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Who Are Banks Competing Against in Payments Now?

growth of digital payments millennial and Gen Z customers payment services

As per the recent reports of PAYMNTS, it is estimated that around 87 percent of consumers from the age range of 22 years to 44 years tend to report having interest in the concept of monthly installment plans. At the same time, the given age range is also interested in other concepts like BNPL or pay later lending and buy now concepts. These concepts might soon be responsible for challenging credit cards as the mode of payment. 

For banks that are responsible for credit cards, there happens to be a problem with the availability of ready solutions. While fintechs are currently known to dominate the existing BNPL market, they tend to significantly rely on data already possessed by banks. For entering the given space, banks are simply required to have information about how they are going to leverage the existing data, obtain information from successful fintechs out there, and understand the BNPL audience effectively.

Competition of Incumbent Banks

For several years, incumbent banks have been known to hold a proper leadership position in terms of the overall payments. However, the overall growth of digital payments has led to the generation of opportunities for entrants to the market for attacking the given status quo. 

For developing effective strategies in order to stay ahead in competition, it is expected of the incumbent banks to understand their relevant competitors while assessing how the respective strengths & weaknesses tend to compare in the competitive backgrounds of trust, data, innovation, cost, scale, and availability of alternative payment methods.

What is the Competition of Incumbent Banks?

Incumbent banks are known to be facing increased competition from payment platforms, card networks, big technology players, and challenger banks. All of these factors tend to upend the payment ecosystem.

The existing market position of incumbent banks tends to be underpinned by massive scale and stronger consumer trust. However, the given range of historic advantages cannot be taken for granted any longer. 

Taking trust tends to be a layered concept. It typically ranges from reliable processing of transactions to responsible use of data and the overall expectation that organizations tend to act in the long-term interests of the consumers. Moreover, demographic trends are revealing that consumers increasingly tend to trust alternative providers or non-banks when it comes to delivering financial services. 

A recent survey on digital marketing by Oracle focused exclusively on millennial and Gen Z customers revealed that 64 percent of them would recommend the respective bank for multiple savings, spending, investing products, and borrowing them. However, 56 percent of them revealed that they will consider switching to banking solutions offered by one of the leading tech companies. By the end of 2020, 15 percent of millennial and Gen Z customers have regarded the primary account to serve as the challenger. This is upwards around 4 percent from the previous year.

On the other hand, banks sit centrally on consumer data. However, they are expected to start using the same more effectively for gaining advantage in the industry. Data in itself has no value. Therefore, it is the capability of effectively organizing, translating, and leveraging the given set of data as meaningful customer-centric insight emerging as the key differentiator in the overall competition. 

Newer Technologies for Surpassing Competition

The presence of legacy infrastructure is also known to make it difficult for banks to compete on the basis of cost. This turns out to be more significant than ever as the existing margins keep evaporating, and payments tend to become free, invisible, and instant. This tends to hamper the overall ability to ensure partnerships for driving innovation and limiting the opportunity to explore various other methods of alternative payments.

As incumbent banks look forward to boosting their overall strengths and addressing the existing challenges, they are also required to recognize specific areas in which the competition might be excelling.

The concept of card networks –much more than simply card payments, are gaining the trust of millions of businesses and consumers all around the globe. Card networks have successfully managed massive volumes to ensure large-scale benefits. This gets combined with recent acquisitions and mergers for supporting end-to-end payment services along with multi-rail offerings. For instance, you can consider the Crypto APIs by Visa responsible for allowing banking clients to get access to & integrated advanced crypto features easily while determining the innovation that continues happening in the given sector. MasterCard has also given the confirmation that it will be enabling crypto flow across its entire network in the coming future. 

Creation of Ecosystems Across Payment Platforms

As the payment ecosystem continues expanding with increase in the overall digital volumes, organizations like Square, Stripe, and PayPal have evolved into comprehensive payment platforms from single specialized propositions. This has provided older bank-leading offerings like corporate treasury services, SME lending, and credit.

Leading payment platforms tend to be highly effective when it comes to managing higher volumes. Moreover, they have the capacity to drive & scale innovation in particular market segments. These platforms tend to be fast when it comes to adopting newer methods of payments like digital currencies. As such, their utilization of data tends to be improving consistently while delivering personalization to the customers. 

Challenger banks –the ones that are relatively newer, are best referred to as banks without having any baggage –not burdened by the age-old concept of legacy infrastructure, siloed departments, and sprawling bureaucracies. Challengers have gone ahead with building market momentum as well as ample presence with the help of their reputation for customer-specific products & services. This has made the concepts of consumer experience and behavior the ultimate focus. For instance, Revolut is known to provide in-app investments in crypto, commodities, and stocks, along with vaults for saving money in any commodity or currency. 

Challengers are also known to leverage the benefit of low-cost infrastructure for bringing products to the market instantly. As such, they are more willing to explore the option of alternative payment methods in comparison to conventional institutions. 

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