The beginning of 2013 allows us to consider with fresh perspective the great challenges and opportunities in the payments business today. Here are three of the biggest issues the industry must deal with in the year ahead—along with a single New Year’s resolution that big banks might want to consider pursuing as a response to these issues:
1. The Repercussions of Dodd-Frank
These new, yet-to-be-completed regulations are costing banks lots of time and billions of dollars, yet they leave little time for differentiation, especially as it relates to improving operational effectiveness or addressing current priorities, such as the need for real-time, 24/7 provisioning of full transaction-related data and maintaining the highest levels of security and financial compliance.
2. Continuing Consolidation in the Banking Industry
Bank consolidations are producing fewer, bigger banks, resulting in increasingly homogeneous product and service offerings. The remaining banks are finding it extremely difficult to increase market share and grow their transactions businesses without some kind of differentiation. In the meantime, corporations are asking for the moon. Someone needs to save the day and bring needed innovation to the banking domain. Payments are a candidate that is ripe for change in this environment.
3. The Risk of Losing Cross-Border Influence
U.S. banks in particular are in danger of losing their cross-border payments advantages if they abandon their interest in the rest of the world as the result of legislative, regulatory, and other distractions at home. Major banks around the globe will be in the same position if they don’t focus on addressing the needs of corporate clients. Competitors in Latin America and China are coming on strong. China in particular has the advantage of not having to struggle with legacy banking systems; China doesn’t have legacy systems. This situation gives China the opportunity to more aptly address the needs of the market, and quickly, without the need to retrofit old systems and transition the market.
If we truly live in a flat world and all business and trade in the future is indeed global, then U.S. banks have no sovereign entitlement to be the exclusive service providers for the US market. It’s anybody’s market to grab, and American banks must get busy driving differentiation and getting in front of corporate and other market requirements. Global payments are ubiquitous, and a good place to drive differentiation now.
There is a single New Year’s resolution that, if adopted, could address all three of these major challenges: Put customer service and payments efficiency front and center. The concept is that the market should drive what banks do. Transparency, efficiency, and immediate access to transaction information will drive differentiation and help U.S. banks drive both the top and bottom lines—while keeping the banks on the straight and narrow path to regulatory compliance.