Capco, the global business and technology consultancy dedicated solely to the financial services industry, has identified the five key issues facing the UK payment markets in 2011.
John Quamina , a partner within Capco’s banking team, said: “Payments will be at the heart of the reforms financial institutions make as they continue to consolidate themselves in the post-crisis operating environment. We see five key challenges that the banks will need to address over the next 12 months.
- Improving cost and performance
The cost of providing payments will be high on the agenda at the executive board level. Margins in the financial services industry are being squeezed – the consequence of higher levels of competition, new market entrants and the cost of having to implement new payments processing systems and infrastructures for a number of market participants. On top of this, financial institutions face the challenges of increasing levels of regulatory compliance and increased demand for new customer value propositions.
The focus for 2011 will need to be on reviewing and challenging change programmes, ensuring that the objectives are still aligned to the bank’s strategic intent and that the projected benefits are still achievable. Key questions that will need to be answered will revolve around (1) the ability of evolving payments functionality to deliver the performance required and (2) how the operational structure of the bank is to be fully aligned to the payments capability that is being delivered. Leveraging the knowledge of solution vendors and third parties will be an essential part of future proofing development work currently underway that will be delivered in 2011 and beyond.
As the move from physical and paper based payments instruments to electronic and card-based ones accelerates, the bank's (especially merchant acquirers) will have an increasing obligation to ensure that their own systems are secure as well as those of their business clients. Customer’s concerns over ID theft and personal data security will continue to be a focus area for 2011. This is not just a bank issue, but will increasingly become a merchant issue as well, especially for “card not present” transactions and payment detail data theft.
2011 will see increased levels of customer protection based regulations, yet there will be also a corresponding rise in the degree of sophistication used to try to defraud banks and their customers. Online banking and payments services are particularly prone to disruption and the Wikileaks debacle at the end of 2010 saw the potential power activists have targeting corporate entities.
- Faster payments
Although the creation of the Faster Payments infrastructure has been hailed as a success, there are still significant problems that still need to be addressed. So far, this has been focused on the retail sector but 2011 should see a renewed interest in how Faster Payments functionality and capability can be embedded in new customer propositions that include businesses as well. For example, the ability of insurers to make emergency payments would be a real benefit to customers and businesses alike. Also, real-time payments on mobile devices using “bump” technology could generate an opportunity to reduce physical payment instruments in a secure environment.
- Liquidity, cash management and forecasting
Cash management and accurate forecasting is going to be even more important in 2011 as the cost of money becomes increasingly expensive as a result of credit facilities become increasingly difficult to access. Basel III and ILAS will also drive a need for near real-time liquidity management which will invigorate the market for liquidity based products. This in turn puts pressure on the banks to provide comprehensive cash management services to their clients so as to attract deposits. Underpinning any effective cash management capability and transaction banking capability is the need for a robust, market leading payments processing capability.Basel III will drive up the cost of liquidity, and will encourage banks to acquire more deposits and pre-paid instruments to mitigate this.
- Mobile payments
Whilst mobile payments have been around in various guises for some years, beyond the use of a handset as an extension of the internet channel, mobile payments have not made much headway in countries with mature banking offerings. The current generation of handsets has accelerated the use of "App" based banking services but the full potential has not yet been realised. 2011 will start to see some interesting developments both bank and non-bank driven: (1) the ability to make mobile derived remittance payments will become more prevalent, (2) "bump" technologies will start to provide physical cash alternatives as a payment mechanism and (3) mobile phones will have card readers that allow individuals and small business to accept card payments. The big question will be the role of the banks in this evolving market beyond the provision of their current internet based banking services.”
Capco, a global business and technology consultancy dedicated solely to the financial services industry. Our professionals combine innovative thinking with our unrivalled first-hand industry knowledge to offer our clients consulting expertise, complex technology and package integration, and managed services to move their organisations forward.
Through our collaborative and efficient approach, we help our clients successfully increase revenue, manage risk and regulatory change, reduce costs and enhance control. We specialise in banking; capital markets; wealth and investment management; finance, risk & compliance; and technology. We serve our clients from offices in leading financial centres across North America and Europe. To learn more, visit our web site at capco.com .