Global Payments 2017: Deepening the Customer Relationship

For retail and wholesale banking institutions alike, the payments business is a crucial source of revenue and data and a critical anchor for broader customer relationships. As a result, the quality of the customer experience and the speed at which services can be accessed and decisions rendered have disproportionate impact on bank profitability. This is good news and bad news for established banks worldwide.

The good news is that banks bring formidable strengths to the payments arena; among them are well-established expertise, deep balance sheet resources, and stability. Even the highly regulated nature of banking activities has a silver lining: it provides banking customers with the assurance that their assets, data, and needs are being protected. These traditional strengths mean that banks remain the most trusted financial partners for both individuals and corporate clients.

The bad news, of course, is that banks’ primacy in the payments arena is under attack. Digital tools, technologies, and capabilities have opened the vertically integrated value chain that gave banks their dominance. Competitors inside and outside the banking sphere no longer need the same physical footprint or scale to engage customers. Nor do rivals need to provide the same variety of products. Attackers can now pick off a formerly interlocked part of the traditional payments value chain—be it the interface, the product portfolio, or the underlying infrastructure—and go after it aggressively. That’s threatening the traditional relationship that banks have had with customers and changing the stakes considerably.

Banks can’t afford to sit back as these changes unfold. Deepening the customer relationship requires that banks simplify the user experience and employ automation, artificial intelligence, and other technologies to improve decision making, compliance, cycle times, and cost performance. Here’s what leading banks will do to improve their payments business:

• Redesign the customer journey. Top banks will use digital technologies to redesign a daily banking customer journey—one that meets the specific needs of core customer segments and creates more intuitive and intelligent interactions.
• Operationalize open banking. To stay relevant, leaders will manage open banking as a business, with an enterprise-wide vision, a prioritized set of initiatives, a clear set of goals, and a strong governance framework.
• Personalize and monetize data. Analyzing transaction data can yield critical customer insights and drive revenue growth and efficiency. To capitalize on those insights, top banks will get their data house in order by developing clear applications for customer data for both internal and customer-facing business processes.
• Identify what to build and maintain in-house and where to partner. The most successful payments operations will be those that determine where they can carve out a unique advantage and become a leader and where they should partner, recognizing that few banks will be able to serve the entire value chain on their own.

Banks are no strangers to these ideas. But we have found that many institutions lack a sense of urgency or are unsure how to put their ideas into action given competing demands and the rapid rate of market change. The first step is for each bank to reflect on its existing strategy and market position and consider its appetite for risk and change. Should the bank focus on owning the customer interface; becoming a leading provider that offers, for example, specialized transaction services or working capital; or becoming an ecosystem or platform player? This report, BCG’s 15th annual study of the worldwide payments business, seeks to help banks break through the inertia by providing concrete recommendations that they can start to execute. The first chapter offers an outlook for the global payments industry, and subsequent ones examine how retail and wholesale banks can respond.