Payments: why banks must collaborate to stay ahead
Increasing regulation and new technologies are changing the face of the payments industry as we know it. From hybrid projects with FinTechs to blockchain consortiums, Jurgen Vroegh, ING, explains why banks’ collaboration strategies must also move with the times.
Never before has the payments landscape been so dynamic – or so competitive. Today, a combination of digital developments and regulatory forces are placing a huge emphasis on customer experience and opening up the banking landscape.
As a result, the barriers to entry for new challengers, like FinTech start-ups or niche players, have been significantly lowered. Take the Payment Services Directive 2 (PSD 2), for example. This will not only mean more competition around who owns the primary account of the customer, but banks will also need to allow third-party account information aggregators and payment service providers to access customer accounts.
So, for traditional banks, the threat of disintermediation is rapidly growing – and it is time to up the ante. Banks now need to be thinking about new ways to create payments propositions that not only bring true value to customers, but are also easy to use, leveraging the latest technology, or using existing tech in an innovative way. And in order to outperform new entrants, traditional banks must also look for new ways to speed up their innovation power and time to market.
As counterintuitive as it might seem, greater collaboration (including with new entrants) may be one way to achieve this. In fact, PSD 2 opens up a significant strategic opportunity: by working together with FinTech companies, banks will be able to provide value-added bank-agnostic solutions to their customers, such as a dashboard that allows multi-banked corporates to see all of their financial information in one place.
ING has been very proactive in this space and by the start of the PSD 2, if not before, we will offer collaborative solutions that make it possible for both our own customers and other banks’ customers to leverage the possibilities offered by the new regulatory regime.
Nevertheless, collaboration between banks will also remain vital. SWIFT’S Global Payment Innovation Initiative (GPII) is a perfect example of this in practice. As well as delivering faster cross-border payments, with same day use of funds, the GPII promises transparency over fees and charges, end-to-end payments tracking, and rich remittance data – meaning more information for corporates and a reduced number of customer enquiries.
All this is possible as a result of closer collaboration among banks in the inter-bank space. And over 70 banks are now signed up to GPII.
Another example of closer bank collaboration is the R3 consortium of over 40 leading financial institutions, including ING, which calls for members to work together to unlock the potential of blockchain technology. Although such projects are still a ‘work in progress’, within the payments sector, blockchain has the potential to significantly enhance transparency, efficiency, speed of settlement, security, as well as reducing costs.
But like so many industry challenges today – from rolling out instant payments to finalising the detailed regulatory technical standards (RTS) of PSD 2 – realising the full benefits of blockchain will rely heavily on standardisation, widespread adoption and, ultimately, trust within the industry. Achieving that will only be possible through greater collaboration.