Sopra Banking Software’s Dr David Andrieux discusses how banks have an opportunity to offer new pro-active and personalised services to capture a wide range of new revenue opportunities
To survive – and thrive – n today’s markets, banks need to bring down their costs and find new sources?of revenue, most likely in collaboration with other financial providers. Partnerships, ‘co-opetition’, OEMing and branding of third party products, and services marketplaces will soon be the norm.
The market is becoming less about better rates?or branding anymore, but about bringing customers new value and a frictionless experience. And the winning banks will be those that best capture and leverage the context of their customers to offer them timely and relevant services.
This evolution is especially visible in the payments space – perhaps not that surprising, as the battle over the payment space is, in reality, a battle over the customer relationship. Winning the customer relationship means gaining control over customer data and the ability to offer high-margin services, within and beyond payments.
And as customers manage an increasing part of their daily activities online, digital wallets provide an essential gateway to capture the customer context and to deliver the resulting personalised and contextualised services.
Wallets need a context
In their simplest form, wallets are about making traditional payments instruments, such as plastic, electronic. Other payment-related services might include the generation of a one-time/pre-paid credit card for online shopping or the integration of alternative payment methods like Bitcoin.
But, to live up to such potential wider usefulness, digital wallets will not only need to deliver payments services, but also add in more non-transactional functionality. Optimisation of loyalty schemes, budgeting, ticket management, receipt management, and other services are essential for wide adoption from customers.
And those services will be likely extended to take into account the context of the customer, e.g. their current physical location, preferences, account status and more. What you can be sure of: customers will want to be in control, from what services they include in their wallets to the level of personal data they want to share.
The battle for the wallet space
Digital wallets, all exploiting Near Field Communication (NFC) technology that’s now widespread, will therefore play a central role in capturing the new revenue opportunities that digitisation brings. However, the battle for the wallet space will be fierce.
Card networks have launched their wallet solutions, and they benefit from brand power, size and international dimension. Retailers are coming together, as well, to take?on a new role in payments and leverage their customers’ relationships. Many tech companies are also moving into the payment space, such as Google, Apple, Samsung and Microsoft.
Each actor has introduced their own wallet solution, such as Visa.me, the US’s MCX’s CurrentC mobile wallet, or Apple Pay, while in parallel, banks are partnering to launch local (country-specific) initiatives, like PayM in the UK.
This abundance of competing solutions has resulted in a very fragmented market. In the end, it’s doubtful any one single digital wallet will be the 'winner.' Consumers are likely to hold multiple digital wallets, picking between them and using the most appropriate and convenient wallet solution, depending on the task at hand and the value of the transaction on the spot.
As a consequence, banks are faced with difficult strategic choices around NFC payments. Should they partner with the likes of Apple – with the risk of losing the customer relationship and the revenues around it? Should they launch their own wallets, adding another solution to an already very fragmented space?
The answer, it turns out, is all of the above. Don’t forget that banks have significant advantages in this story. They have an existing, strong customer base, a majority of whom already use mobile banking applications. Banks still enjoy the highest level of trust amongst financial providers, even if brands like PayPal are closing in.
Plus banks have access to other account-related services and information which perfectly complement wallets’ functionalities, while access to top-level credit transfer systems to develop online bank-enabled payment systems and the development of real-time retail payment systems will pave the way for more bank-centric wallet models.
Various wallet models are possible: a proprietary wallet, whether ‘open’ or ‘closed’, is one option, a joint venture wallet another, or simply integrating or white labelling a third party wallet a third.
These possibilities differ in terms of costs and branding, as well as complexity and earning opportunities; however for banks, what’s important is to combine rapidity of implementation, a large acceptance network, and established brands and services to make you stand out from the herd.
A hybrid approach, open or semi-open, is your best way of doing that. Complementing services with those from third parties will allow you to quickly build a strong portfolio of services, as well as benefit from your existing powerful assets of brand recognition and network acceptance.
But have no illusion – a digital wallet in itself is not going to be enough, as customers will continue using a wide set of e-wallets. Instead of competing with other wallets directly, banks should seek to offer their customers a digital wallet management platform.
Such a platform will be a great way to provide access to an ensemble of services and wallets appropriate for customers’ needs, who can then activate and manage the services that best suits them at any particular time.
This approach creates a strong incentive for customers to adopt your solution. Customers get to use whatever services and wallet they prefer at the moment, but within a single, integrated application (yours). Banks can thus deliver other services to customers directly, including those based on account-related information. The bank gets to keep the customer context and relationship, and, in turn, the associated revenues.
Creating a great digital banking ecosystem
The conclusion has to be that banks have a window of opportunity here to build a portfolio of services by combining their own services with those from third-party providers.
But the key takeaway from our discussion has to be that this shouldn’t be by doing any kind of me-too digital wallet of your own, but by creating a framework round them – and creating services that let customers manage their e-money the way they want to.
That’s the approach most likely to offer value to customers while also allowing banks to best position themselves in the new retail banking digital value chain.
Sourced from Dr David Andrieux, market intelligence manager, Sopra Banking Software