How to Unleash Payments Innovation in Banks?
Late last year I had the privilege of being invited to be on a global payments innovation jury and the new report, ‘Payments Innovation 2011 – The Global Jury Decides’, has just been published last week. The report focuses on understanding the challenges facing the payments industry and their impact on innovation in the next 12 months. The jury this year consisted of 22 panelists drawn from 14 countries across five continents and was chaired by John Chaplin, President of Ixaris, itself a very innovative payments company.
The report has a number of interesting findings. For example, the jury expects that innovation in 2011 is most likely to come from Asia (a top region by clear margin) and North America, in low value and micro payments, and from improved product access (rather than the products themselves). However, for me the most interesting results had to do with sources of innovation. Perhaps unsurprisingly, the jury believes that new entrants and technology providers are best equipped at driving innovation; unfortunately, retail banks do not score well at all here. And the main reason why banks reject innovative ideas is the inability to guarantee customer uptake. The desire for “proven innovation” is so overwhelming that it outweighs all other factors in launching new products, such as technical challenges, costly development or compliance difficulties. As one of the jury said, “Opportunities are often over-analysed. With many innovations you just cannot predict how customers will react, so you have to make the developments and then hope for the best; that just isn’t how banks work.”
Celent has written extensively over the years on payments innovation and developed a number of frameworks that can help banks manage their innovation efforts. For example, the report Payments Opportunities: Finding the White Space argues for a need to develop targetted solutions addressing inefficiencies in specific payment flows, industries or consumer segments, and proposes a payment product design framework. Another report, Would OBeP Be “iDEAL” for the UK Market. A Guide for the Decision Makers, includes a framework which can be used to assess whether a new payment solution is likely to succeed in the market.
Of course, not all is lost for the banks. There are plenty of payments innovation examples from banks around the world (e.g. many Turkish banks) and some organisations seem to be consistently good at innovation. For example, Barclaycard in the UK has been at the forefront of innovation since inception, from the first UK credit card and the first ATM transactions to the most recent efforts in contactless and mobile payments. And Citi continues to demonstrate that it “never sleeps” with its recent announcements around 2G cards, social media efforts and importantly, Global Enterprise Payments group.
I would be interested in your thoughts – what can banks do to be more innovative in payments? Do they have to come up with new ideas themselves? Or is it really a question of letting the new entrants innovate and then striking the winning partnership deals?