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
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
- The key success factors (KSFs) for
- 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,
You can order a copy of the full report from EFMA, and the summary of each section is below: