THE PAYMENTS HORIZON 2020
Features | 11/03/20
There is untapped value in your business…but it’s not where you expect it to be.
Today more than ever before, businesses need to look to new places to unlock revenues and margin. Finding that competitive edge just gets harder. The more efficient the business is, the more it has to search for small incremental improvements to processes, people and systems. Today’s business can be likened to Formula One racing teams, always making minor tweaks and improvements because they understand that the sum total of all the small changes can provide the difference between winning and losing.
Economists say that competition is an essential force in maintaining productive and efficient markets. We see competitive behaviour in politics, foreign relations, sport and even in the human quest for love. For most people, there is something inexplicably compelling about the nature of competition, and some scholars argue that competitiveness is a biological trait that co-evolved with the basic need for human survival.
Nowhere is this more apparent than in the cut-throat world of business. Organisations today do everything in their power to optimise performance and profits. Our desire to win compels us to optimise processes, squeeze supply chains, use technology and any other tools we have to build more efficient, effective organisations. The modern CEO is in a world of change, having to challenge every small aspect of their business, opening their business models to customers and developers, really listening to their feedback and adopting these changes with a view of ‘try and if you fail, fail quickly, get up and try again’. Every part of the business is up for grabs, breaking tradition, inventing new models and partnerships, squeezing out every last drop of opportunity, these are the changes needed to remain ahead of the competition.
Yet, despite our quest to maximise organisations competitive advantage, there is one hidden opportunity that remains largely untapped: payments. Today’s CEO’s still see payments as a necessary evil, an annoying cost of doing business. And yet every CFO worth their salt, will tell you that payments (and the underlying transactions) are the single source of truth in doing business. Lost in layers of old legacy technology is a treasure trove of transactional data that unlocks value for any organisation.
The truth is that payments have historically been seen as an administrative back office function, left to the finance department whose role is to match payables with receivables, and manage payments, reconciliation and disputes. A task which is largely handled manually, where as a business scales, the payments department grows with it to manage the increased numbers of transactions. In complex industries like consumer finance, a level of imperfect reconciliation is ‘normal’, disputes are ‘a cost of doing business’, and the payments department is simply seen as a necessary cost centre that is required to manage this, and not worthy of much attention.
People often say that the phrase ‘this is how we’ve always done it’ contains the seven most expensive words in business. In the case of payments, that’s especially true, and it’s the reason that merchants continue to use legacy payment providers. Some of the more forward-thinking players see the opportunity to automate certain payment functions, reducing staffing requirements and saving costs. However, few have realised that modern payment technologies have the potential to be ‘a silver bullet’, providing the competitive advantage they’re looking for, reducing risk, cost and friction, while using deeper data to pin-point new margins and better customer interactions.
A great example of this is disputes (previously known as chargebacks), the bane of many merchants lives, especially those in the complex world of consumer finance. Merchants battle to connect the dispute to its original transaction, and often it’s simpler to write off the transaction rather than bear the cost of its resolution. As a result, instead of being black-listed, bad payers can carry on unnoticed. Payments technology has now enabled automatic dispute management. Each dispute can be linked to its associated transactional data, and with one simple click they can be proactively and accurately managed. Merchants no longer have to carry these costs, and lost disputes can become a thing of the past.
Today’s payment technologies can also enable perfect reconciliation, a huge cost and time saver. For most companies this is simply unheard of, and they’ve learned to be content with inaccurate, imperfectly reconciled balance sheets, never completely sure how much has seeped out along the payments life-cycle, or having their finger on the pulse of what’s really happening in their businesses. However, next generation payment providers can reconcile to the penny. This removes the need for time-consuming reconciliation from multiple sources, saving back-office time, and reduces the burden of reporting, compliance and testing. In fact, it turns the process into a transparent intelligent tool that can be used to make critical business decisions.
Many e-merchants are well aware of buyers abandoning their shopping cart when they reach the payments page, often because its different visual appearance signals suspicious activity to shoppers who are looking for environments secure enough to hand over their credit card details. Payment Services Directive 2 (PSD2) and Secure Customer Authentication (SCA) regulation is exacerbating this problem, effectively putting your customer experience into the hands of the incumbent banking players, a scary prospect. However, today the right payment provider will allow the merchant to ‘own’ the complete user experience. This ensures that its design identically matches the rest of the e-commerce environment, providing reassurance to shoppers that this is a seamless continuation of their shopping journey and is safe and secure, limiting the risk of transaction abandonment.
Using the right technology, payments can even be integrated into a merchant’s Customer Relationship Management (CRM) system which means that the entire payments lifecycle can be automated, reducing the need for the payments team to be scaled as the business grows.
Some payments processers have also begun to focus on individual sectors. Payments products are being built specifically for the unique needs of the consumer finance industry, using technology to improve authorisation rates, remove customer friction, reduce costs and customer service challenges. Collections are the life blood of a consumer finance business and payment solutions are critical to sustained profitability and its ultimate success. Understanding the sector needs is key to building out new products and solutions that enable the business to grow and extract value. New solutions like account updater, which automatically updates the customer’s card details and the resulting token to reduce friction with the customer, or instant settlement, a product that helps lenders lend more often by forward financing their transaction traffic. Does your current payment provider help you do better business and understand your unique needs?
A recent success story saw a consumer finance merchant migrating to a new payment solution using a system which is configured specifically for the consumer finance industry. Payments were integrated into the merchant’s CRM system and resulted in a 9% increase in conversions and 13% increase in collections compared to their previous gateway. The results were game changing for the merchant, catapulting them ahead of the competition.
Another example is the custom build of an Application Programming Interface (API) to add faster payments to a customer’s platform for the pay-out of loans without the need for batch processing or manual pay-outs, enabling the customer to lend faster, save time and reduce costly errors. These new services provide new sources of opportunity for merchants to increase the gap between themselves and the competition.
These changes have resulted from the payments industry going through its own disruption, where regulation and near constant technology changes are putting pressure on them to evolve. Regulations like PSD2 (and open banking) and General Data Protection Regulation, coupled with advancing technology such as Artificial Intelligence and robotic advice are driving traditional players towards marketplace banking. This is pushing payments providers to make a choice between being a value-added service provider to customers, or simply being the connection point between customers and third-party providers. Their choice will depend largely on how quickly they adjust to these conditions and their ability to innovate in response. For those that do, the secret to success will be a sincere interest in third parties and taking a fresh look, not only at their marketing models, but more importantly their operating models and senior management teams. Traditional incumbents, after all, are not as agile as challenger banks and fintechs, caught up in legacy technology and bureaucracy, it will not be a surprise that today’s incumbents may not be tomorrow’s leaders.
For those not developing every day and modernising at scale, their days are numbered. This is especially true given that players such as Google, IBM, Apple, Samsung and Microsoft are all exploring the introduction of their own payment platforms, establishing trust by utilising their mega brands and their deep understanding of ecosystems, user needs and subscription revenue models.
SO WHAT DOES ALL THIS MEAN?
With the boardroom conversation shifting to find better ways of understanding customers and challenging current operating models, payments provide an opportunity to grow your bottom line. Payments remain the lifeblood of any business, and the good news is there is a journey of discovery which is lined with gold nuggets scattered throughout the ecosystem of transactional data. You just need to know where to look and to have the right team to help you unlock it.