2016 global payments insight survey: retail banking · pdf file3 summary retail banks are...
TRANSCRIPT
2
Catalyst
Payment players need to rethink roles and relationships
The payments industry has always been an
ecosystem in which participants have
particular roles and relationships with others.
It is now changing rapidly as existing
participants continue to invest in technology
and adjust to new roles while new entrants,
particularly from the fintech world, continue
to create new business models and threaten
to displace incumbents.
Payment technologies and platforms bind
these participants together in a tight
ecosystem. Merchants and billing
organizations interact with corporate and
transaction banks in a different part of the
value chain than they do with their own
customers and with retail banks. However,
each have different and changing priorities as
well as common needs and goals.
How those touchpoints are changing, how
they affect the relationships between
different participants, what opportunities that
presents and what that means for their future
strategies is the subject of this series of
reports.
While much of the media attention is driven
by the fintech hype machine and filtered
through a consumer lens, there are
considerable shifts happening at the
regulatory, infrastructural and technology
level that will have a profound effect on the
way the payments industry operates. Market
participants will have to create business and
technical strategies to address the changes
and make decisions about their role in the
value chain.
In 2015, technology analyst house Ovum, in
conjunction with ACI Worldwide, conducted
the first annual Ovum Global Payments Insight
Survey. This global survey of merchants, retail
banks and corporate banks, and billing
organizations examines strategic plans and IT
investment trends, asking respondents about
their experiences, perceptions and
expectations of payments and how this is
shaping their behavior.
This retail banking focused report highlights
some of the key findings from the second year
of this research and provides an explanation
of how the views and perspectives of the
different players in the ecosystem contrast. It
is one part of a five-part series based on
Ovum’s 2016 survey. Those interested in the
reports focusing on merchants, billing
organizations and transaction banking should
visit www.aciworldwide.com/paymentsinsight
for further information.
Merchants & Billing
Organizations
Retail Banks
PAYMENTS
Corporate & Transaction
banks
3
Summary Retail banks are investing to protect their future
The retail payments industry is an increasingly
competitive space, and banks face mounting
pressure. The need to deliver on growing
expectations for enhanced payment
experiences while, in many cases, also
managing legacy IT and operating under tight
budget constraints is a significant challenge.
At the same time, pressure from new entrants
and other third parties is growing and
presents a real risk to the traditional position
of retail banks at the heart of the purchasing
journey.
This report examines these issues, drawing on
the results of Ovum’s Payment Insights Survey
for 2016. Key findings include:
53% of banks globally are growing their investments in payments IT in 2016.
78% of banks believe customers want a broader choice of payment tools.
66% of banks are investing to deliver new payment and value added services. Cost efficiencies are a priority for 60%.
Investments to core infrastructure remain a
key focus for the industry, largely to enable
and support new payment services while also
reducing ‘run the bank’ costs.
70% of banks have recently or are currently delivering replacement or upgraded card management systems.
The same proportion have made recent investments in fraud screening and detection capabilities.
52% plan to invest in their payment switch technology in the near future.
At the same time, there is a heavy focus on
the potential for immediate payments (IP)
infrastructure to provide a platform for new
value added customer propositions. While the
level of infrastructure development differs
across the industry, there is broad agreement
on the benefits this will provide.
61% of all banks believe immediate payments will bring benefits to consumers, rising to 71% in Asia.
The ability to deliver stronger personal financial management (PFM) offerings is seen as a key enhancement for over 80% of banks.
However, only 52% of banks believe it will generate revenue growth.
The overwhelming need for many banks to
deliver product and service innovation is
frequently at odds with the available budgets
and internal resources available. This, coupled
with the competitive threat from third party
entrants is leading to a growing acceptance of
the need to form partnerships in order to
meet customer expectations. While some of
this will be regulatory-driven, partnerships
will be an important theme in 2016.
77% of banks would be prepared to form partnerships with existing online payment providers.
66% would work directly with retailers or billing organizations.
For many retail banks, the ability to deliver on
customer expectations will be increasingly
defined by how effectively they can deliver
internal infrastructure enhancements while
forming partnerships across the value chain.
4
The need for revenue growth has made payments a key focus area for retail banks Retail banks face growing pressure to deliver innovation in their payment services
Retail banking is an industry under pressure,
and particularly so when it comes to
payments. The need to invest in new products
and services to drive revenue growth – and in
the core infrastructure to deliver this – is top
of mind for many institutions, but budgets
remain constrained as banks are forced to
adjust to the lower margin post-crisis
environment.
At the same time, the pace of change in digital
commerce in particular has led to a steady
stream of new entrants to the value chain,
increasingly competing directly for customer
mindshare. With regulators in many
territories focused on fostering even greater
competition (PSD2 being a case in point),
banks are recognizing the need to invest in
order to remain central to the customer
purchasing journey. Indeed, the longer term
risk of disintermediation by third party wallets
and commerce platforms is a clear driver of
investment in payments technology.
While the industry was once very much
supply-led, payment services are now a
buyer’s market from the consumer
perspective and banks are fully aware of the
need to deliver on the payment experience
demanded by today’s end-users. At a global
level 78% of banks believe that consumers
want a broader choice of payment options.
This view is felt particularly strongly in
Europe, with 81% of banks in agreement.
Figure 1: Retail banks recognize that they need to deliver new services to customers
Source: 2016 Ovum Global Payments Insight Survey
31%
32%
25%
50%
46%
49%
18%
18%
24%
1%
5%
2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Europe
Americas
Asia
Proportion of respondents (sample: 298)
"Consumers want a broader choice of payment tools"
Strongly agree Agree Disagree Strongly disagree
5
Investment in payments technology will grow strongly in 2016, with delivering innovation and lowering cost as central drivers
In response to these challenges, bank
investment in payments technology will grow
strongly through 2016 and 2017. At a global
level 53% of banks are increasing their
spending in 2016 versus prior year levels, with
15% growing budgets by 5% or more. Similarly
high growth rates in 2015 highlight the degree
to which banks are consistently investing
further into their payment capabilities in
order to drive sustained revenue growth. In
contrast, just 12% of banks are reducing their
IT spend on payments, around the same level
seen in 2015.
At a regional level, Asia will see the highest
growth in 2016. In total, 65% of banks will
increase payments IT spending, compared to
51% in the Americas and 47% in Europe. In
the case of Asia, rising competitiveness and
rapid evolution in service delivery across the
region are important drivers of this growth.
The proportion of banks in the Americas and
Europe growing budgets for payments IT is
lower than in 2015, but nevertheless
highlights a strong proportion of the market
that is growing investments year on year. At
the same time, previous growth in spending
will be maintained at a large proportion of
banks, with 42% in Europe and 33% in the
Americas maintaining budgets at 2015 levels.
Figure 2: Over half of all banks will grow their spending on payments technology in 2016
Source: 2016 Ovum Global Payments Insight Survey
15%
15%
12%
18%
13%
9%
24%
19%
38%
41%
35%
35%
38%
49%
41%
39%
35%
33%
42%
37%
33%
32%
29%
28%
11%
10%
9%
10%
14%
9%
6%
13%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2016
2015
2016
2015
2016
2015
2016
2015
Glo
bal
Eur
ope
Am
eric
asA
sia
Proportion of respondents (2015 sample: 278; 2016 sample: 298)
How do you forecast your investment in payments technology to develop in the next 18-24 months?
Increase a lot (5%+) Increase a little (1-5%) No change (0%)
Decrease a little (1-5%) Decrease a lot (5%+)
6
While the specific drivers of this increased
investment will vary by institution, there are
some strong themes that emerge at the
regional and global level when considering the
expected ROI. The most commonly cited
outcome is an increased range of payment
tools and services, which is top of mind for
67% of all banks. Closely linked to this is the
launch of added value services, with 66% of
banks focusing on this area. Improving the
speed of clearing and settlement is a priority
for 62% of the industry.
Cost reduction remains critically important,
with 60% of banks highlighting this as a key
objective. Managing and replacing legacy IT
remains the central challenge for many
institutions, as it can facilitate service
enhancements while freeing up resources for
further investment. With just over 40% of
banks reporting that operational costs for
their payments business have increased in the
previous 12 months, the scale of the
opportunity to drive efficiencies is clear.
Nevertheless, investing in new products and
services to drive topline growth remains the
over-arching priority. Figure 3 shows the top
three objectives from increased payments IT
investment at the regional level, and
highlights the common focus on revenue.
The focus on increasing the range of payment
options and launching added value services is
most acute in the Americas (led by the US),
with over 70% of banks looking to enhance
their offerings in both areas. Expanding the
range of payment options is also the most
pressing concern in Europe (67%).
Banks in Asia view added value services as the
leading priority. Data analytics, around both
account management/PFM solutions and
loyalty/marketing offerings will both feature
prominently in this space in 2016.
Improving the speed of clearing and
settlement has emerged as an important area
in Asia (62%) and Europe (64%), reflecting the
level of activity and debate around immediate
payments in both geographies
Figure 3: Driving revenue growth from new products and services is the overarching priority for banks in all regions
Source: 2016 Ovum Global Payments Insight Survey
63%
64%
67%
60%
62%
65%
67%
70%
71%
Introduce new payment services/tools
Improved speed of clearing and settlement
Increased range of payment options
Increased range of payment options
Improved speed of clearing and settlement
Launch value added services
Enhanced customer experience/reduced payment friction
Launch value added services
Increased range of payment options
Euro
peAs
iaAm
eric
as
Proportion of respondents (sample: 298)
What ROI would you expect if you increased your investment in payments technology?
7
Investing in security and the underlying payments infrastructure remain top of mind for the industry
The strategic imperative to deliver new
payment products and services is driving
investment and IT renewal projects in a
number of directions. For many banks, the
challenges of managing the growing
complexity of the retail payments landscape
with legacy systems has catalyzed recent
investments in card management and fraud
detection systems.
At a global level 70% of banks report that they
have recently or are currently investing in
these areas, with the need to support
customer expectations around digital
commerce and the enrolment in/use of third
party payment services acting as important
drivers.
At the same time, 52% of banks plan to invest
in their payment switches and architecture in
the near future. While the need to deliver
efficiencies will be important in many of these
projects, this again highlights the need for
back-office enhancements in order to support
growth.
Direct investments in new online and mobile
payment services are also prominent for
many banks. In both cases, 60% are either
delivering or have recently executed projects
in these areas, with banks in Asia particularly
active in the online space (71%).
Immediate payments are more of a mixed
picture, which reflects the differing levels of
development across the industry.
Nevertheless, well over half of the market is
either currently investing or planning to invest
in IP solutions. At the global level, 35% of
banks have or are in the middle of projects,
while 28% plan to do so in the future.
Figure 4: Card and account management systems, fraud and compliance remain
Source: 2016 Ovum Global Payments Insight Survey
26%
35%
41%
41%
42%
51%
60%
60%
65%
70%
70%
52%
28%
31%
17%
22%
21%
22%
26%
21%
25%
17%
22%
37%
28%
42%
36%
27%
18%
15%
14%
5%
13%
Payment switch architecture
Immediate payments
Testing monitoring & integration
Distributed Ledger/ blockchain technology
Processing
Payment Hubs
Mobile payment capabilities
Online payment capabilities
Anti-money laundering
Fraud detection and prevention
Card and account management system
Proportion of respondents (sample: 298)
Have you invested in or are planning on investing in the next 18-24 months in the following payment technologies
Recently or currently investing Plan to invest in future No plans to invest
8
Immediate payments will deliver benefits to both banks and their customers The rollout of immediate payment infrastructure is being viewed as an important enabler for banks
With most major markets now either on the
path to creating immediate payments (IP)
infrastructure or with a live IP deployment,
the issue of how best to leverage the
opportunities it creates to drive revenue
growth is top of mind for retail banks.
Consumers are viewed as the group that
stands to benefit most heavily from real-time
24x7 payments, with 61% of banks reporting
this view. This perspective is particularly
strong in Asia, with 72% of banks taking this
position. The pace of innovation across many
markets in this region, particularly around
digital and social media-based commerce is
likely to be an important driver here, as will
high profile developments in Singapore and
Australia.
As shown in Figure 4, 58% of retail banks also
expect to benefit (or are already benefitting)
from IP, with 54% expecting to deliver cost
savings as a result. The latter is particularly
important, as integration and other projects
related to IP will be a trigger for wider
infrastructure renewal and upgrades in some
banks.
At the same time, there remain some that are
skeptical on the potential of immediate
payments. At a global level 11% of banks see
no benefit in IP, with 15% of European banks
holding this view.
Figure 5: Immediate payments are seen as a clear opportunity to deliver new value to customers
Source: 2016 Ovum Global Payments Insight Survey
4%
11%
47%
52%
54%
56%
58%
61%
I have never heard of immediate payments
I see no benefit in immediate payments
Immediate payments will benefit businesses
Immediate payments will drive revenue growth for myorganization
Immediate payments will save my organizationmoney
Regulators are mandating the launch of immediatepayments in future
My organization benefits from immediate payments
Immediate payments will benefit consumers
Proportion of respondents (sample: 298)
Please select which statements best reflects your perceptions of immediate payments
9
Enhanced account information and liquidity management services are the key opportunities from immediate payments
While dedicated overlay services, such as P2P
or even retail payment solutions, built on top
of immediate payment infrastructure have
been the focus of most of the early
developments in this area to date, the bigger
picture is one of a transformation in the
customer experience: real time payments
opening the door to genuinely real time
banking.
The focus in the industry has begun to shift
into how immediate payments will catalyze a
series of new product and service innovations.
The most significant opportunity is around
business and account intelligence, with over
80% of banks in all regions highlighting this as
a key area of potential future benefits. On
both the retail and business/SME (small to
medium enterprise) account side, there is a
renewed focus on PFM and associated areas
in 2016 and IP is ideally positioned to support
further enhancements to these models.
Liquidity management, particularly from the
business/SME perspective, but also for the
bank itself, is also seen as a core benefit.
Shortening the payment cycle from T+2 or 3
into real-time delivers potentially significant
cashflow benefits of course, and is potentially
therefore also a source of revenue for banks.
The reduction in settlement risk is also a key
benefit for retail banks.
Figure 6: The ability to deliver better Business Intelligence and liquidity management services is expected to be a key benefit from IP
Source: 2016 Ovum Global Payments Insight Survey
74%
79%
80%
72%
74%
81%
74%
70%
81%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Customer service
Liquidity management
Business intelligence
Proportion of respondents (sample: 298)
Please select the areas where your customers and your organisation will see the greatest benefits from immediate payments
Europe Asia Americas
10
The ability to form partnerships will define the future role for retail banks in the value chain Merchants are focused on new payment technologies and they are interested in working with startups
Delivering on consumer expectations is rightly
viewed as being central to the investments
retail banks are making in their payment
capabilities. However, the needs of merchants
must not be overlooked. As an equally
important part of the 4-party payment model,
the decisions that merchants make on their
channel distribution and payment strategies
have a huge impact on the broader retail
payments market.
As the wider customer journey has evolved,
particularly across multiple channels,
merchants have become more heavily
focused on the payment process; in particular
how any new product or enhancement can
drive incremental sales. This may be in
bringing new customer segments to the
merchant, delivering additional customer
value around the payment process, or simply
a lower friction experience that drives up
marginal conversion rates.
Where once merchants would have looked to
their acquirer for these services, the scale of
third party innovation and new entry to the
value chain has resulted in a growing appetite
to work directly with new entrants and start-
ups. While acquirers are viewed as the most
appropriate partner for new payment and
payment-related services, 32% of merchants
would view a new player or start-up as the
preferred partner for a digital loyalty
program, while 38% would see the same for
location specific services.
Figure 7: Across the four investment priorities for merchants, banks remain the preferred source but start-ups are now a close second
Source: 2016 Ovum Global Payments Insight Survey
65%
57%54% 54%
27%32%
38% 35%
0%
10%
20%
30%
40%
50%
60%
70%
Mobile NFC App-based or other digitalloyalty program
Location specific paymentand loyalty services
Smart card based loyaltyprogramP
ropo
rtion
of r
espo
nden
ts (s
ampl
e: 1
,000
)
Which provider do you perceive is most capable of helping you offer the following payment technologies
My existing bank or payment acquirer A startup
11
Many banks are becoming open to the opportunities presented by working with third parties to deliver innovation
There is increasing acceptance in the industry
over the need to form partnerships in order to
deliver innovation. The realization that the
limitations of legacy infrastructure and costs
of compliance, alongside rapidly growing
customer expectations, cannot be easily
bridged. This is leading many to consider
working closely with third parties to ensure
that they remain in a central position in the
future payments value chain.
Online payment providers, such as PayPal and
Alipay, are the most favorable potential
partners. At a global level, over 75% of banks
would be prepared to form partnerships in
this space, with this rising to 81% in the
Americas. Given the growing reach and
influence of some of the bigger commerce
platforms in particular, this is not surprising,
but there are clear benefits that both groups
could bring to the future digital commerce
model.
Retailers and billing institutions are also
viewed as prime candidates for partnership,
with 66% of banks interested in working more
closely with firms in these areas. In addition
to the fact that some retail banks may have
large retail or biller clients in their transaction
banking divisions, interest in open APIs –
particularly with reference to the PSD2 – will
be an important factor here.
Figure 8: Banks are becoming increasingly open to working with online payment providers, retailers and mass market technology companies to deliver innovation
Source: 2016 Ovum Global Payments Insight Survey
30%
36%
36%
35%
65%
71%
35%
41%
38%
44%
63%
76%
28%
33%
38%
46%
69%
81%
Specialist payment technology providers
Existing payment schemes/networks
Telecoms providers
Mass market technology companies
Retailers/Billers
Online Payment Providers
Proportion of respondents (sample: 298)
Would your organization consider working with the following types of payment providers in future?
Americas Asia Europe
Appendix Methodology
For its 2016 Global Payments Insight Survey Ovum, in conjunction with ACI Worldwide, created a 27
point questionnaire to understand how the current
and future landscape of the payments industry.
The study examines a range of themes, including:
Investment drivers and focus areas for 2016/17
Role of payments in broader strategic objectives
Attitudes to newer opportunities, such as immediate payments and blockchain
Payments IT spending plans and expected ROI
Preferred partners for delivering new services
The research focuses on four different industry
verticals and a total of 14 sub-industry verticals. The
lead categories are as follows:
Billing organizations Retail banking Merchants Transaction banking
The fieldwork was conducted with senior executives responsible for payments strategy and/or
payments IT strategy in each business, and was in the field from December 2015 - February 2016. In
total, 1,675 executives were interviewed, across 14 industry sub-verticals in 18 countries globally.
This report focuses on the retail banking industry. Those interested in the research on billing
organizations, retailers, or transaction banking are advised to visit
www.aciworldwide.com/paymentsinsight for further information.
Respondent Breakdown
Total Respondents 298
Respondents by Region Americas 48.3%
EMEA 22.8%
Asia Pacific 28.9%
Sub-verticals surveyed
Financial Institutions
Retail banking
Merchant acquiring
Example Respondent Titles
Director, Global Corporate Payments, Chief Operations Officer, Finance Director, Revenue Manager, Owner, etc.
Author Kieran Hines, Practice Leader, Financial Services Technology
Ovum Consulting We hope that this analysis will help you make informed and imaginative business decisions. If you
have further requirements, Ovum’s consulting team may be able to help you. For more information
about Ovum’s consulting capabilities, please contact us directly at [email protected].
Copyright notice and disclaimer The contents of this product are protected by international copyright laws, database rights and other intellectual property rights. The owner of these rights is Informa Telecoms and Media Limited, our affiliates or other third party licensors. All product and company names and logos contained within or appearing on this product are the trademarks, service marks or trading names of their respective owners, including Informa Telecoms and Media Limited. This product may not be copied, reproduced, distributed or transmitted in any form or by any means without the prior permission of Informa Telecoms and Media Limited. Whilst reasonable efforts have been made to ensure that the information and content of this product was correct as at the date of first publication, neither Informa Telecoms and Media Limited nor any person engaged or employed by Informa Telecoms and Media Limited accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard - readers assume full responsibility and risk accordingly for their use of such information and content. Any views and/or opinions expressed in this product by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Informa Telecoms and Media Limited.
CONTACT US
www.ovum.com [email protected]
INTERNATIONAL OFFICES
Beijing Dubai Hong Kong Hyderabad Johannesburg London Melbourne New York San Francisco Sao Paulo Tokyo