How These Troubled Times Can Be A Catalyst For Banks To Differentiate And Accelerate Digital Engagement

In the past 20 years, cash payments have declined in favor of payments via card or other electronic forms of payments. There are multiple drivers behind this decline, including the increased acceptance of cards payments by merchants, the strong growth of of e-Commerce platforms, the introduction of “Tap and Go” contactless payments, and the maturity and proliferation of digital wallets. Looking just at Australia as an example, card transactions have increased as a share of overall payment volumes from 26% in 2007 to 63% in 2019.

In the wake of the global COVID-19 pandemic, some fundamental changes have occurred that will increase the use of digital and card payments away from usage of physical cash:

  • Card Schemes (Visa, Mastercard and others) have significantly increased the transaction limits of “Tap and Go” contactless payments often in response to advice and feedback from Governments and the World Health Organization for consumers to avoid contact with physical cash and Point Of Sale terminals,
  • Merchants shifting to card payments only to reduce the risk of COVID-19 being spread to their employees via cash. The instances of merchants refusing to accept physical cash is notably increasing in the developed world;
  • With many retailers and restaurants being forced to close their physical stores, many shifted their business models to omni-channel or even exclusively online where digital and card payments are the only way to pay

And whilst overall volumes of payments have decreased during the pandemic, the combination of all of the above-mentioned factors have resulted in an accelerated shift away from cash and towards digital payment methods (including as card and Buy Now Pay Later services.) Data from MasterCard and Visa show that in March 2020 the use of digital payments was far greater when compared to the previous peak shopping month of December 2019 for Australia. In the UK, the rise in the contactless payment limits from 30 GBP to 45 GBP saw cash usage halve in the few days following the nationwide lockdown. Given the duration of the current crisis, many experts expect these behavioral changes to become entrenched as consumers get used to using a card or digital wallet instead of cash.

This shift presents an opportunity for forward-thinking banks to differentiate from their competitors. Rather than competing solely on price and service experiences, these banks can look to differentiate by offering new services at the point-of-payment that help grow the whole-of-bank relationship. To identify value-add services that would have potential high take-up rates, banks should do the following:

  • Customer Lifecycle Mapping for Target Segments: This activity requires banks to look at their target customer segments and map out major milestones the consumer will experience (e.g. move out of home – renting, purchasing car, retiring, etc.)
  • Understanding the Bank’s Role for each Activity / Milestone: For each of the milestones identified, banks need to look at what their role is in helping achieve that milestone and develop repeatable use cases for those occurrences
  • Identify New Consumer Value-Added Services: This step requires the bank to dive deeper into each particular consumer service use case to either: a) identify services that can help accelerate a consumer reaching the milestone and/or; b) enable the milestone to occur. For example, accelerating savings for a car may require the bank to build up a “round up” service to move spare change into a high interest savings account, or enabling a rewards ecosystem around the purchase of the car.
  • Prioritize for Rapid Delivery: New services identified should then be prioritized across a number of dimensions: a) Business Benefit; b) Cost and Complexity to Implement; c) Impact on Customer Engagement – and delivered as quickly as possible. It is here where third parties can play a role in enabling banks to combine off-the-shelf services to meet their specific strategy and their customer’s needs.

Importantly, innovative banks require the ability to test and learn quickly from these use cases and iterate quickly on the development and evolution of the use cases. In summary, banks need the ability to dynamically manage retail products (such as credit cards, debit cards, personal loans et cetera).

The time is ripe for banks increase the trust of their customers and play a more pivotal role in their customer’s lives. Offering value add services is one of the keys to making this happen.

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