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Credit cards changed the nature of cash transactions. Instant payments are the next step.

Credit cards changed the nature of cash transactions

Remember paper checks? Your boss would drop off your paycheck at your desk, and you’d zip over to the bank to cash or deposit it right after work. You didn’t think it was a pain—if anything, it was the highlight of your week.

Fast-forward fifteen years, and that celebratory transaction is now an outdated headache. Online deposits are the name of the game, and speed and convenience are everything. When you have to wait to access your account, you’re changing banks.

This paradigm shift in banking is entering its next phase, extending directly to consumers as peer-to-peer “instant payment” systems wedge themselves between individuals and their bank accounts, much as credit cards do. Instant payment services put the actual bank transactions into the back office. Users like the simplicity and the experience. Want to send your niece some birthday cash? Goodbye checkbook, hello Venmo. Forgot to get cash from the ATM for the lawn guy? Lucky he takes QuickPay. Freelancers and contract workers in the growing gig economy often accept payment via app, and trade their checking account functions for Google Wallet. Banks and credit unions haven’t been sitting idly by while this happens; they’ve allied to offer their own service in Zelle. Financial institutions that refuse to play ball are missing massive opportunities for growth.

Your call: 30% growth vs. 80% revenue disruption

Instant payment apps have put financial institutions at a crossroads, albeit one with an obvious choice. As things currently stand, modern digital payment models will impact up to 80 percent of existing banking revenue pools by 2020.1 But where there’s a threat, there’s also an opportunity. Banks that act quickly on digitization could see up to 30 percent revenue growth as early as 2022.1

The commoditization of getting paid

To the modern consumer, payments are a commodity. It doesn’t matter if they’ve been with a credit union for 15 years; if another model offers them greater value, that’s the one they’re going to use.

Everything from movies to insurance paperwork is now available at the tap of a button. This “anything, anytime, anywhere” mindset has also changed how consumers approach their money. Where your chosen financial institution used to have first pass at each financial decision you needed to make, disruptive mobile apps have swayed financial decision-making in favor of speed and convenience. It doesn’t matter how long your members have been with you—if your banking app requires three steps to make a payment and Venmo only takes one, they’re going to choose Venmo.

Legacy vs convenience - the good, the bad and the opportunity in between

Legacy vs. convenience: the bad, the good, and the opportunity in between

Entering an entirely new payment ecosystem isn’t a cakewalk. Established banks and credit unions may have defined identities and recognized brands, but with that deep heritage come legacy systems that aren’t always so easy to upgrade. That said, with great cost comes great opportunity. Let’s break it down.

The Bad

If embracing instant pay technology was easy, you’d be doing it already. Between tightening regulations like Anti-Money-Laundering (AML) and the cost burden of updating a legacy system, banks and credit unions find themselves with a perception problem. They’re behind disruptors and innovators with a jump on the market. For example, the average banking transaction system is capable of about 15,000 transactions per second at peak volumes, but new challengers like Alipay can process over 250,000 payment transactions per second.2 Revamping existing systems to incorporate instant payment options can sometimes mean rebuilding from the ground up—an option that is neither cheap nor quick.

The Good

So are mobile apps really taking the personal touch out of banking? Not by a long shot. When it comes to important financial decision-making, consumers still value personal connections and real advice. In fact, 86 percent of Millennial consumers say they plan to visit their bank to work directly with a real person in the near future.3 Personal service and big-picture financial planning are not something companies like Venmo can offer—at least, not yet.

The Opportunity

Virtual banks and instant payment services aren’t going anywhere, and today banks and credit unions still have the upper hand. Financial institutions that act quickly to better communicate their superior capabilities have the same opportunities to increase growth, preserve revenue, and stay in the game as their disruptors.

The forward direction of the financial industry has more-or-less fully revealed itself, making now the perfect time to reinvent your digital platforms to incorporate new and future essentials like instant pay and AI-driven chatbots to create a more holistic, convenient banking experience for their customers.

The opportunity for growth is here. The time to act is now.

Well-established banks and credit unions still maintain the advantage, but the clock is ticking. Developing and marketing user-friendly digital banking platforms is essential to long-term growth and survival. Adcetera has the industry experience, technical expertise, and strategic insight to help you through a successful evolution.

Sources

  1. https://www.caccenture.com/in-en/insight-banking-living-business-customer-experience
  2. https://www.businesswire.com/news/home/20171111005047/en/Alibaba-Group-Generated-US25.3-Billion-RMB168.2-Billion
  3. https://www.occ.treas.gov/topics/bank-management/mutual-savings-associations/consumer-retail-banking-survey-summary-presentation-jul-2017.pdf
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