This is the third part of a four episodes sequel that explains why iPiD was born.
The remittance digital experience imperative
What is the point of having fast remittances if it takes minutes for customers to create the payment and the overall experience is complex and daunting? The answer is in the question…
A recent survey looking at the primary reasons for customers to choose a remittance provider over another highlighted that the most important factor, by far, is a simple and fast experience to make payments (GlobalData, 2020).
Customer experience for remittances nowadays refers specifically to the digital channel as it is becoming the main way for payment service providers to interact with customers.
Returning to the original meaning of digital
We can learn a lot from etymology. It is certainly the case for the word “digital”.
Digital comes from digitus, or finger/toe in Latin. It then became digit, referring to numerals below 10 … because people were counting with their fingers.
The word “digital” entered the technology space as we moved from analog signals (continuous signal) to digital signals (sequence of 0 and 1).
And, finally, we have “returned” to the original meaning of digital in the last decade with the explosion of digital technologies based on the interaction of our finger with a touchscreen.
User experience as a competitive advantage
In this digital world, companies win or lose customers based on how seamless they make the interaction between your finger and the touchscreen. Let’s take an example. Amazon patented the one-click ordering back in 1997, essentially patenting the storage of customer credentials in their platform. It highlights how the user experience can become a competitive advantage.
“We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.”
Digital revolution in banking: the culprit might not be the one you imagined
It took a while for the digital revolution to come to banking. It would be too easy to blame it on “clunky banks”. Many banks were already offering online banking in the early 2000’s. But, customers were dragging their feet as they were afraid of managing their money online.
Referring to the innovation adoption lifecycle, only tech enthusiasts were comfortable using e-banking. We “crossed the chasm” by the end of that decade and the digitization of banking went mainstream in the 2010’s.
By now, many native-digital players have proven that it is possible to provide financial services without a physical presence.
The question is not anymore, whether digitization is the right thing to do. Digitization has opened new opportunities for the financial industry to reduce costs and reach new customers that were previously underserved. The real questions for financial institutions today are:
- What is the optimal mix between physical and digital for my customer segments?
- Do I have the capabilities to be successful in this digital world?
For the younger generation, digital payment is already a pleonasm
What about payments? They followed a similar curve. Often, with banks few steps behind payment fintechs. The disruption came from online payments to settle e-commerce transactions (think of PayPal growing on the back of E-bay) and domestic payments (on the back of the new real-time payment systems).
As far as international payments are concerned, the digitization has been accelerated by native digital players like (Transfer)Wise in the early 2010’s.
Even in the in the cash and brick and mortar dominated space of worker remittances, digitization is happening fast. Arunjay Katam shows in his book “The power of micro money transfers” that Covid-19 has brought forward almost half a decade of digitization in two months.
You will notice that we have mostly talked about the retail space, much less the corporate space. Let us be clear, digitization is also happening in corporate banking and corporate payments. Corporates are moving “online”, using banks platforms, or investing in Treasury Management Systems and ERP-plugins. It is just that Corporate Treasurers are by design and by KPIs, pragmatists or conservatives – to reuse the labels of the innovation adoption lifecycle.
So, you want to look at what is happening in the retail space because it is much easier to reach virality in the retail space. And, what has become viral in the retail space then jumps to the SME market, before finally reaching a mass adoption in the corporate space.
Have payment fintechs won the digital experience battle in international payments?
Yes and no.
No, because there is still more friction in a first digital transaction with a non-bank than with a bank. Why? Because fintech needs to do a KYC on any new customer and you need to send the funds to the fintech for it to process the transaction (pay-in).
Yes, because digital native fintechs have typically been better at designing a smooth customer experience.
Who has the best customer journey?
Let us deep-dive into the customer journey. We will compare a “normal bank” (because customers don’t change bank that often, even though that statement is not as true today as it used to be) and a best-in-class fintech (because if you chose a fintech over your bank, you will go for the best-in-class). We have given them a convenience score based on our interactions with multiple banks and fintechs. Important disclaimer: We are intentionally simplifying the scoring – there are definitely banks doing well in the digital customer experience and fintech fairing poorly.
What should we remember from the customer journey scoring?
- Banks have a significant natural advantage by holding customers’ funds. Payment fintechs have to demonstrate a significant superiority in their offering to offset the friction of going through the KYC and pay-in process, on top of the perceived additional risk of using a non-bank. Once the customer has crossed the bridge of setting-up an account with a fintech, it is very difficult for banks to win this customer back.
- The step of capturing the beneficiary details is the least convenient step both for fintechs and banks.
The digital payment experience toolbox is available
It is a given that the digital cross-border payment experience will be far superior in a few years compared to what it is today. We more or less already know what will be driving the change and who will win or lose.
- KYC on payer will be a matter of few clicks. Government-backed digital identity initiatives like Aadhaar in India and tech start-ups in the identity space are making the on-boarding process almost frictionless. Advantage for fintechs!
- Pay-in will become seamless with the rollout of open banking. The objective of open banking is to enable third parties to initiate transaction on a bank account. That will solve a big part of the pay-in problem. Likewise, a growing number of fintechs are working with Visa or Mastercard to issue cards and they are able to store funds. In Europe, many are also now issuing IBANs, hence they are able to receive payments. Advantage for fintechs again!
- Customers will know the exact cost and speed of their payment, and it will be competitive. The payment execution is a direct consequence of the payment rails. We have covered that in the previous episode.
- The capture of beneficiary details will be replaced by the global usage of proxies and aliases. That is where iPiD comes in! Do read the next episode. Banks and fintechs have equal opportunities to optimize the process!
- The capability to track payments like packages already exists for banks… it is unfortunate the customers do not benefit from it yet. SWIFTgpi opened the black box of international payments by creating a tracker for payments until the funds are credited on the beneficiary account. This prerogative is not available to fintechs to the same extent. Banks focusing on retail remittances will offer this tracking capability in their mobile banking portals, providing a transparency greatly valued by customers. Advantage for banks!
- Banks and fintechs will provide advanced analytics on historical international payments that entice customers to repeat transactions and help them manage their daily finances. For years, people have tried to minimize the need to do international payments to avoid the cost and hassle. Sometimes, even reverting to barter trade instead. An improved customer experience and lower cost should drive up volumes, like what we have seen domestically. That will make the analytics even more relevant. Banks have an advantage over pure-play payment fintech in providing meaningful personal finance management (PFM) analytics as they can integrate those insights with all the other customer activities with the bank! Advantage for banks!
To conclude, we can say that the natural friction associated with using fintechs will get much lighter. However, the best banks will leverage another advantage that they have over fintechs: a wealth of data.
The importance of scoring your digital experience
Payment service providers may sometime pay too much attention to hard metrics such as the payment cost and execution speed. These are metrics that are easy to measure and benchmark. However, the digital experience appears to be more important to win and retain customers. It is certainly more difficult to measure and to communicate about, but the return on investment makes it worthy.