Co-Dependence Between Banks and Their Technologists: Hampering Innovation

by Erin McCune on May 7, 2012

in B2B Payments, Banking, Banking Industry, Commercial Payments, Conferences & Meetings, Erin McCune, Innovation, NACHA Payments 2012, Technology, Treasury & Cash Management

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Talking to banks and the biggest bank technology vendors at NACHA’s annual payments conference last week I couldn’t help thinking how they suffer from similar challenges. Big banks are hampered by their complex technology environment of legacy solutions with layers of more modern solutions built on top. Products and customer segments are managed in silos defined by old payment approaches that are no longer valid in our digital age. In these trying economic times lines of business and operational teams compete internally for resources and have many distractions (regulation, rounds of layoffs, etc.) that distract them from their customers.

Meanwhile the biggest banking vendors have grown through acquisition and have similar organizational silos build around traditional solution sets. Despite their outward attempts to present comprehensive, holistic solutions they too are hampered by internal fighting for resources and strategic focus, exacerbated by the fact that lines of business and product groups are often former competitors from their pre-acquisition days.

The revolving door of leadership between banks and their solution providers doesn’t help.

It’s no wonder that banks and their big vendors aren’t very nimble! Even if they knew today exactly what to do to delight their customers and achieve true differentiation it would take 18-24 months before they could incorporate it into their respective release schedules.

This leaves an opening for smaller and/or focused providers that can move relatively quickly. Not all startups have the tenacity and resources to go to market without bank partners.  Thus, to achieve meaningful economies of scale, the upstarts often need to sell their solutions through banks and the dominant technology vendors, and as a result are paralyzed by the same 18-24 month release cycle.

It’s depressing.

3 Responses to “Co-Dependence Between Banks and Their Technologists: Hampering Innovation”

  1. Spot on with the 18-24 month cycle, which is why I would recommend everyone think carefully before selling to a bank (and, equally, why banks are not big competitors when it comes to new innovations).

    The alternative to selling through banks, for our case (Holvi), was to become a bank ourselves :-) At least from the user’s point of view. We own the customer relationship and they store their money with us, even if we ride on some existing banking infrastructure in the background. Quick innovation, faster turnaround, much more scalable business.

    In Europe, with the new Payment Services Directive, things like this become increasingly possible, bringing in whole new players and innovation into the area. It’s one of the most important developments in finance for decades.

  2. Dave Birch says:

    Holvi is correct. The best option for the US is to move toward a similar regulatory framework, where companies can obtain licences to run payments-centric “near banks” without needing banking licences or banking regulation.

  3. Joe says:

    Dave is right but neither he nor Holvi should muddy the waters when comparing banks with payment gateways.

    A bank is mainly geared towards long-term investments, and long-life relationships direct to consumers and businesses. Payment gateways are primarily focussed with performing transactions for relatively small fees and as such have long-term relationships with businesses but short-term relationships with consumers.

    But I completely agree that banks should be rethinking their relations with their customers as long-term income streams and appreciate that people are more willing to move their own commitments into a variety of banks and have no need for the loyalties the banks used to depend on.

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