The role of traditional banks continues to change, and more rapidly than before. Where we once would have had to queue up in a bank on the high street to pay utility bills or withdraw cash to make payments, we can now complete almost all of our transactions online without ever needing to set foot in a branch. So the role of the bank as a venue or outlet has already changed and continues to evolve to ensure it remains a relevant customer channel.
With high street banks in the UK having ever increasing numbers of active internet banking customers, the volume of digital banking transactions are growing exponentially. But it is the even more rapid rise in mobile banking and payments that is making traditional bankers sit up and take even more notice. Customer experience is the key. The opportunity to instantaneously personalise banking products via digital channels, for example, helps to reposition both banking and non-banking services, increase wallet share and income, and hence provide an important driver for change.
In the corridors of power in UK banks change is also afoot as discretionary investment budgets in retail banks migrate towards digital. Digital bankers are rapidly becoming the new power base.
There are increasingly many more transformations with which banks are grappling, however, as the recent news that debit cards are the first choice for online shopping shows. The UK Cards Association claimed that online spending using a debit card hit £35 billion last year compared with £34 billion on credit cards. Apparently shoppers are also more inclined to use debit cards in stores as well as online, especially as more shops have accepted debit cards and devices such as chip-and-pin machines. This highlights that a bank's role as a credit lender is also changing, whether due to greater caution exerted by consumers or by banks themselves to avoid risky lending.
In my opinion and experience, however, it is mobile payments that are truly disrupting traditional banking. Up until recently, mobile payments have been the way of the future, with smaller payment via contactless cards as well as peer to peer payments taking off. But banks have not been able to truly capitalise on the wider opportunity available, due to the disparate nature of retailers, banking institutions and consumers themselves. Many mobile payment and mobile banking apps exist but they have either been platform-specific and tricky to interoperate, or unable to fulfil banking and payments standards.
Some key disruptions that will pave the future and this is where it gets interesting - include -.:
- Zapp, a new mobile payment service backed by the UK's major high-street lenders, providing the infrastructure behind Bacs, Direct Debit and Mobile Top-Up. Expected to launch next year, it was announced by VocaLink, a consortium of 18 banks and building societies. The mobile payment service will allow smartphone users to make instant, secure payments from their bank account via their mobile banking app, bridging ecommerce, mCommerce and extending into payments made directly in a retail environment.
- Not to be confused with Zapp, the UK Payments Council will also launch a ubiquitous interbank mobile P2P payments services in April 2014.Building on the success of Pingit, this service will enable people in the UK to send money to anyone who holds a bank account in one of the eight major banks signed up for the service. The payment will be routed via their mobile telephone number linked to their sort code and account number in a database which has been built by Vocalink. The payment transactions will be processed via the Faster Payments Service.
- Mobile payment technologies will continue to evolve which will affect payment acceptance processes. Services like SQUARE, iZettle and Paylaven are disrupting traditional merchant payment providers, including Amex. Smartphones are becoming payment acceptance device, thereby reducing the time to bring on board new merchants and also reducing cost of transaction. This also provides a platform for entirely new loyalty-based products, and will complement the consumer's desire to use mobile technology for payments.
- With new wearable devices such as Google Glasses and the iWatch, the expectation is that customers will complete even more digital transactions on the go. This is because of the ease of use of such devices and their ability to provide all of the services that current smartphones provide, and more, without taking the user away from everything that is happening around them. As a consequence, digital transactions including payments on the go are expected to become even more prevalent.
This all means that banks are increasingly focusing on m-commerce as a means of both providing better customer service as well as enhancing their top lines. M-commerce provides banks with unique opportunities to develop complete and holistic payment solutions in collaboration with retailers and telecom providers so as to provide customers with seamless, safe and secure ways of paying for the goods and services they buy on their mobile devices.
I believe that the combination of Pingit, Zapp, the new interbank P2P services, easier payment acceptance processes and new mobile devices will be the tipping point for mobile payments in the UK. They will provide the potential for consumers to embrace mobile payments regardless of which bank they use or which retailers they prefer (similar to the disruptive innovation that SMS first drove.)
However, with an uptake of mobile payments also comes risk. Whether anti-money laundering (AML), fraud, device theft or shoulder surfing, this is no different to any other new technology. In the case of mobile payments, the interesting aspect is that these risks converge with those of the financial services and telecommunications industries. The regulators, telecom operators, regulated firms and vendors will need to work closely together to parry the threats of fraud. Key to encouraging mobile payment adoption among consumers is ease of use, a 'risk-free' customer experience, i.e. ensuring continued high levels of security as people are increasingly wary of parting with their cash, whether coins and notes, online, or via mobile means. For banks, financial institutions and retailers, more interoperation and cooperation is required if they are to benefit from this disruptive consumer driven change to traditional payments and banking.
The wind of change is rife, and it is progressively being driven by consumer demand as they seek new channels for payments (and communication), and it is up to banks to embrace this disruption at pace to retain their relevance and move with the times.