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World Payments Report, Part Four: Innovation

The eighth World Payments Report (WPR) was
released last week, and so far we have summarised Part One, the
Non-Cash Trends
Part Two, the
Regulatory Trends
and Part
Three: SEPA
.  This final part
summarises the final section of the report on innovation.

Banks Need To
 Seize Opportunity
Of Customer-Centric Innovation

Many banks are increasingly shifting their innovation focus
to customer-centricity, after sustained success in driving internal
improvements for better efficiency and cost-effectiveness in existing
operations. This shift will bring banks, possibly through partnerships, more
squarely into today’s horizon of innovation, where non-bank players like M-Pesa
and Octopus have been successful at capturing mindshare. Non-banks, with new
platforms and no legacy- system constraints, are leveraging unique business models
to drive innovation around specific customer solutions to generate revenue.

  • Hurdles to innovation remain but customer
    retention and acquisition are the critical outcomes. Innovation in payments
    faces ubiquitous barriers related to governance, technology, and regulation,
    but probably most challenging is the need to build a strong payments-specific
    business case, even when the return on investment is difficult to measure.
    Financial returns are not the only objective of payments innovation. For PSPs,
    the most important dividends in today’s evolving payments space lie in customer
    retention and acquisition.
  • Many banks are targeting innovation in specific
    areas of the payments value chain. Targeted innovation is likely to be more
    cost-effective than attempting to innovate across the entire value chain, as,
    if deployed successfully, it promises customer-focused innovation in areas of
    core competency and existing demand. Accordingly, our survey confirms, banks
    are likely to increasingly focus on proposition development, payments
    instruction, operations processing, and account reporting and invoicing.
  • Regulation can also pave the way for innovation.
    In general, regulations designed to drive payments evolution through systemic
    changes such as competition, standardization, and social inclusion support
    innovation, while those that address business models, by targeting market entry
    or price regulation for example, have potential to slow or deter innovation.
    But in cases where payments innovation has thrived, the dividends have
    typically been distributed among many industry participants.
  • Successful payments innovators will have a
    granular understanding of the needs of their target customer segments, and
    their own innovation capabilities. This type of innovation strategy, which is
    driven directly by customer needs, and properly leverages innovation
    capabilities, will have a more compelling business case, and a greater chance
    of success. More specifically, innovators will need to understand:

    • The key success factors (KSFs) for
      customer-centric innovation by segment. There are common KSFs such as
      ‘interoperability’ and ‘security,’ as well as client segment-specific KSFs such
      ‘multi-currency management’ and ‘multiple instrument choice’ among others.
    • Their own innovation readiness, measured in
      terms of their capability on ‘Innovation Bricks.’ To succeed, PSPs will need to
      identify and fill gaps in their innovation construct in four key areas:
      financial; stakeholder engagement; culture/governance; and internal process and
  • To innovate successfully going forward, while still
    improving the efficiency of processes over time, banks will need a systematic
    approach: first assessing and strengthening their innovation foundation
    elements, which includes selecting/creating the most relevant proposition based
    on various ‘value spaces;’ then improving specifically on the capabilities that
    are ‘must-haves’ for their innovation strategies; and then pursuing value-added
    capabilities. Notably, innovation might involve looking outside the banking
    industry to find partners with which to collaborate on specific, niche,
    customer-focused propositions.


You can order a copy of the full report from EFMA,  and the summary of each section is below:

About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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