one thing, customers have been conditioned to expect everything in real time – information, bill payments, etc.  Sometimes customers are willing to pay a little extra for immediate payments.  Customers are looking for frictionless transactions.  This turns up the heat for banks to make dramatic rather than incremental changes.  But, the customer focus also makes the business case for transformation much, much easier to construct, vs. the case based purely on efficiency improment.

Another change from the last 20 years is the transformation to services enablement.  Certain processing elements, like “on-us edits,” OFAC checking, or “stop payments” can be accomplished outside the core payment processing service and set up as a shared service across all payment types and channels.  The more shared services a bank can leverage, the more the core processing systems are “impoverished” or starved, to eventually disappear into the shared services fabric.

Finally, there has been lack of a sense of urgency for this transformation  However, wxpect real-time aka faster payments and disruptive competitive to be the tipping point for payments transformation in the U.S.