The financial services industry has been indelibly changed by the pandemic’s impact on how people interact and transact, and how businesses prosper and grow. The industry is also being disrupted by the ability of fintechs and big techs to disenfranchise banks and credit unions with innovative, engaging solutions that are reinventing financial services – especially payments – and how they are delivered.
Knowing that change and disruption will continue to impact and threaten the fundamental business of banking, there is unprecedented strategic thinking and planning happening in banks and credit unions of all sizes. To help you consider and analyze these changes, we’ll share Jack Henry’s point of view on eight important trends shaping the near- and long-term future of payments and financial management solutions.
1. Interchange Income is at Risk
- Banks and credit unions need to begin diversifying their business and revenue models to accommodate a significant decrease in interchange.
- They should also ensure their card technology providers can help them respond to the dynamic regulatory environment by optimizing operating efficiencies, reducing operating expenses, and maximizing near- and long-term card program performance.
2. Digital Engagement – The Top Priority for 2021
- Digital reinvention takes a village of innovative technology partners, so banks and credit unions need a disciplined approach to evaluating the merits of their existing partners and potential partners and systematically matching distinct capabilities to their unique goals for digital engagement.
- In the digital era, vendors need to clearly demonstrate their commitment to openness through an open API strategy and the development of cloud-native solutions.
- A commitment to vendor consolidation – leveraging more solutions from fewer partners – will also generate important tangible and intangible benefits.
3. P2P Leads Payments Innovation
- Banks and credit unions cannot compete with the fintechs and big techs reinventing payments without offering real-time payments.
- Banks and credit unions must realize “alternative payments” are no longer alternatives – providing money in the exact moment of need has evolved from a competitive distinction into a competitive necessity.
- If banks and credit unions innovate now, they can capture or recapture their fair share of P2P engagement since most consumers still trust financial institutions more than the emerging payment providers. This is largely based on the belief that banks and credit unions will be more accessible and willing to resolve fraud-related issues.
4. Embedded Finance Means Everyone can be a Bank
- BaaS is another technology-driven trend that is threatening traditional banking as more consumers choose who provides their financial services based on brand affinity.
- Banks and credit unions must begin offensively planning their open banking strategy and carefully consider the sweeping impact to their competitive environment when virtually any company can offer traditional financial services inside their customer experience.
5. The Reinvention of POS
- Digital innovations are reinventing POS, like they did with P2P payments, and banks and credit unions are once again being disenfranchised.
- Merchant relationships are at risk knowing fintechs and big techs have a “payments first, traditional financial services later” strategy.
- Being relevant in POS means banks and credit unions must carefully monitor the reinvention of merchant services and modernize their payments infrastructure to support dynamic POS strategies and technologies.
- The time for POS innovation is now while banks and credit unions are considered more accessible and responsive than most alternative payment providers.
6. The Reinvention of B2B Payments and SMB Banking
- Capitalizing on the unique and urgent opportunity with SMBs will require banks and credit unions to understand what financial services they need in the new environment reshaped by digital innovation and the pandemic, and to strategically bundle and competitively price those services.
- Banks and credit unions can successfully compete in the significant SMB market with an offensive strategy that leverages existing account relationships and provides modern payment and financial management solutions that support the unique needs of SMBs.
- After the reinvention of P2P payments, fintechs are reinventing B2B payments with a proven “payments first, traditional financial services later” strategy.
7. A New Presidential Administration Means New Financial Regulation and Oversight
- The Biden administration is focusing on equality, social justice, debt, and consumer protection which will inherently translate into more stringent regulations for banks and credit unions.
- Every change in presidential administrations means new priorities, inherent uncertainties about evolving regulations, and challenges fully understanding and complying with complex regulations.
- New financial regulation and oversight impacts the bottom line with banks and credit unions required to dedicate more time, resources, and technology to ensure compliance.
8. Flexible Payment Options Support Financial Health and Debt Reduction
- Banks and credit unions must understand the profiles of financially distressed consumers and small businesses and offer modern payment solutions and flexible payment options that can prevent missed payments, avoid late fees and penalties, protect credit scores, support quick recovery from delinquencies, and help them better manage ongoing expenses.
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About Jack Henry Payments
Jack Henry Payments is the strategist and technology partner seamlessly processing 800 million monthly transactions representing $144 billion. We modernize payment platforms with financial management solutions that move money in the exact moment of need, supporting every payment channel and type. Our experience and insight are helping more than 6,400 banks, credit unions, and businesses.