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5 key themes for FIs looking to build next-gen payment experiences
Bhavin Turakhia is co-founder and CEO of Zeta

The pandemic precipitated a surge in contactless payments as most commerce shifted online and significantly accelerated the move to digital in the retail payments industry. More than 75% of Americans use some form of digital payment, with more than 50% of U.S. consumers shifting purchases online from brick-and-mortar stores since the onset of COVID-19, according to a recent McKinsey report.

The gap between what customers want and what financial institutions can offer with their legacy platforms is continuously widening. Customers — influenced by experiences they have at tech companies like Uber, Amazon and Google, as well as newer fintechs — are expecting their banks to replicate the same level of digital-first, personalized and “in-the-moment” experiences.

With regard to those omnipresent pieces of plastic — credit cards — what cardholders carry in their wallets today differs very little from the credit cards that were first created in the 1950s.

Image credit:
Image Credit:

A card today looks and works fundamentally the same as it did 50 years ago at a time when almost everything else about our world has changed. What should be the next step in the evolution of these card experiences?  

How can FIs address this gap? 

We have identified five key themes which banks need to cater to deliver future-proof experiences across retail payments and cards: 

  1. Now, not later; 
  2. User-managed controls over customer servicing; 
  3. Dynamic vs static security;
  4. Hyper-personalize for customer segments of ONE; and 
  5. Present when and where needed. 

Let’s dig into each of these in detail. 

1. Now, not later 

Today’s customers are used to experiences and offerings delivered in real time, which is no different in the case of retail payments and credit cards. Forty-four percent of people surveyed in the Deloitte Consumer Payments Survey 2021 strongly indicated that instant issuance would improve their payment experience. Similar to issuance, issuers need to make the payment process frictionless. This includes offering customers the option to push their cards to their preferred digital card wallets and merchants.  

Financial institutions are not and were never limited by their imagination or their strong desire for offering immediate solutions to their customers. They have, however, been undermined for years by legacy technology platforms which hark back to the dawn of the internet era and were never designed for the immediacy of today’s customer expectations.  

2. User-managed controls over customer servicing 

As fraud rates continue to increase, customers want to be in control. More than 60% of Gen Y and Gen Z customers say that they are likely to use card controls. Over the last several years, issuers have addressed this expectation by offering controls such as ability to block transaction types and freeze cards — but these have become table stakes. Customers now expect even greater control and transparency over their cards and payment methods, including geolocation limits, individualized spending limits, time-of-day based controls, merchant category blocks as well as specific merchant-related limits.  

Customers want the ability to control their cards as well as the ability to do it from their mobile devices. They no longer want to wait in call center queues to get their cards blocked/unblocked or set transaction limits. The value proposition speaks for itself. McKinsey found that the cost to serve customers (with 100 being a market average) is less than 40 for fintechs (which rely solely on digital support channels), around 55 for top-performing banks (which have well-defined digital support channels), and 100 for the average performing bank (with average or underdeveloped digital support channels).

3. Dynamic vs. static security 

The current security features of a card are static and prone to fraud. All security features for a credit card today are static in nature, including the PIN (four to six digits long), a fixed card number, and a CVV code (three digits long) — all these features have a lower level of security than a typical customer’s Netflix account.  

A sophisticated fraudster can easily overcome these security features and cardholders are understandably concerned: 77% of them highlight security as one of the most important things they look for when choosing how they’d want to pay in the future. 

Issuers have an opportunity to get ahead of this trend and offer dynamic CVV, PIN and expiration dates that change every 30 seconds, making it difficult for anyone to access the data if their information is breached. Another innovation is to instantly issue unique and secure virtual cards that can be issued instantly for single uses to prevent the card number from getting exposed. And these are just the starting point — in aggregate, these features can help to fundamentally negate fraud.

4. Personalize for a segment of ONE  

Customers are demanding greater personalization. According to EY, 81% of Gen Z customers think that more personalized service can help deepen their relationship with their issuer4. As a result, issuers need to consider how they can expand their ability to offer personalization across many variables, including form factor, merchant category, transaction amounts, demographics, location and more — offering unique experiences for each customer.  

One such example is digital art. Issuers could offer customers the ability to customize their digital cards through digital art and micro-animations — adding additional layers of digital experience.  Similarly, reward programs and fees can be curated to the needs and persona of a specific customer and create value propositions that are truly bespoke and delightful.  

5. Present where and when needed 

In times past, people went in search of water to lakes and rivers. That very water now flows into our homes when and where we need it. Banking, too, is undergoing similar transformation — while customers previously went to branches and physical locations to pay and to transact, they now want to be able to make payments, convert purchases to loans, receive offers — in contextually and temporally relevant ways. 

The most sophisticated FIs recognize this and have invested in building not just their own digital channels but also work with distribution partners, i.e. fintechs, co-brands and providers that can distribute their card products as banking becomes more embedded. This allows them both to drive greater customer acquisition and also creates delight as customers experience a credit card or other financial product (e.g. a BNPL loan) in the context of a purchase, or a visit to a store, or at a time when they are actively engaged with a partner’s brand.  

Where to next? 

If banks can offer and build on these experiences, they can not only address the evolving customer expectations but also future proof their business against emerging digital competitors.  

However, with the legacy platforms that financial institutions rely on today, achieving that is near impossible and makes it cumbersome to rapidly grapple with shifting market realities. 

Addressing the next-gen needs of customers requires a next-gen platform. Card-processing platforms like Zeta are built ground-up with cloud-native, API-first and digital-first capabilities, and come pre-configured with rich customer experiences and the ability to hyper-personalize offerings, thus empowering issuers to truly shape a better future for their customers. 

Bhavin Turakhia is co-founder and CEO of Zeta, a banking tech unicorn and prover of next-gen credit card processing.

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Corporate One Federal Credit Union Provides More Than 750 of America’s Credit Unions New Digital Solutions at Scale

PPP App By Numbers

  • PPP application deployed to 28 Credit Unions
  • 8,000 applications processed
  • 3,000 loans approved
  • $130 million PPP loans to small businesses
  • Massively reduced back-office work for credit unions

Performance in the Spotlight

From the perspective of Corporate One’s central IT team, the performance has been equally impressive. The automatic dependency checks and one-click deployment capabilities built into OutSystems made it easy for the operations team to push new versions from development to QA to production without a minute’s downtime.

The OutSystems Sentry Cloud environment scaled seamlessly to cope with suddenly increasing workload. Jim Horlacher says, “With PPP applications coming in from multiple credit unions we saw application hits climb steeply from around 1,100 per day to over 81,000 per day. The OutSystems performance monitoring dashboard made it easy to monitor performance. The APDEX score barely moved from 99% to 98%, which was remarkable considering the 700% plus increase in application hits.”

The crisis has been a defining moment for Corporate One’s IT approach and the OutSystems partnership. Horlacher says, “The management team now sees that this is more than just another way to build software. Speed and agility are crucial in such a challenging economy, and thanks to OutSystems and the ingenuity of our teams at Corporate One, Sherpa Technologies, and Lucro, we’re proud to make this kind of agility and innovation available to our members.”

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Embedded payments present banks with both opportunities and threats

If you want to see the future of commercial banking, it’s already here, in the form of software-embedded payments. For commercial banks the opportunities to unlock new revenue growth are unparalleled. But for banks that aren’t prepared, embedded payments could prove an existential threat.

Dimitri Dadiomov, CEO and co-founder, Modern Treasury

Over the last 10 years, companies like Stripe and Adyen have built massive card processing businesses by providing the software tools that Internet-first, e-commerce companies needed and banks lacked. As a result, banks have lost significant direct payment volumes and customer relationships to these emergent players.

Unless banks embrace the opportunity that embedded payments represent, the same phenomenon could unfold with bank payments. Customers and payment volumes will move away from banks because of a lack of software tools.

This trend is already playing out in the marketplace. Some companies, recognizing the importance of software to payments — and vice versa — are buying up relevant players. Payments software provider Global Payments, for one, has embarked on a massive software acquisition spree. It bought several companies across the property management, healthcare, education, and hospitality industries, among others, including Zego, Active Network, AdvancedMD, Touchnet, Heartland and SICOM.

Similarly, to bolster its support for embedded payments, Fiserv, a payment and fintech provider, bought CardConnect and BluePay, which is now Clover.

So, what’s next?

As software pushes deeper into broader sectors of the economy, including insurance, real estate, education, logistics, lending, healthcare and financial services, embedded payments will increasingly impact constituent elements of the banking ecosystem.

Here’s a look at what to expect:

Banks. Anticipating growing demand from the marketplace, a variety of new payments-focused platforms have emerged with a goal of complementing banks’ existing products and helping them thrive in a software-defined future. Because most banks still deliver a discrete payment experience, companies with complex fund flows must either build complicated software infrastructure to support their software payments or outsource to a non-bank provider that has built this software infrastructure for them. As such, banks are increasingly partnering with fintechs to enable their customers to get payment operations up and running more easily and quickly.

Credit cards. Credit cards won’t go away, but they’ll no longer be the only game in town. As software-integrated payments take hold in industries such as real estate, insurance and others, bank payment rails, such as ACH, wire transfers and real-time payments, will be used as an alternative to credit cards, especially for larger transactions — real estate as one example — where credit card fees make their use unlikely.

Financial Services. Software has already become the front door into customers’ financial lives — the “new bank branch.” Financial activities that once took place in person, such as getting a loan, making a payment or opening a credit card account, are now all happening through software. COVID-19 has only accelerated this trend.

Customers. The same trade-off is playing out for companies who move money. Because the payments industry, as McKinsey notes, “now encompasses the end-to-end money movement process, including the services and platforms enabling this commerce journey,” customers either have to spend the time to build their own complex software infrastructure or partner with fintechs that have already done so.

More change ahead

Maybe none of this should be a surprise. Software has moved en masse into practically every industry, just as tech entrepreneur and investor Marc Andreessen wrote in his famous 2011 Wall Street Journal essay, “Why Software is Eating the World.”

Andreessen argued that we were at a turning point in software innovation. Internet adoption had achieved critical mass and digital infrastructure, such as software programming tools, and internet service providers, had reached a level of maturity to foster widespread innovation. He was proved right.

History shows us one of the most powerful determinants of success is the ability to adapt — not just to threats but also to opportunities. Embedded payments present both to commercial banking. Right now, many of the smartest, most adaptable commercial banks are well on their way to making sure embedded payments land firmly in the opportunities column.

Dimitri Dadiomov is CEO and co-founder of Modern Treasury.

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