The verdict is in from the
‘Global Innovation Jury’, sponsored by e-payments solutions
provider Ixaris, and the verdict is not good for established banks
and card providers. Entrenched in existing systems and processes,
they are generally followers rather than the leaders of innovation,
writes Louise Naughton.
Go deeper with GlobalData
Innovation – a
worn-out word that is used time and time again in the payments
industry but is nevertheless one that is a crucial area of
focus.
New product announcements are hotly
debated and analysed on an almost daily basis but traditional
financial services companies are slow to catch on and are reluctant
to change their ways. This then ensures some or most innovative
products and services remain stuck in oblivion and are never seen
or heard from again.
Fed up of the blasé attitude that
banks and payment schemes have to innovation, new entrants are
increasingly moving into the payments industry, hungry for change.
Could this be the push that the traditional payments organisations
need to innovate at a quicker pace?
E-payments solutions provider
Ixaris sponsored research into the innovations arena, bringing
together 22 ‘payments industry leaders’ from around the globe to
form a ‘Global Innovation Jury’.
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By GlobalDataThe jury was chaired by Ixaris
president John Chaplin and the subsequent report, Payments
Innovation 2011: The Global Jury Decides, details their
thoughts on which environments help best foster innovation.
The report confirms the notion new
entrants are clearly the primary force behind innovation and says
2011 will see new players from more diverse sectors impacting the
payments market. It cites Facebook, Apple and telecoms as the real
threats to the status quo.
Retail banks languish in last place
on the list in terms of success rates within innovation and
MasterCard and Visa fare little better. Many jurors voiced the
opinion that banks and payment schemes are heavily entrenched in
existing systems and processes and are therefore are generally
followers, rather than the leaders of innovation.
“Retail banks and the schemes are
prisoners of the status quo,” says one juror.
“So perversely are the major
processors who need to innovate to stay relevant but are short of
investment money, and retailers who are focused on other
things.
“Innovation is most likely to come
from the technology providers and new entrants.”
Asia came out as the top choice by
a significant margin as the region the jury believes to be most
likely to create innovation, with the Central and Eastern European
region bringing up the rear in the survey.
“Europe has become sclerotic,
burdened with regulation and short of cash,” says one juror.
“In Africa, necessity is the mother
of invention and in Asia, there is a tech push to innovation.”
Latin America jumped from last
position in the same survey two years ago, to joint third with
Africa this year. The report claims this to be due to the current
fast pace of the market and the positive impact that fast growing
economies such as Brazil have on innovation.
Micropayments were recognised by
the jury as being hungry for innovation as they are still operating
with ‘big inefficiencies’ but it was low-value payments that came
out top in the levels of expected change. The report also
highlights that cards remain an area of slow innovation but
forecasts that the ‘old order’ is starting to break down and
traditional partners will be compelled to compete in 2011.
Driving force
While the financial crisis led to
an increase in focus on customer retention, the jury believe this
trend has now shifted to customer acquisition and places it back on
the priority list, coming in second behind competitive pressure as
the driving force behind innovation.
“In some markets, it is becoming a
case of innovate or get out,” says one juror.
Revenue generation claimed top spot
back in 2008 but has now been relegated to third position with cost
reduction declared as the weakest driver for an organisation.
Again the legacy system is blamed
for reasons why innovative ideas get rejected in the payments
industry and is second only to the inability to guarantee customer
uptake of the product and/or service.
The report links these barriers to
innovation, claiming that the absence of legacy systems can mean
new entrants lend themselves to a more entrepreneurial position and
are therefore more willing to invest in a less-than cast-iron
business case.
Innovation around improving access
to products is said to be the key area of focus for 2011, while new
product development scored the highest in the 2008 survey, which
slid to second place this year.
“The explosion of the smart phone
and tablet markets are two of the main reasons for this swing in
opinion,” says the report.
“Coupled with the rise of
interactive TV and the increasing penetration of high-speed
internet, they present a revolution in access methods for
banks.
“As new access channels emerge,
traditional particular telecoms companies are seeking revenue
opportunities in the market.”
2011 is set to be an interesting
year for innovation if new entrants continue their march into the
payments arena. They have the means to shake up the payments
industry beyond recognition, leaving banks and card schemes choking
on their dust.
Traditional financial services organisations cannot let that
happen but only time will tell whether they will continue to sleep
on the job or fight back to claim their place in the payments
innovation world.
