Efforts to transform national payments systems around the world. Source: McKinsey
Last September, McKinsey released a report overviewing the need to modernize payments.
The report acknowledged the “global trend toward improving payments systems and architectures on a national scale”:
High-profile initiatives are under way in the United Kingdom and Australia, while lesser-known but equally intense efforts to modernize and compete have been launched in countries including Thailand, Turkey, Colombia and Bahrain. In the UK the focus is on improving the speed of payments; in the U.S. and some other countries, the entire payments system is being optimized—a comprehensive approach in which speed is just one variable. In Thailand and other countries, payments systems are being upgraded as a means to increase the banked populations, while also reducing physical cash transactions.
The consulting firm further concluded that “financial institutions have four clear, compelling reasons to invest in improving payments infrastructure”:
- Payments are central to the banking customer relationship. Payments touch points foster customer engagement, satisfaction and loyalty, and provide banks with the opportunity to grow or maintain their share of customers’ wallets.
- An improved payments system can have a positive economic impact on payments overall, improving revenue potential and ensuring a positive business case in its first decade.
- The enhanced functionality of an improved payments system could allow for near-real-time payments, which in turn would enable monetized services like expedited bill-pay and person-to-person payments. This capability could transform the economics of retail banking by making a larger portion of retail customers profitable, enabling economically viable solutions for the underbanked, and allowing banks to compete effectively to retain their most profitable customers.
- The digital convergence of commerce and payments has attracted new competitors who are developing convenient, faster payments solutions. These players will intensify the competition for payments and threaten banks’ position unless banks innovate and invest in better systems.
Download the full report.