Every year, another large group of wide-eyed and tech-friendly youths go out and open bank accounts. These young folks have never known an offline world and can’t remember life without the iPhone. To them, paying in a cheque is like writing an IOU in italics on parchment with a quill.
It’s one of several reasons why banks are looking to upgrade the way they let customers pay for the things they want. First credit and debit cards reduced the need for cash and now smartphone apps are reducing the need for plastic.
“Each year, ‘Gen Y’ [Generation Y born between the early-1980s and early-2000s] comprises a larger proportion of banking customers,” says Patricia Hines, a director at technology company MuleSoft.
“This tech-savvy segment expects the same round-the-clock convenience provided by digital shopping, travel, music and social media websites, and mobile apps. Both banks and non-banks will continue to invest in these types of technologies.”
The stats speak for themselves. The British Bankers’ Association says around 14.7 million people have already downloaded banking apps to their phones. In 2014, they used these apps for 18 million transactions, double the total just two years before.
People want payment apps to be intuitive and easy to comprehend, but most of all they want them to work instantly, without fuss or fumbling
The UK Cards Association says 58 million contactless cards had been issued by the end of last year and transactions on them soared 330 per cent compared with 2013. Put all these stats together and what do you have? A brave new world of payments where people just tap or swoosh – and go.
Customer experience is everything. People want payment apps to be intuitive and easy to comprehend, but most of all they want them to work instantly, without fuss or fumbling.
But there are other, more involved, potential benefits for the customer. “The emergence of mobile and internet banking will act as a spur for banks to develop and offer a true omni-banking solution,” says Anthony Duffy, director of retail banking for Fujitsu UK and Ireland.
“Banks will be able to gain a true single view of the customer and the ability to start a transaction in one channel and complete it in another, providing customers with a seamless and synchronised customer experience.”
Exciting times. But a few things are getting in the way of banks perfecting customer service. One is the bewildering range of platforms offering to streamline the payment process. Some have been produced in-house by banks, some have been adopted or acquired by them, while others act independently.
These must consolidate in future, according to commentators who say what the industry is crying out for is one elegant and ubiquitous solution that the banking sector can adopt as one.
Some platforms are getting close, such as Zapp or PayM, both of which have established links with numerous high street banks, or iZettle and Square which enable easy merchant card payments on the go. But an endless stream of alternatives prevents any one, or even any group, from dominating the arena.
“Currently, technology companies have the competitive advantage,” says Peter Veash, chief executive of The BIO Agency. “They’re more agile, so can respond to innovation, whether that’s building a better customer experience-led app or facilitating more trustworthy payment systems.”
Others say banks should stick to their knitting. They don’t have to innovate to provide a great customer experience, just make sure the money is accessible and the back-end systems won’t collapse under the strain of online transactions.
“Banks don’t have to be innovating at the cutting edge,” says Judo Payments chief executive Dennis Jones. “Banks should focus on improving the legacy infrastructure so that it can support innovation brought in by new service providers. Banks can partner up with innovators and stay relevant with the shift to mobile.”
Jerry Norton, managing director at IT and business process services firm CGI, argues many institutions have some work to do in this area. “Payment is still constrained by the underlying infrastructure. It is for this reason that banks are now investing. Improve this and you can offer better payment services to your customers,” he says.
In future, legislation and oversight will help steer banks in their financial technology operations. A new Payment Systems Regulator and European Union Directive, for example, will ensure the customer comes first.
“The regulator will be looking to make improvements to the industry and it will have an effect on the focus of existing and new banks, as well as payment institutions,” says Jonathan Williams, director of payments strategy at Experian.
“This will be in addition to the updated version of the EU’s Payment Services Directive and regulation on card fees. It is clear that services need to get closer to the customer, wherever he or she is and at whatever time.”
SEVEN WAYS FINANCIAL SERVICES ARE TRANSFORMING PAYMENTS*
- A changing regulatory framework geared to open the payments infrastructure to providers other than established banks
- Improving the efficiency and effectiveness of existing payments infrastructure though implementation of the Faster Payments Service
- Taking new products, such as mobile banking apps, to consumers which will improve banking customer experience
- Devising new products which are not small, niche or regional, but offer a consistent service to all customers across all regions
- Adopting next-generation biometric security technologies, such as the iPhone 6 Touch ID or Hitachi finger vein technology used by Barclays
- Traditional bank and card companies partnering with non-bank providers, such as Apple Pay, to offer new mobile payment methods
- Mobile banking apps that are context-aware and able to provide international payment services when a customer is travelling abroad
*Supplied by Anthony Duffy of Fujitsu UK and Ireland, and Patricia Hines at MuleSoft