Future of banking is customer-centric with payments as the touchpoint

APIs will accelerate the transition to customer-centric banking.

By Neil Ainger

The trend towards open application programming interfaces (APIs) with data as the new oil will accelerate the transition to customer-centric banking, especially in the payments arena where speed is also becoming essential as new real-time payment (RTP) platforms proliferate.

“Payments are at the core [of the relationship] as banks face the data revolution,” said Benoit Legrand, chief innovation officer at ING Ventures. “The customer will lead by choosing.”

Speaking during yesterday’s big issue debate on the future of banking, Legrand added: “The days of a bank saying ‘this is the margin we want and our offer’ are over. It cannot be like that anymore.” Legrand referenced the 190 different fintechs with which his unit works to improve the bank’s customer-centric offering and data tools.

“Value isn’t price,” he added in a call for banks to focus on value-adding data services in the future, not the transaction fee, which is a declining proportion of revenue in the face of competition from new fintech-enabled startups.

The chief executive of one of them, Kristo Käärmann of Transferwise, was also on the panel. He pointed out “it’s hard to be a univseral bank [with all the associated cost and stasis of that] and to compete with global tech companies at the same time. It’s not easy to be similar to a newcomer like Stripe.”

The challenge is to compete with fintech firms such as Stripe, or indeed Google, Facebook and so on if the mega-firms get serious about penetrating this marketplace by offering better front-end data tools. To do this while retaining a banks’ unique selling point of trust and resilience is a significant challenge.

Manish Kohli, global head of payments and receivables at Citi, said at its core a bank will still take in short-term assets and lend against them, “but in the future the way we do this will change. Credit scoring and decisioning will change in a fast data-driven world. We will need staff with API knowledge, data science skills and so on. Talent is the key to the future of banking.”

Victoria Cleland, executive director of banking, payments and innovation at the Bank of England (BOE), was interested in ensuring money remained safe and customers protected. “The way that people are transacting is changing,” she said. “Payments is particularly exciting, it’s not ‘just plumbing’ anymore. People here are using watches and phones to make payments. But we need to ask how safe they are, while still accommodating innovation.”

The BOE’s real-time gross settlement (RTGS) system dates back to 1996 and is “in need of upgrading”, admitted Cleland in a discussion about the role of infrastructures in a services-driven future. She outlined on-going plans to renew the UK’s RTGS by 2025, while considering crucial issues such as business continuity planning, cyber-threats and access. “In the next renewal maybe we’ll consider distributed ledger technology as an alternative infrastructure model as well, but it’s not proven yet.” Despite this there is a need to be “open to it” and be ready to accommodate its usage in future.

On the access issue Transferwise became the first non-bank in the UK – indeed in the world claimed Käärmann – to join a RTGS when the BOE admitted it last year after extentive tests. “We now pay 3p in processing costs compared to £1.30 when we started,” said Käärmann. 

The more competitive future of banking is illustrated by firms such as Transferwise moving towards the centre of the market and gaining traction by focusing relentlessly on the customer. Banks would be wise to respond.