The retail industry is fast evolving to meet increasing customer demand. Modern payment systems and infrastructures are being implemented to ensure consumer payments are efficient and fast. In the last 12 months, online retail spending reached $50.7 billion with 90% of consumers now using a digital wallet to complete transactions.
This is a result of the rise in innovative technology that offers customers high-quality payment services with little excess cost.
Ensuring banks remain relevant
Banks have always been at the centre of the payments market, with a low variety of competition between major players. However, the increase of consumer expectations and use of new payment technologies have challenged banks to find new ways to place themselves in a prominent position for growth as the retail industry evolves. Customer loyalty is more important than ever, so Australian banks need to leverage innovative payment services to gain a competitive advantage, or they risk being outperformed in key revenue areas such as mortgages, cards and loans.
Creating success in retail payments
In today’s world, most cross-border payments occur without the involvement of a bank at all, as new entrants embracing innovation are putting the customer first. Global payments still face many challenges however, such as passing through multiple jurisdictions and account verifications, creating a higher level of error and delay than domestic ones.
Despite this, modern payment systems now empower businesses to pay their counterparts, vendors and merchants instantly through seamless and fast transfers domestically and internationally. Facilitating the decentralisation of verification, the cross-border transfer process can cut out intermediaries, reducing major delays and high FX fees whilst remaining highly secure. This leads to businesses being able to better manage their cash flows, develop positive relationships with suppliers and improve traceability.
How does this affect banks?
As the economy rapidly evolves, it is on the business to keep up with the pace of innovation. We have witnessed household companies face major financial declines when failing to transform their business, and the volatility of business success will only increase as the world transforms faster and faster.
Over the past 10 years, fintechs have emerged strongly, looking to insert themselves in front of the bank’s audience. Although relatively new, these companies are backed by immense investment, with BCG reporting that investors funnelled $11bn into payments-related fintechs globally in the first half of 2022 alone. Although banks have dominated the landscape since forever, they too could face serious declines in success if they fail to keep pace with innovation.
However, payments are only a small piece of the financial revenue puzzle. To maintain focus on enhancing customer experience and exceeding their heightened expectation, it would be remiss to think non-banks will not start developing new solutions and services to diversify and expand their streams of revenue. These could be in areas such as mortgages, cards and loans and offer competitive and low-value alternatives to what banks are currently offering.
It is vital that banks action change now and uphold their position in the market. Leveraging established market infrastructures that are cleared by regulating bodies will provide transparency between financial institutions and their customers.
Developing retail payment solutions
For banks to deliver on these new services offering, they must embrace new innovation and technology. New payment systems must meet a multitude of requirements to live up to the expectations of all their stakeholders, from regulators to end customers, and they must be cost-effective, resilient, and fast. Banks that seize this opportunity are ultimately competing effectively by providing quick and easy solutions that are specific to the needs and demands of consumers today. Different countries have also implemented real-time retail payment systems in different ways, ranging from simply adapting current legacy infrastructures, to building brand-new innovative systems.
Collaboration and innovation will be vital for banks to ensure these solutions are low-cost and effective. Utilising current market infrastructures that are already approved and secure can help banks implement real-time payments technology in retail markets, and in turn, meet the strong expectations from customers for instant transactions – providing banks with major advancements in its overall functionality and operability. As the retail industry rapidly involves, it is important that banks are not just keeping up but setting the pace of innovation for large and small businesses alike.
Julie Bolan is head of payments for Asia Pacific at Swift.