Payments Players Must Reimagine Customer Experience or Risk Losing Significant Share, Value: BCG Report
Although payments remains one of the brightest spots on the financial services landscape-propelled by positive macroeconomic tailwinds, continuing technological advances, and expanding digital (and other noncash) mechanisms and habits, banks and other payments providers must solve lingering customer pain points if they hope to capitalize on the opportunities at hand and achieve a positive trajectory for the future, says a study report.
The report, 'Global Payments 2018: Reimagining the Customer Experience', from Boston Consulting Group (BCG), says as disrupters enter the market and vie for position, incumbents must deepen their customer understanding, foster trust and loyalty, and improve cross-selling to maintain momentum.
""In both the retail and wholesale payments business, customers are becoming impatient with clumsy interactions and inefficiencies," says Mohammed Badi, a BCG senior partner, and leader of the firm's global payments and transaction banking segment, and a co-author of the report.
"Consumers, treasurers, and merchants are looking for automated, integrated buying journeys and tailored service. They are being conditioned by their buying experiences in other industries. Banks, in order to stay relevant, must respond faster and more strategically to the altered payments environment by focusing on the pain points that matter most across the overall customer journey," he added.
The 16th annual study by BCG outlines recent developments in the payments market globally and regionally, explores how retail providers must evolve the payments journey, and explains how wholesale banks must address the expectations gap between themselves and their customers.
Talking about India, the report from BCG says, the country has seen payments volumes rise significantly in the two years since demonetisation. In 2017, total payments revenue equalled $20 billion, compared with $17 billion in 2016.
"We expect that payments revenue will increase at an 11% compounded annual growth rate (CAGR) over the next 10 years. One factor behind this growth has been the availability of innovative payment methods such as Paytm and Google Pay (formerly Google Tez), which have expanded payments access. Another factor has been the Indian government’s push to advance noncash payments, an effort that included promoting payments infrastructure modernisation and waiving the merchant service charges (MSCs) for debit transactions below $30 through a subsidisation program," it added.
The report says that retail banks, merchant acquirers, and payments providers have the opportunity to increase revenue significantly over the coming years. BCG data shows that retail revenue is on track to outpace payments revenue from wholesale banks. "Maintaining strong growth, however, requires that retail payments providers address crucial customer pain points," it says adding "In a 'click of a button' world, buying journeys that are riddled with manual processes and clicks feel especially jarring."
As digital giants and fintechs vie for their share of the payments space, card issuers must address key irritants across the purchasing journey to retain existing customers and expand their base.
The report describes five ways in which payments providers can improve the online buying experience: simplify and harmonize authentication, inject new value into the buying journey, reinforce leadership in card-on-file payments, embrace the move to online financing, and develop payments solutions that work globally.
The report further explains three ways in which acquirers can improve the broader merchant experience, including deliver integrated payments, adopt a new go-to-market approach, and invest in adjacent services.
According to analysis in the report-complemented by data from SWIFT, the world's leading provider of secure financial messaging services-payments revenue has been growing at a CAGR of 6.8% globally since 2010, reaching $1.27 trillion in 2017.
Projections for the next 10 years look equally positive. BCG says it predicts that payments will become a $2.42 trillion market by 2027, with more than $1 trillion in new revenue generated over that period.
"Such growth would translate into a CAGR of 6.6%, outpacing global nominal GDP growth. The ongoing shift to noncash payments is driving that expansion and creating a windfall for payments providers, despite mounting pricing pressure in interchange rates," it added.
Talking about wholesale payments, the report from BCG says, there is a need for addressing expectations gap by corporate treasurers. It says, "On one hand, they must manage core cash flow and liquidity operations with greater speed and efficiency. On the other, they must address a growing number of strategic business issues at the enterprise level."
"Wholesale banks have not kept up with these evolving demands. Not only have they been slow to innovate their product and service offerings, but they have been slow to address basic shortcomings in the customer experience. Those gaps have opened the door to nonbanks," it added.
According to BCG, while enterprise resource planning (ERP) providers, treasury management systems (TMSs), and fintechs lack the institutional expertise and full-service capabilities of wholesale banks, they are taking share in a number of areas. Wholesale banks must close the expectations gap or find themselves sidelined.
"Wholesale banks can close the gap in three basic ways such as embrace a clear digital strategy, get strategic with service delivery, and enrich the customer experience with data-driven insights," the report concluded.