More data, more informed decisions - how banks can keep pace with the payment fintechs

The payments market has seen considerable disruption in the last decade, with fintechs rewriting the playbook on customer expectations (both B2C and B2B) around how they send and receive money.   

Traditional cash and credit card payments are on a steady decline due to the increasing role of digitisation, making electronic payments the very epicentre of banking transformation in 2022.  

Global cashless payment volumes are set to increase by more than 80% by 2025, and the expected 86% shift to ecommerce will require heightened investment in online payment solutions. But this is just the tip of the iceberg. The biggest disruptions in the payment sector are still emerging:  

• Open banking is set to create a level playing field for payment innovations that deliver faster settlements and cheaper payment rails – it is estimated that by 2025 there will be more than 27 billion Internet of Things (IoT) connections shaping the way we pay 
• Alternative Payment Methods (APM) continue to provide faster, cheaper payment services than traditional banks 
• Cryptocurrencies and crypto wallets are increasingly gaining popularity due to their potential to disrupt and simplify transactions 
• There is a growing appetite for emerging trends such as Non-Fungible Tokens (NFTs) – NFT sales volumes swelled from $13.7 million in 2020 to $2.5 billion in 2022 
• Buy Now Pay Later (BNPL) was one of the biggest retail trends in 2021 and this is set to continue in 2022. While emerging Pay Now Buy Later (PNBL) is becoming increasingly attractive thanks to its ESG credentials and potential product tie-ups 

Keeping pace with fintech disruption 

Traditional banks and incumbent payment providers, often hampered by legacy technology, are playing an aggressive game of catch-up when it comes to payment innovation and staying ahead of customer demands.   

Soaring digital payment volumes are leaving many banks vulnerable to disruptive competition. While banks still dominate the world of business transactions, in the consumer sector fintechs are winning market share by unbundling banking and financial services products and services, focusing in to disrupt incumbents by pinpointing and exploiting weaknesses in user experience and operational inefficiencies. Payments are no different.   

In 2022 the rise of open banking will further intensify competition, leading to a raft of new solutions for customers. Incumbent banks therefore need to adapt and find new ways to differentiate.  

The data advantage  

Across banking, data-driven intelligence is enhancing customer experience and driving operational efficiencies; the payments sector is no exception.  

The success banks enjoy will depend in a large part on their approach to data and its role in enhancing customer experience, meeting compliance requirements such as KYC and AML, and responding to regulatory pressures in a rapidly-changing landscape.   

The volume of data generated and handled in financial services is enormous, and in banks, 90% of useful data comes from payments. So how to turn that useful data into useful intelligence?  

Customer Lifecycle Intelligence for every payment department 

Business Development – find the right customers  

The difference between a profitable customer and an unprofitable one is shrinking by the day. Banks need to remain proactively up to date with industry developments, emerging customer trends and new opportunities for growth.   

Payment data is immensely valuable but for incumbent players with legacy payment structures, it is often held within silos, making it hard to extract and refine to drive new business growth. Banks therefore typically use Creditsafe, Experian, Google, and LinkedIn to supplement their payment data – a time-consuming process that still delivers a very fragmented view.   

To differentiate, banks need to leverage real-time customer data to provide personally tailored insights and proactive advice.  

Customer Lifecycle Intelligence (CLI) takes a data matching approach combined with real-time data to deliver rich and timely insights and applies each bank's individual rules to pre-screen customers for suitability. This reduces the cost to acquire by ensuring banks are efficiently pursuing the best opportunities.  

Onboarding 

A well-designed onboarding process is a sign of a great payment service provider. This will attract new customers and reassure them that they’ll soon be making and accepting payments quickly and easily.  

Likewise, onboarding new merchants is vital to growth and bringing in more transactions. However, banks that get it wrong run the potential risk of onboarding fraudulent transactions, which can impact both profit and reputation.  

CLI enables banks to provide fast, frictionless onboarding whilst reducing costs and improving compliance. Access detailed financial and historical company intelligence (shareholders, group structure, ultimate beneficial owners and more) from verified and validated sources, contextualised and mapped to ensure nothing is missed at any stage of the onboarding process.  

Identify key events like CCJs or Gazette notices immediately, by checking potential customers/merchants against global PEP and sanctions lists and stay ahead of changes as they occur in real-time.  

Continuous risk monitoring, regulatory and legal compliance  

Banks must continuously monitor and scrutinise customer intelligence and transactions as part of a risk-based KYC and AML compliance and risk mitigation programme. But many find it tough to balance their compliance, regulatory and legal responsibilities with customer experience.   

Similarly, an ever-growing amount of regulatory change and industry initiatives in payments can make it difficult to keep up. But having a team of people dedicated to following every update is a luxury few can afford.  

CLI ensures banks stop leaving themselves exposed by only evaluating a snapshot of risk. Continuous compliance provides a constant real-time 360° view of companies and merchants, ensuring banks can understand payment viability and mitigate regulatory risk proactively, rather than reactively, and keep the cost to serve under control – custom alerts automatically notify of any changes to credit scores, adverse media and other red flags.  

Retention – keep customers for life  

Competition from fintechs is likely to drive up the payments sector's cost of customer acquisition, as well as impact customer attrition. Incumbents therefore, need to revamp their retention strategies. It’s vital that banks provide high-value, in-life support to strengthen customer relationships as payment sector competition intensifies.  

CLI is about removing the siloed nature of payment data. Instead of banks losing time trying to collect and analyse a collection of disassociated data points, CLI provides a comprehensive 360° view, infused with sophisticated customer intelligence and constant monitoring of every single change to a customer’s information throughout the relationship lifecycle.   

With CLI banks can provide personalised experiences, improve retention and increase upsell and cross-sell opportunities.  

Better Business Faster  

2022 is set to see a seismic change in the payments landscape, with open banking driving innovation and higher consumer demand for non-traditional methods increasing competition. Payment innovation is not just the realm of fintechs, there are huge opportunities for banks to take advantage of if they can unlock the data challenge and build a customer lifecycle intelligence approach for a customer-centric cashless future.  

Get in touch with Donald Mbeutcha, FullCircl's payments specialist to explore how we can help unlock the intelligence you need to succeed.