It’s no secret that traditional high street banking has been facing significant challenges lately, particularly in the face of increased competition from newer fintech companies. However, recent developments in payment technology and APIs (application programming interfaces) offer a potential solution, provided banks are willing to make some tough choices. In this article, we will explore the role of payments and APIs in the future of high street banking and how banks can leverage these technologies to secure their place in the financial industry.
Interest rates and margin gains for banks
One of the most significant challenges facing traditional banks has been the low-interest-rate environment, which has made it challenging to generate profitability. However, recent signs suggest that interest rates may finally be starting to rise, creating an opportunity for traditional banks to increase their margins. By leveraging new technologies such as Open Banking payments and APIs to create more efficient and streamlined payment systems, high street banks can take advantage of this opportunity to improve their financial position.
Legacy Payment Systems and the Need for Replacement
One of the biggest hurdles for high street banks when it comes to payments is their reliance on legacy payment systems. While these systems have served them well in the past, they are no longer equipped to handle the demands of modern payment technology. As a result, most major banks now spend three-quarters of their technology budget patching and updating their existing legacy payment systems when, in reality, these systems should be replaced to cope with new payment types.
The Benefits of Wholesale Replacement for Banks
While some may balk at the idea of wholesale replacement of legacy payment systems, the reality is that doing so could generate significant upsides for banks. For one, it would allow for faster and easier integration of new payment options while vastly lowering maintenance costs. Additionally, it would enable banks to offer better services at a lower price, ensuring they remain competitive in the market.
New features on the horizon for payment systems
Looking ahead, the payments landscape continues to evolve, with new features such as the ability to vary recurring payments and “pull” refunds and payments on the horizon. By incorporating these features into their payment systems, high street banks can stay ahead of the curve and offer their customers the most advanced features and functionality available.
Cost savings for merchants with open banking payments
Another key development in the payments space has been the emergence of Open Banking. From a technical perspective, Open Banking payments can be up to 20 times cheaper for merchants than card payments, as no intermediaries are required for domestic transactions between merchants and banks. This development represents a significant opportunity for high-street banks to reduce costs and deliver greater value to their customers.
The adoption of Open Banking payments by UK banks
Despite the clear benefits of Open Banking payments, fewer than half of the UK’s banks currently offer them as an acquiring option. However, a further third says they plan to introduce them this year, recognizing the potential advantages they offer. With strategic investment, high street banks can take the lead in the adoption of Open Banking payments, creating a distinct competitive advantage over fintechs.
The Importance of a Decisive Investment Strategy for Banks
Ultimately, the success of high street banks in the future will depend on a decisive investment strategy that prioritizes the adoption of new technologies such as payments and APIs. By doing so, they will be able to create a clear and distinct competitive advantage over fintech organizations that threaten them. At the same time, the right investments in technology will enable banks to deliver a net-positive customer experience that positions them for long-term success.
Creating a Competitive Advantage over Fintechs
It’s clear that fintech companies represent a significant challenge to high street banks, particularly when it comes to innovation and agility. However, by embracing technology and investing in payments and APIs, banks can create a distinct competitive advantage over fintechs. This advantage will become increasingly crucial as fintechs return to the financial fray, charged with fresh investor capital and a renewed focus on innovation.
The Potential Shift of Payments from Cost to Profit Centers
Finally, the adoption of new payment technologies has the potential to change the way that banks view payments, from being considered a costly necessity to a source of profit and positive customer experience. By utilizing the right technologies and providing the best possible customer experience, high street banks can ensure that payments become a source of growth and profitability for their organizations.
In conclusion, the future of high street banking is complex, with many challenges and opportunities. However, the key to success lies in embracing new technologies such as payments and APIs and using them to create a superior customer experience that positions traditional banks as the go-to option for consumers. By investing strategically and making the necessary changes to legacy payment systems, high street banks can secure their place in the financial industry and continue to thrive for years to come.
