Achieving and implementing innovation in the financial services and payments sector presents more challenges than innovating in other sectors. It requires pushing boundaries in two areas: technological and regulatory. Innovating on the technology front is a daunting issue for companies that are behind the technology curve, and are operating on IT platforms built in the 60’s and 70’s. Such is the case with banks today. A prevailing ideology in banks is “if it isn’t broken, don’t touch it“—and since the vast majority of commerce today is transacted via banks, and there are not many other options for B2B, there are big incentives to keep the status quo and not disrupt what is a $250 billion profit center. Also, it may be the case that banks tend to focus on providing services to large enterprise businesses that are already established rather than cater to start-ups, and as a result, there is no necessity to challenge current technology or look for any inefficiencies that may exist in current systems.
Challenging the Status Quo
It is a well-known fact major banks play significant roles when it comes to lobbying the government and influencing regulation. Since “status quo“ is the preferred outcome of these discussions, obviously it is the new innovative companies in the financial services and payments sector that are responsible for driving change and breakthroughs. Challenging the status quo is required in order to accommodate new and innovative payments solutions for modern business. Many of us are familiar with PayPal, but what many may not realize is in 1999, PayPal completely revolutionized payments and how online commerce was handled. In the course of doing this, they drove significant legislative changes in how electronic payments were regulated for B2C transactions. Fast forward to today, and it is clear that innovation in payments for the B2B segment is on the rise, and new companies have begun to challenge areas that were previously dominated by large financial institutions.
Technological Advances: Where it All Begins
Companies that have the ability to respond promptly to changes in the market and environment—and listening to the needs of B2B customers—are bringing innovation to payments. Unfortunately, it is apparent that today’s financial institutions are lacking in agility and are encumbered by creaking IT systems, current processes, maintaining profit margins, and trying to stave off increasing regulatory scrutiny into their ways of doing business. In doing so, they are unable to adapt to leading edge service offerings and fail to embrace the non-enterprise type of customers who impel innovation.
If financial institutions are going to remain competitive, they must embrace the needs of more than just the largest companies, and look to address the needs of the mid-market as well. This is where the most innovation is being called for, and payments is a critical area that has fallen far behind. Only when the financial industry accepts these changes will we see across-the-board technological advances.