DIGITAL WALLETS: THE FINAL NAIL ON THE BANKING BUSINESS COFFIN

 WHERE IS DIGITAL BANKING TAKING US?

Are we slowly and gradually approaching the breaking point in regard to the demise of the banking system, considering that digital wallets are becoming more of a cliché than a buzz word in the most recent times?

If you asked this question to me and many bank execs or ‘short callers’ and stake holders within the financial business in Africa I bet many would pause for a second and ponder. Well, this because the answer is not straight forward for most concerned parties.

From being on the fence, not knowing how to implement key decisions, to living in denial as well as being completely or partially ignorant on this matter, plus thinking a change from your legacy systems to a more reliable one, are just some of the few huddles facing the corporate decision makers in the banking and finance business.

This is because the more that they delve in this matter the more confusing and overwhelming the situation tends to become for them. But make no fuss, because we are going to figure out a potentially final stand on this matter by the end of this writing.

 

WHAT IS THE CURRENT SITUATION IN THE DIGITAL BANKING BUSINESS?

A cashless society is what many key stakeholders in the financial business seem to envision in the near future, considering the alarming rate at which we are witnessing this ‘revolution’ happen, and the Covid19 wouldn’t have catapulted this dilemma in a better manner.

The Corona Virus pandemic has seen E-commerce business recording unbelievable growth rates as well as increasing net value in due course. Hello Amazon.

With that in mind, and knowing that FinTech companies are certainly here to stay due to their demand arising from the fast-changing money business like we have never seen before, what are you as a key change decision maker in your bank or other financial institution doing to stay ahead of the technology and profitability curve?

“Payments today are a major cost burden for many banks, and most spending maintains existing systems instead of creating change. In the postcrisis world, banks will need to reflect on how to organize themselves for change, possibly by running some of their payment’s businesses in a completely different way. They could, for example, consider structural moves on the use of onshoring versus outsourcing, cloud-based infrastructure, automation, and analysis-driven decisions to reimagine scale or the realignment of products.”

From “How payments can adjust to the coronavirus pandemic—and help the world adapt”, an article by McKinsey’s analysts For acquirers, the COVID-19 crisis is an opportunity to test their payment infra[1]structure.

 

So, what is the implication you may ask for banks and other institutions that relied on people physically being at your premises to do business, with blockchain technology and cryptocurrencies, also known as ‘The Digital Gold’ further looking to disrupt and cut down on revenues stemming from the low costs of doing business on the blockchain platform as opposed to the current system via Central Banks. For now, let’s save “How blockchain is disrupting the Central Banking System” for another day.

While some banks have quickly adapted to the transpiring trend by changing core business strategies from their legacy systems onto more robust and scalable financial models while enjoying the benefits therein, other banks are still grappling with what needs to be done to turn their financial fortunes around. But for how long are you going to stay on the fence regarding this matter.

This looks like a situation whereby the longer behind you lagged, the more dust you and your financial institution is likely to eat as you follow the pack that responded in the timeliest and cost-effective manner

How well is it prepared for the new market? Will it compensate the reduction or loss of traditional revenues by generating new ones?

According to technology consultancy Omdia (formerly Ovum), legacy system modernization and creating digital capabilities were the top imperatives for financial institutions in the beginning of 2020.

 

HOW LONG ARE WE WILLING TO WAIT IN ORDER TO JUMP ONBOARD?

Direct payments without the need for intermediaries is fast becoming second nature with P2P payments clearly making its mark on the digital money landscape. This is where diversity needs to be employed to keep up with the ever-changing trends in the industry, with research clearly showing where the bigger chunk investments by acquirers (the financial institutions) are being put.

Are you appealing to the next generation with the key strategic and tactical decisions you are making on a corporate level, or are you providing consistent payment experiences to your loyal and new customers? Are the transactional costs affordable and secure to your customers/clients?

My bet is that if you are not discussing some or all of these key questions in your boardroom then you must be asking the wrong questions and hence taking your organization towards unplanned directions, hence putting your in danger of either going out of business or lagging behind and eating the ‘cake crumbs’ for that matter. This is most like to go on for you if you continue to ignore the feedback from your corporate core business dashboard.

But should you always be playing catch up on matters that mean either life or death for your company? You don’t have to take my word for it because the key stakeholders are actually speaking out on this rather slippery matter to deal with.

The survey that was undertaken by OpenWay and Ovum showed that 69% of banks and 75% of merchants in the African market are increasingly investing in retail payments as a way of remaining relevant to the market and its volatility.

To many this information seems to overwhelm the concerned corporate leaders in their various organizations, taking them to more unchartered waters in this case making it hard to transition to a preferred and reliable alternative quickly enough. This is why we are going to figure out what you as an Exec has to engage into in order to stay afloat on this ‘stormy voyage’.

WHAT IS THE WAY FORWARD WITH DIGITAL WALLETS AND BANKING?

A good sigh at this moment is probable what you need, because we have good news for you. “Change is the only constant in life”, is a paradoxical saying that I relate to very well. Change if not adhered to could mean you become obsolete in whatever organizational setting you put yourself into. Netflix and Blockbuster (Home Entertainment businesses) are good examples of not enacting change when it is necessary, and as you can see one is alive today and while Blockbuster that thought that Netflix was living way too ahead of time is no more.

Below we are going to explore and show you that there is still life at the end of the tunnel with some interesting research findings, and your business can use this information astutely.

·         A large proportion of banks prefer to manage their payment infrastructure using software provided by third-party vendors. For example, 47% of banks use an external software provider for payment gateway services, while the remainder use internally developed software or outsource completely. Whatever you choose has always depended on various factors like company size, financial muscle and technical knowhow.

·         Banks are seeking to modernize their approach to card management, with 44% citing plans to enhance mobile account management as their number one priority in payment card investments.

·         72% of merchants state that appealing to the next generation of customers is extremely important in terms of determining their retail payments acceptance strategy.

·         80% of banks believe that mobile money solutions are preferred by younger generations, and they are looking to increase provision to respond to this.

 

All retail banks will likely have their own strategic priorities, which will vary according to their organizational structure, the needs of the specific markets in which they operate, and the technology infrastructure that they already have in place.

Nonetheless, the results of the Ovum survey provide some important findings that all retail banks active in African payments should consider as they prepare their strategies and plans to meet the needs of the current and future retail payments market:

• Retail banks should evaluate plans to benefit from the move to real-time payments and make investments in their own infrastructure where needed.
• Do not lose sight of current customer needs, and investigate how traditional payment mechanisms can be managed more profitably.
• Assess the security and fraud solutions that are in place to support merchants and consider if more can be done.
• Retail banks need to consider the needs of merchants more carefully and address any mismatch between level of merchant demand for services and bank supply.
• Ensure technology infrastructure can support new requirements and be flexible to add new ones.

Now some bank execs at this point seem to have figured out that some of these recommendations seemed to have caused them to miss on out on more ‘skin in the game’ in as far as harnessing the abundant opportunity that lies ahead regarding the rapidly changing atmosphere in the digital payments space in Africa. However, this might yet raise another problem, which is, “How do we implement these recommendations and in order to reap the gains accordingly?”

With its industry-topping, massively robust and scalable technology, OpenWay’s Way4 financial business platform delivers exceptional performance and reliability under the most demanding and highly variable conditions, with over 130 banks globally trusting it as their digital payment solutions provider.

OpenWay has a track record of servicing clients from multinational to SMEs spanning across the globe such as start-up banks, processors, payment switching, telecoms, and oil companies in Europe, the Americas, Asia, the Middle East, and Africa.

OpenWay is proud to have among WAY4’s client companies equensWorldline, Nets, Equity Bank Kenya, Network International, and Asia Commercial Bank. These institutions together handle millions of transactions in a single day further proving how reliable and flexible WAY4 platform is to its existing and potential clients.

Below are five revenue niches that acquirers can explore in order to remain relevant in this digital finance space:

• Currency exchange for cross-border payments. Due to travel bans and self-isolation, people are shopping mostly online. Statistically, they are 20% more likely to buy products if allowed to pay in their preferred currency. Acquirers support such transactions with two services, the dynamic currency conversion (DCC) and multi-currency pricing (MCP).
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  In-store and e-commerce consumer instalments. A joint acquirer-merchant consumer finance program can support merchant sales at times of crisis. Way4 enables buyers to get instant instalment loans — whether on POS or during e-commerce checkout. Acquirers can set up a special fee for each instalment-based sale.
• Marketplace ecosystems. An acquirer that has grown its business to the state of a multi-player ecosystem has more leverages to pull itself and its customers out of crisis. This has been demonstrated recently by Alipay in recent times.
• Social benefits programs. The acquiring of social welfare cards can be a business opportunity with many benefits. Enabling subsidized purchases helps businesses to position themselves as socially responsible and strengthens their ties with local authorities.

It is ever becoming clearer to visualize that the market is speaking very loudly and clearly to you the decision maker on this matter, pointing out the potential winners and deal breakers in the digital banking world. The question is, are you going to keep waiting or take the necessary actions to win in the fintech game.

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