These are exciting times in the payments sector. There is so much change, so much innovation going on and much more on the horizon. We talk to Mie-Yun Lee, Chief Product Officer for RBI and EVP Innovation at Accuity, about what the top innovations are, who is behind them and where the industry is heading.
Q. Let’s start with current innovations. What is happening?
A. The payments space is bubbling with all sorts of innovation. Interestingly, it is largely driven by regulations. SEPA has been a significant driver as standards like ISO 20022 and IBAN make more efficient and faster cross-border payments a reality. Similarly, the Dodd-Frank Act and its requirement for banks to quote cross-border payment fees prior to payment has driven a different set of innovation focused on lowering the cost of payment.
It is also powered by technologies including the internet and smartphones to drive innovation like mobile banking.
In the end, there is a common thread of innovators always seeking to make payments better, faster and cheaper.
Q. Are we achieving this? Are we making payments better, faster and cheaper?
A. Yes, definitely. Payments are now better, more convenient for both banks and customers. Customers now only need to turn to their phone, tablet or computer to make payments. And in developing countries where there was little to no banking infrastructure, innovations like mobile banking have really taken root.
Payments are faster. SEPA offers an example of how electronic payments can be sped up through the harmonization of bank transfer methodologies. In addition, crypto currency and the blockchain offer other promising ways to do so.
Cheaper payments are clearly another key driver of innovation. Customers can now send funds back to their loved ones in a foreign country more cheaply than ever. Alternative payment providers offer the promise of lower fees as they establish rails to transfer payments that cost less than traditional paths.
First generation payment disrupters like PayPal are joined by dozens of companies seeking to compete for their share of the customer pie.
Q. Who is driving these innovations?
A. Fintech companies. It’s much easier for these well-financed startups to innovate- they are unencumbered by existing business lines needing protection, they don’t have existing infrastructure to modify or upend and they can focus solely on turning their concept into reality. Plus, they have the ability to invent and reinvent themselves quickly as their size allows them to be more nimble.
The larger, more established banks also recognize the nimbleness of these fintech companies and are providing capital and experience to propel these innovations.
Geographically, we see different types of innovation occurring. In the developing countries, it’s bread and butter innovation related to payment funds transfer. There is a lot of opportunity among non-banking countries where customers need a trusted payment ecosystem but lack the financial infrastructure. As a result, we see an increased willingness to embrace emerging non-traditional networks, such as M-PESA. There is a lot of white space opportunity especially for the unbanked customer and in emerging markets. Look out for a blog from me soon where we explore some of these opportunities and innovations.
Q. What does this mean for established institutions, such as the big banks?
A. Banks face the inherent challenge of being incumbents that have to contend with a dizzying pace of innovation coming from very well-funded small and big tech companies.
With deep roots in legacy systems and practices, it’s challenging for traditional banks to muster a similar quality of innovation as fintechs. So instead of trying to beat them, they’ve gone down the join them route.
Banks have been adept at investing in, partnering or acquiring many of these fintechs. It’s hard to find a bank that doesn’t have a VC fund, incubator or accelerator these days.
This vicarious innovation is a clever way of addressing the real challenges associated with innovating inside a bank’s four walls.
Q. What technologies do you think will pave the way for new innovation?
A. There are a number of major tech trends – big data, predictive analytics and machine learning, the cloud and block chain technology that will continue to drive the next wave of innovation. Even the Internet of Things will play some role in the evolving space.
As financial services strive for greater efficiency, decreased cost and increased customer satisfaction when handling domestic and cross-border payments, opportunities abound.
Q. What challenges do banks face as payment innovations evolve?
A. As fintechs increasingly provide vertically integrated offerings, where payment handling is a part of a set of offerings, banks risk being outflanked and disintermediated.
Invoicing and payments are a good example. There are some companies that now offer online invoicing for clients where an AR department can track whether customers received, viewed or paid an invoice. Payment settling, which can rely on a broad set of channels, becomes a part of the total offering instead of an end in itself. And so decisions about what bank to use to handle payments become much less relevant as it gets outsourced.
Q. Are there any glaringly obvious areas of innovation yet to be maximized?
A. Real-time payments in mature markets like the United States is one. Cybercrime continues to be a significant threat that has yet to be contained. With sophisticated online criminal groups like the Carbanak gang, determining ways to validate legitimate vs. criminal activity and to minimize loss continues to be important.
The challenges of addressing the costs related to the remittance industry also needs further investigation. The costs of sending a payment in the developing world is on average 8% of the remittance. Part of this cost includes the regulatory requirement for money services businesses (like Moneygram, Western Union) to ensure they do not inadvertently finance terrorist activities. As regulations increase globally, these costs are passed on to the consumer. This directly impacts the overseas worker in Dubai who is looking to send his earnings back to his family in India. We as an industry need to find solutions that continue to meet the regulatory requirement while driving down the overall cost of the transaction as this globally distribution of families will surely continue.
Q. How about at Accuity? How is Accuity innovating?
A. As a provider of payment reference data, we are firmly committed to helping our customers compete more effectively in today’s and tomorrow’s payment landscape. We offer IBAN data to accompany our traditional global payment files. We are exploring ways to enhance and extend our data to help our customers offer greater convenience to their customers and to help make their operations even more efficient.
As we seek to deliver more product innovation to our customers, we are also rethinking how we approach the process of innovation. We believe that focusing on understanding our customer is the key to success. Combining this with compelling design thinking and lean product development practices allows us to better understand and address customer problems.
Being able to think about how we can tap our sanctions and PEP data and technology capabilities with our banking reference data presents some interesting paths to explore that will keep our innovation teams busy for some time.
Q. What new ideas and technologies really excite you?
A. I love the convergence where the line between payment and offering blurs. It began with PayPal and online commerce where credit card information was securely stored and wallets were no longer needed. It evolved to mobile wallets where you can tap to pay for your coffee or ice cream and get loyalty rewards. Now payment is a behind-the-scenes part of the user experience. The invisible wallet as the next stage of the payment journey is a space to watch, for sure.