In an article in Realtid, PA finance expert, Christian Fegler, explains how real innovation in the field of payments is no longer coming from the banking world.
Christian highlights how technology start-ups such as Trustly, Mondido and Accumulate are developing new and more secure payment solutions that make life easier for consumers and business. That means that if large banks are not careful, they may soon end up with a situation similar to that in Africa, where citizens, as well as smaller businesses, manage their incoming and outgoing payments without the use of a traditional bank.
As Christian explains, payments have always been an important part of the banking system. The Riksbank's (the equivalent of Bank of England) latest estimate of the cost to society for payments by card is more than SEK 8.7 billion and cash payments are almost as much (SEK 8.6 billion) and while these costs have been pushed down, there is more to do.
The article goes onto outline that while the development of digital services has increased rapidly, payment methods are largely the same as they were 20 years ago. Innovation has primarily been process oriented such as Klarna’s payment products which combine classic invoicing with e-commerce. However, that may be changing as less than a week ago it launched its new service Klarna Direct which is a competitor to Swish.
Christian sets out his view that “innovation in the field of payment solutions mainly takes place outside the banking sector where technology companies dominate. Samsung and PayPal's mobile payment solutions and apple pay - which was launched in the UK last summer - are services that have contributed to a sharp increase in payments with contactless cards. Mint with its digital wallet that provides information on all accounts and transactions from various banks and card companies is another. These contenders will have even greater impact with new EU rules on Internet payments which allow third-party suppliers access to customers' accounts.”
The article then goes onto highlight the results of PA’s global innovation study which showed that only one in ten financial services companies invest in ground breaking innovation. The big banks also face a further threat from results of the latest customer satisfaction report from Svenskt Kvalitetsindex (SKI) which showed growing dissatisfaction among younger customers.
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Christian argues that it is time for the traditional big banks to prioritize the development of new modern and reliable payment solutions. He highlights that banks are earning good money and resources are available, citing the example of one of the major Nordic banks which raised bonuses by an additional SEK 1.7 billion, a move which went down badly with the stock market. Christian urges banks to use more of their surplus to invest in new technology and seek new revenue streams through product innovation instead of merely defending the current ones and distributing the surplus to management and shareholders. And if innovation is in short supply internally they should cooperate with others. Nordea provides one example of this through their new accelerator programmes which, in close cooperation with selected startup companies, are focusing on developing new digital fintech services.
He concludes that banks have all they need; many customers, plenty of money and a world of fantastic opportunities. They just need to get started and build more efficient banking services - picking up from where the successful Swedish payment solution Swish started.
Christian Fegler is a finance expert at PA Consulting Group