Preparing for Instant Payments? Don’t take a knife to a gun fight…

21 November 2017

There was much agreement at Retail Banking Europe (#RBE2017) in Amsterdam last week. Banks need to support the digital economy and are slowly reinventing themselves to become digital entities. Although different approaches were discussed there was general agreement that it’s not about adding an API on top, you need to think about the whole service model, end-to-end process and customer experience.

Regulators, technology, and customer expectations are all driving this change. To respond, collaboration between banks and Fintechs is essential. Kevin Poe, of CGI, presented on their latest retail banking report, pointing out that the window of opportunity for banks to partner up is closing as consumer ties to banks are softening. This opens up the potential for Fintechs to embark on non-bank partnerships or go-it-alone strategies, although in the short-term his message to Fintechs was “partner, partner, partner”.

Icon’s presentation was titled “Instant payments, it’s not all about speed”. This was topical, both with the launch of EBA Clearing’s pan-European instant payments system (RT1) and with the launch of Facebook Messenger payments in the UK and France. I shared our research about the impact that the combination of PSD2 and Instant Payments would have on card payments, the headlines being that one third of e-commence value will be supported through Instant Payments, worth around €725 billion per annum, by 2027.

We made the point that the competitive pressure to banks will not come so much from the Fintechs, but from the GAFA’s (Google, Apple, Facebook and Amazon) and BAT’s (Baidu, Alipay and Tencent). All of them already operate by default in real-time, using open APIs to deliver personalised services to a large customer base. We cited the example of the scale of processing supported by Alipay on Singles Day in China, which is quite extraordinary, with an average of 120,000 transactions per second, equating to more than Visa and Mastercard combined.

So, if the internet scale providers are the competition, what can banks do to prepare themselves and fight back? Well, they need to equip themselves with similar technology and ways of working. As we put it on the day: “don’t take a knife to a gun fight!” One reference we used was Indiana Jones, in Raiders of the Lost Ark who, when faced with the expert swordsman, got out his gun. This did give me an opportunity to share the story behind this scene. Harrison Ford once told the story in an interview that on the day of filming he was suffering from dysentery and, faced with three days of filming a sword fight in the Tunisian heat, said to Steven Spielberg “can’t I just shoot the son of a ….”

So, in summary, all those present agreed that digitisation is a major challenge, all transactions will be real-time, fuelled by open APIs. Whilst we may disagree on the timing – one presenter suggested that cards and cash would rarely be used by 2020 – the direction of travel is no longer up for debate. So, it’s more important than ever that banks take the enormous digital opportunities available to respond with exciting new services and a clear road map for the future.

Kate Nelson