Enhancing Customer Experience through digital Banking: …. Opportunities that await BoG if it invests in digital payments technologies

Digital innovation is transforming how businesses operate and how people work. Your bank will need to embrace digital capabilities in order to revolutionize its business. Achieving digital innovation will require your bank to create immersive digital customer experiences, change the way employees work and rethink your business models.

Usually, when we talk about the effects of digital transformation, we tend to focus on companies producing consumer goods. But there is another ‘industry’ that is effectively searching for innovative ways to deal with customers: retail banking. Digital technology is dramatically changing the way clients interact with banks, forcing them to evolve from traditional bank counter operations to online services. A new era for retail banking is customer experience. The banking industry’s efforts to shift to digital channels have been halting, at best — a business unit here, an upstart department there. But given the industry’s financial pressures and global economic uncertainties, there is increased urgency — and opportunity — to adopt a holistic approach to going digital and integrating that strategy across the banking ecosystem. Embracing a fully digital strategy requires end-to-end modernization of a bank’s often outdated infrastructure. Equally important, it requires a transition from an account-based view of banking customers to one that knows them as individuals and enhances the customer experience with relevant, convenient and personalized products and service

Mobile banking is already an important aspect of our daily life, but analysis often just study how Internet and apps have changed payments and deposits. Money sharing is just one side of the coin. The other one, even more important, is how digital is redefining customer experience. At the heart of this transformation we find two trends:

The increasing competition from emerging digital banks, lowering of the cost of financial services.

The emergence of a mobile mind shift, with financial institutions finally focused on putting customers at the core of their strategies and creating a consistent experience. Truth is customers now evaluate their banking experience the same way they would do for consumer goods retailers, in terms of interactions and experiences. As they use multiple touch-points, they want banking to be easy, fast, personalized and accessible wherever they are whenever they need it. The ability to deliver a seamless service through all touch-points – both physical and digital – is crucial to establish and maintain long term relationships.

Growing expectations mean that banks must reshape their marketing strategy, CRM and even their identity. The only way to achieve a successful transition to digital banking is to focus on key areas to create engagement, raise brand value and deliver amazing experiences.

In an email dated December 13, 2017, I laid down my top 10 topics that I write on in 2018. One of such topics was customer experience in banking.  One of the areas I wanted to write about in relation to customer experience in banking was to highlight the  benefits of digital payments and how to use digital technology to enhance customer experience in order for banks to achieve some of its objectives which includes  grow current account balances, attract low cost of funds, fair balance or strong percentage of noninterest revenue to total bank revenue, good net interest margins ,  low NPLs/low credit losses, improvement in products per customer, increase in new client acquisitions, improvement in trends in client retention ratios, good Net Promoter Score (NPS ) , increase in market shares of various products and services, diversified client base, increase return on equity and asset etc.

Together with a team of knowledgeable experts, I can help provide your bank research addresses the following issues that are critical to your success:

  • How are banks dealing with limited discretionary spending for innovation?
  • What technologies are being brought to bear to implement digital transformation?
  • How can the bank leverage cloud, Big Data, AI, and cognitive?
  • How can institutions overcome the challenges of today’s workforce to create sustainable service excellence while limiting costs?
  • How can banks modernize their core systems while minimizing risk?
  • How can technology partners help deliver the appropriate solutions, on time, and with minimal risk and cost?
  • How does enterprise mobility support digital transformation?
  1. Executive Summary

Digital technology is transforming the financial-services industry, and banks face the challenge of fully digitizing their businesses. The digital age and fintech revolution are enlightening customers about more convenient, proactive and personalized banking services. In addition, research has found that the disjointed and incomplete experiences in traditional banking are driving customers to consider non-traditional alternatives. How does a traditional bank succeed in this new landscape? By becoming an “everyday bank.”

An everyday bank is an indispensable partner to its customers, offering products and services the customer needs rather than what the institution wants to offer. Harnessing the power of customer insight is a key to becoming an everyday bank.

Utilizing a proven Customer Analytics and Insights solution will help your banks apply customer insight during interactions across the customer journey. The result is next best action capabilities that will enable your bank to deliver the personalized experiences and advice that create greater value for the customer and drive success for the bank.

The average consumer’s banking relationship is dominated by making payments. So why are banks doing so little to defend this critical beachhead?[1]

Based on the  Bank of Ghana (BoG)  2016 annual report on payment systems oversight and the BoG 2o16 annual report [2], the number of registered mobile money customers as at end 2016 was 19,735,098, showing growth of 50.4 per cent over the 2015 position. Similarly, the number of active mobile money customers increased by 70.8 per cent, to 8,313,283 in 2016. The active registered agents of the four mobile money operators (MMOs) in 2016 stood at 107,415, representing a growth of 90. 9 per cent over the previous year’s position. Total value of mobile money transactions of GH¢78,508.90 million in 2016 represented 121.5 per cent growth over the 2015 position. The total float balance of GH¢1,257.4 million as at December 2016 reflected a growth of 129.5 per cent over the 2015 float balance of GH¢548 million. Four (4) Mobile Network Operators (MTN, TIGO, AIRTEL and VODAFONE) offered mobile money services in 2016.

The BoG report on payment systems oversight  further highlights that digital channel platforms provided the opportunity for banks and other financial sector players to introduce innovative products thereby promoting access to financial services. Leveraging on the improved use of mobile phones in Ghana, the following were some of the product improvements in 2016:

  • Mobile Money Interest Payment: In line with the E-money Issuers Guidelines (2015), the Bank approved the modalities for the payment of interest accrued on the float accounts to electronic money holders by the four electronic money issuers (MTN, TIGO, AIRTEL and VODAFONE). The total interest paid to holders of electronic money wallets in 2016 was GH¢24.8 million. The successful distribution of interest in 2016 was the first time that electronic money (mobile money) holders had formally received interest on their float since the introduction of mobile money services in Ghana.
  • E-Zwich International Remittance Platform:  In 2016, Ghana Interbank Payment and Settlement Systems (GhIPSS) introduced an E-zwich international remittance platform to enable individuals and businesses to send remittances from Europe, UK and North America directly onto their E-zwich cards. This medium of receiving remittances from abroad is one of the initiatives by GhIPSS to improve financial inclusion and promote a cash-lite economy.
  • Inward Remittance Services using Mobile Phone Millicom Ghana Limited (Tigo), in collaboration with United Bank for Africa (UBA), obtained an approval from the Bank to introduce an innovative international inward remittance service that allows Tigo Cash customers to pick up Western Union (WU) transfers directly from their mobile wallets.
  • Micro Savings and Loans Approval was given to Pan-African Savings and Loans Company and AFB Financial Services, a finance house, to provide microcredit and savings under the Electronic Money Issuers Guidelines (2015). This service links customers’ accounts to their mobile wallets.
  • Introduction of EMV Technology: The Bank initiated a process to migrate all payment cards from magnetic stripe technology to Europay, Mastercard and Visa (EMV) technology, to enhance electronic card payment system security.

The Q3 2017 BoG payment system report shows the following[3]:

  • Total value of mobile money transactions from January to September 2016 increased from 51.4 billion cedis to 109 billion cedis. This represents 112.2 percent growth in the value of mobile money transactions in the period. The figure recorded in the first 9 months of 2017 is also far bigger than the whole of 2016— which was 78.5 billion cedis.
  • The BoG data also shows an increase in the volume of transactions on the mobile money platform in the same period. Total volume of mobile money transactions for January to September 2016 almost doubled from 368 million to 685 million in January to September 2017, representing 86.1 percent growth.
  • The data also indicated that registered agents in the same period under review increased from 123,129 to 163,869 thousand, showing 33 percent growth in people who joined the business as agents.
  • Meanwhile, registered mobile money accounts for January to September 2016 saw a surge from 18.8 million accounts to 22 million accounts in 2017.

Aside from the above , Bank of Ghana reports, Jumia[4], one of Ghana’s no. 1 online retailer has disclosed that Ghana’s mobile subscription continues to grow rapidly. According to Jumia, with a population of 23.35 million people, Ghana has 36.6 million mobile subscriptions. That’s 129% penetration, up from 127.63% in 2015-2016, which is compared to 80% penetration across Africa. This was contained in the company’s third white paper on Africa Mobile Trends 2017 featuring the latest mobile trends across Africa. Being the maiden edition in Ghana specifically looks at the soaring penetration of smartphones and the evolution of the mobile industry in Ghana for the next five years. Just a few years ago, the inclusion of radio was the most searched feature for customers buying a mobile phone according to the report. Today, the ability to browse the internet is the most searched feature when buying a mobile phone. In 2016, the mobile internet subscriber penetration in Ghana was 14% and for Africa 28% penetration. Meanwhile current trends show that the Ghanaian consumer has become sophisticated and is interested in mobile phones integrated with social media and the ability to download from the internet. Facebook, Whatsapp, Twitter and Google are some of the most important tabs young customers love to have on their mobile phones. Ghana has 7.96 million internet users with an internet penetration rate of 18%. Therefore, Jumia predicts the growth in smartphone adoption to rise up to 720 million smartphones by 2020.

Based on the above developments, few doubt that banks will rely increasingly on digital channels to serve the fast-growing population of consumers who rely on multiple devices to conduct daily business online.

Unfortunately for banks in Ghana, many payments are transacted through mobile apps controlled by online-payments specialists and digital merchants. Payments represent the beachhead for the entire banking relationship, and this beachhead is under attack. Offering a strong payments plan as part of a comprehensive strategy for digital banking is therefore an imperative for banks. But to compete in this emerging arena, banks must meet the expectations of digital natives, delivering diverse tools to help customers make smart decisions across a range of financial services. They should begin by capturing their customers’ most frequent transactions with the new mobile channel and then proceed toward a fully digital relationship

The average customer interacts with his or her bank at least twice a day for payments-related matters, such as buying a financial product, checking on a payment, or paying a bill. These interactions represent more than 80 percent of customer interactions with banks, making payments a superb platform, or beachhead, for cross-selling other financial services.

But the contest for the beachhead is intensifying, particularly in the area of mobile payments (any payment initiated with a portable handheld device) and digital payments (transactions initiated with a digital device—phone, tablet, computer—in which the service provider’s business model relies to some degree on leveraging the data around the transaction for added commercial value). Armed with deposit accounts, lending relationships, an enduring reputation for security, and a robust infrastructure for clearing and settling, banks are currently the only players with the ability to achieve the scale required for mobile payments. They also enjoy huge advantages as digital-payments service providers, to the extent that they leverage these strengths against digital attackers.

While some banks are reaching substantial new customer communities, it is nonbank attackers, ranging from large telecommunications companies to small and nimble technology players, which are defining the standards for digital banking. They have blurred the lines between media content, product merchandising, order, and payment, all while tailoring cross-functional offers to individual, real-time needs. In addition, nonbank digital players enjoy some important advantages, including fewer regulatory constraints, a higher risk appetite, and greater leeway from customers. For now, the payments business remains squarely within the core bank franchise, but attackers such as Google, Apple, and PayPal threaten critical sources of revenue.

Digital payments give banks the platform to do the following:

  • Boost fee and interest income:On the retail side, mobile-payments solutions, including mobile peer-to-peer (P2P) money transfers, international remittances, and small-merchant mobile card readers, not only increase the frequency of consumer interactions but also boost both the number of charged transactions and the cash flowing through bank systems (for example, prepaid, current accounts, consumption-related lending). On the corporate side, transaction banks that execute well on digital cross-selling stand to increase their market share of corporate deposits and lending.
  • Reach a broader set of customers with more diverse services:By tailoring payments solutions to underserved segments, including small and informal merchants, the youth market, international travelers, migrant workers, and low-income customers, banks can shift a bigger share of payments to bank-owned channels. Banks can develop applications for small payments, unattended vending, and ambulant sales to extend the reach of electronic payments and reduce the costs associated with less efficient payments instruments, such as cash.
  • Extend the value proposition.Banks own rich reserves of raw behavioral data. The mobile channel enhances this data pool with location and search data, which can provide valuable insights into future customer choices. Banks should leverage their data strengths to create new services along the full span of the consumer decision journey, reaching beyond payments transactions to manage the customer’s entire digital wallet (by, for example, optimizing loyalty awards and special offers, payments terms, and instruments).

Banks in Ghana have long relied upon technology to introduce products such as on-line banking, ATMs, and mobile payments and to improve back-office efficiency.  But that reliance comes with a price. It is hard to tell if there is a correlation between IT expenditure and profitability of banks in Ghana. Part of the situation has to do with the fact you cannot see the true IT cost of the seventeen (17) foreign-controlled banks in Ghana. Based on the November 2017 Bank of Ghana (BoG) banking sector report, there were thirty four (34) at end October 2017, comprising of 17 for both banks for domestically-controlled banks and foreign-controlled banks.  The line item on the face of the balance sheet that you will see IT spend is Intangible asset.

While correlation does not neces­sarily imply causation, it is interesting to see that more profitable banks have been investing in a few common areas. The areas with the highest correlation with profit­ability were product back-office automation, digitization of document management and automation of credit decisions, and big data analytics applied to sales campaigns. The profit margins of banks with high levels of digital enablement in these areas were, on average, twice as high as the profit margins of other banks. Consequently, while keeping in mind that each bank’s situation and investment cycle is different, I can formulate hypotheses about where IT digitization investments will provide the most bang for the buck

In a McKinsey research, they identified several areas of digitization that do not show much correlation with profit margins. Among them were multichannel inte­gra­tion and sales-dialogue support. Apparently, investing in these areas, on average, does not yield a clear payback. This does not necessarily mean that companies should not invest in these areas. For instance, investing more in multi­channel integration may be advisable for banks whose integration between channels is poor. But the complexity of their architectures may cause an escalation of project expenses and delays, therefore reducing overall return on investment.

  1. What do customers want in retail banking?- Top 10 Predicted trends in 2018

The Financial Brand predicts the following 10 Retail Banking Trends and for 2018 (https://thefinancialbrand.com/69180/2018-top-banking-trends-predictions-outlook-digital-fintech-data-ai-cx-payments-tech/all/)

  1. Improve Customer Experience (CX)-

An optimal consumer journey makes every step and touch point in the buying cycle streamlined, efficient, and consistent and personalized from the consumer perspective. Financial institutions need to re-imagine their core journeys from front to back by:

  • addressing key customer pain points and
  • Identifying new opportunities to delight customers in differentiated ways.Digital channels and transforming the back office to a digital flow is at the core of improving the customer journey in the future.
  1. Expand Use of Data and Analytics (D+A)-

Despite the vast amount of data available and the industry’s formidable resources, most banks and credit unions are still far from realizing big data’s full potential. This gap in capabilities is caused by competing priorities, the complexity of knowing what data to use and how to collect the insight as well as the lack of a coordinated vision. Going forward, the use of AI, machine learning and other advanced analytic tools will provide opportunities for greater personalization and channel optimization. Data and analytics is at the core of every trend expected in 2018. Immediate Strategies:

  • Break down the barriers within your organization that perpetuate data silos. Only after silos are eliminated can advanced analytics be the most effective.
  • Establish a data analytics function or partner with an outside organization to provide help in improving the actionability of your data.
  • Replace timed marketing ‘programs’ with ongoing marketing ‘processes,’ leveraging real-time data to take advantage of immediate opportunities.
  • Test the use of artificial intelligence (AI) and machine learning (ML) beyond risk and fraud analysis, including offer generation and bundling of service
  1. Support Multi-Channel Delivery

Winning financial services organizations will provide all customer contact personnel with the digital tools required to access answers quicker, and will invest higher trained personnel who are better equipped to use these tools and present high value responses to inquiries. The traditional definition of convenience in banking has revolved around the proximity of the branch. With the growth in digital technology and the increased acceptance of online and mobile banking, access to banking products and transactions is no longer tethered to a physical location, resulting in a redefinition of convenience. Today, while convenience is still the primary driver of initial consideration, the importance of branches in that definition has gone down.

  1. Embrace Open Banking

Deloitte believes there are four distinct strategic options for banks and credit unions in the future. In two scenarios, an institution remains in control of the customer/member relationship. In the other two, products and distribution become unbundled.

  • Incumbent as a full-service provider
  • Incumbent as a utility
  • Incumbent as a supplier
  • Incumbent as an interface
  1. Build FinTech Partnerships

In the past, many traditional banking organizations looked at fintech start-ups as more of a nuisance than a threat. Today, many are viewing these non-traditional providers as a threat as well as either a partner or potential acquisition.

In its latest Global Fintech Report, PwC found that 88% of legacy banking organizations fear losing revenue to financial technology companies in areas such as payments, money transfers and personal loans. The amount of business at risk has grown to an estimated 24% of revenues.

In related DeNovo’s research from PwC, it was found that 30% of consumers plan to increase their usage of nontraditional financial services providers, with only 39% planning to continue using solely traditional service organizations. This is an additional wake-up call to legacy organizations to determine how they will retain the key components of an existing banking relationship.

In response to this threat, 82% of traditional financial organizations stated a plan to increase collaboration with fintech companies in the next three to five years. Similarly, almost 50% of financial services firms are planning to acquire fintech startups over the same period.

Fintech startups realize that it takes more than a great solution to attract a scalable customer base. To reach beyond early adopters and the tech-savvy takes massive amounts of capital for promotion and product support. Partnering with an established banking organization who will support the expansion of users among their client base seems like a logical means to an end.

  1. Upgrade Digital Payments Capabilities

Despite increased adoption of digital payments, cash remains a primary form of payment for many, especially for low-value transactions and by certain demographic groups. Attributes of cash contributing to continued use include speed, universal acceptance, anonymity, lack of fees, etc. Some emerging markets also still lack a modern payments infrastructure while certain cultures don’t have trust in the banking system. In other words, the reports of the death of cash are still exaggerated.

The integration of customer analytics, improved fraud management, dynamic wallet solutions and other value-added services will have a positive impact on both the consumer and the merchant. It is expected that ongoing improvement in biometrics and secure payments will become mandatory in the future, while integrating real-time financial management solutions will become commonplace.

Finally, as fintech firms continue to bypass traditional value chain components, traditional financial services organizations will need to determine if they should partner with, buy or ignore these new competitors. Given that most of the fintech activity in the payments space has targeted the most lucrative components of the payment value chain, significant decisions are necessary.

  1. Manage Compliance and Regulations

Since most institutions realize that they don’t have the ability to wait to see how things will eventually end up, many banking organizations are making progress, trying to keep in alignment with what is anticipated from a risk and business perspective. As one banker stated this past year, we are in a position to ‘beg for forgiveness’ rather than ‘asking for permission.’

According to Deloitte, “Banking organizations need to keep moving forward as planned, with deliberate linkage between regulatory strategy; business strategy; and building infrastructure for governance, regulatory reporting, and risk management that scales and is flexible. The good news is that many of the changes banking organizations are currently implementing make good sense from a business perspective—not just a regulatory perspective—and are worth doing no matter how the future unfolds.”

  1. Explore Advanced Technologies (ML, IoT, AI, Blockchain, robotics)

At a time when most organizations are still playing catch-up, a new wave of digital technology has the potential to change the way organizations deliver banking services even further. These new technologies include artificial intelligence (AI), the internet of things (IoT), blockchain, open banking platforms with application program interfaces (APIs) and robotic process automation (RPA). With the potential to increase efficiency, decrease costs and enhance the customer experience, these digital-enabled technologies will result in disruption of the way people do their banking and potentially what organizations deliver these services. We are already seeing organizations testing many of these digital technologies, hoping to win the battle to become the ‘bank of the future.’  As quickly as past technologies have become the norm, a new wave of emerging technologies will combine digital technologies and the power of data to set new standards. According to PwC, these ‘essential eight’ technologies include:

  • The Internet of Things (IoT)
  • Artificial Intelligence (AI)
  • Robotics
  • 3-D Printing
  • Augmented Reality
  • Virtual Reality
  • Drones
  • Blockchain
  1. Compete with New Challengers

Modest-sized fintech firms and large tech giants continue to make retail banking inroads worldwide, providing services that leverage the best in digital technology to deliver a customer experience that removes cumbersome steps from both routine and more involved banking engagements. Relative financial newcomers like AliPay (China), WeChat (China), Rakuten (Japan), Atom (UK), Monzo (UK), Starling (UK), N26 (Germany) and Revolut (UK) have joined household names like PayPal, Amazon and Google to disrupt the banking ecosystem, leveraging modern infrastructures and innovative cultures. According to Bain, “Many of the tech giants possess the ingredients of success: digital prowess, large customer bases, organizations well versed in improving the customer experience, and ample leeway to extend their corporate brands into banking.” More concerning may be that some of these firms are generating a level of trust previously reserved only for traditional banks and credit unions. As a result, an increasing percentage of consumers are willing to use financial products offered from these non-traditional firms – especially where the experience is superior to that offered by legacy organizations.

  1. Testing Blockchain Technologies

Satoshi Nakamoto, the unknown person or persons who designed the cryptocurrency, went on to say “digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending” in the original whitepaper.

In the proposed solution, the “network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed.” He further described the concept of miners where “a majority of CPU power” would generate the longest chain and outpace attackers or malicious intent.

Today, blockchain is no longer just about bitcoin or the broader category of cryptocurrency; it’s an exploded view of the underlying technology. It’s unique and differentiated in that it’s an immutable ledger with a single version of the truth of the transaction. And unlike other immutable datastores, it is also a shared or distributed ledger across a peer-to-peer private or public network. It leverages a consensus mechanism to create permanent records of transactions through a distributed and decentralized network, removing the need for a central authority.

Ultimately it intends to create a trustless exchange of goods, services and/or real assets in a more trustworthy way. With a potentially much lower cost of transaction. Why should we all care? While financial services is the sector most likely to be disrupted, blockchain technology is poised to improve customer experience, streamline product features, and enable our global economic system to reshape market structures that will impact us from Wall Street to Main Street. Financial services marketers, retail bankers, product managers and customer service executives will all be impacted by the progress of blockchain technology. One of the first overarching impacts could be in the development of a system of universal identity verification, that will impact everything from new account opening to cybersecurity.

Leaders must be prudent and act now in evaluating blockchain as the types of deployments evolve, while regulators need to re-evaluate policies and processes given the enhanced transparency the technology promises.

  1. Areas to achieve digital innovation

There are 4 strategic areas to achieve a meaningful and innovative transformation:

  1. Big Data: if there’s an industry where big data can really elevate service, which is banking. Digital demands new model and assets to collect data, test and transform them into useful insights (i.e. using analytics dashboards)
  2. Content Management: when you decide your marketing mix, you can’t ignore the power of storytelling. To create your brand image and adapt it to times of constant evolution, you need to set up a proper content marketing strategy, to connect with customers and engage them on a deeper level.
  3. Social Media: talking about engagement, social networks are crucial to talk with clients and prospects and let them talk to you. Using Facebook and Twitter, a bank is able to show a warm human face, build trust and answer in real-time to opportunities, questions and threats.
  4. Mobile Experience: today there’s no banking without mobile. Even in less developed markets, financial institutions now offer a complete online service to their clients, providing a consistent experience across all touch-points (right-time personalization and Apple Pay are just two examples). To convert banking from a cold experience to a simplified, streamlined, friendly and easy one.
  1. How much are Banks in Ghana spending on Digital

It is hard to tell the true IT cost of the seventeen (17) foreign-controlled banks in Ghana. Based on the November 2017 Bank of Ghana (BoG) banking sector report, there were thirty four (34) at end of October 2017, comprising of 17 for both banks for domestically-controlled banks and foreign-controlled banks.  The line item on the face of the balance sheet that you will see IT spend is Intangible asset.

E.  Digital payments as high-growth opportunity

Not only does the digital channel multiply customer interactions, but mobile and online payments—which together form the bulk of “digital payments”—are the beachhead from which banks can extend their commercial territory and grow revenue. Digital payments give banks the platform to do the following:

  • Boost fee and interest income:On the retail side, mobile-payments solutions, including mobile peer-to-peer (P2P) money transfers, international remittances, and small-merchant mobile card readers, not only increase the frequency of consumer interactions but also boost both the number of charged transactions and the cash flowing through bank systems (for example, prepaid, current accounts, consumption-related lending). On the corporate side, transaction banks that execute well on digital cross selling stand to increase their market share of corporate deposits and lending.
  • Reach a broader set of customers with more diverse services:By tailoring payments solutions to underserved segments, including small and informal merchants, the youth market, international travelers, migrant workers, and low-income customers, banks can shift a bigger share of payments to bank-owned channels. Banks can develop applications for small payments, unattended vending, and ambulant sales to extend the reach of electronic payments and reduce the costs associated with less efficient payments instruments, such as cash.
  • Extend the value proposition.Banks own rich reserves of raw behavioral data. The mobile channel enhances this data pool with location and search data, which can provide valuable insights into future customer choices. Banks should leverage their data strengths to create new services along the full span of the consumer decision journey, reaching beyond payments transactions to manage the customer’s entire digital wallet (by, for example, optimizing loyalty awards and special offers, payments terms, and instruments).

If banks cling to the traditional, narrow view of the payments ecosystem, attackers will not only take the additional revenues described above, they will also enjoy prime access to the “digital trail,” including essential transaction information, and direct traffic to preferred service providers within the digital sphere. Having entered the payments space through profitable, underserved niches such as P2P and cross-border commerce, attackers are now venturing into adjacent segments, which are at the core of banks’ offerings, such as point-of-sale (POS) lending and financial planning. From there they are in a position to modify the actual value chain, targeting new revenue sources and reducing existing ones, such as interchange and transaction fees.

On the other hand, by leveraging the data surrounding digital payments, banks could potentially double their payments-related revenue, beating new entrants at their own game. This new thinking about the core value proposition of banking will require an entirely new approach to operations and solutions innovation

  1. Postures banks can adopt in digital payments

Each bank must reflect on its evolution along the digital-banking continuum: from mobile payments to a unified access strategy for all channels, and, ultimately, a consolidated digital platform to manage and deliver the full range of financial services. This reflection will necessarily span the entire organization, from front-end commercial activities to back-end technology and operations and across all business silos.

Banks should plot the incremental launch of increasingly robust tools to help customers make smart financial decisions. For example, while the initial digital-payments application would include at a minimum POS payments, bill payments, and P2P transfers, a “digital wallet” would go further, optimizing transaction and funding costs, the use of loyalty points and special offers, and so on. The next level of digital integration could support a digital financial planner to manage monthly income, recurring bills, and savings and investments, bringing the bank truly to the heart of the consumer’s portable device and increasing interaction even more. Taking advantage of further multichannel, cross-silo integration, a portfolio app for liquidity and investments might include preset thresholds for buy/sell alerts, special offers triggered when current account balances reach a certain level, and periodic reports and market alerts benchmarking portfolio holdings against standard and custom indexes.

As they reevaluate their core value proposition and contemplate the digital banking continuum, banks face a choice between three strategic postures

  • As fast followers,banks need to track the progress that other banks are making and develop service models that can react to customer needs when a new concept stabilizes. These banks can invest in “competitive innovation centers,” picking up ideas as they hit the banking market.
  • Some banks will prefer to act as catalystsfor growth, inviting others to innovate while they ensure client security, account management, and system stability. One way of doing this is by opening the bank’s IT platform to a select community of developers or allowing others to provide services under their client platform.
  • Other banks might seize the opportunity to be leaders,competing on innovation not only with other banks but also with digital leaders such as Google or Facebook, on banking as well as some nonbanking services. Such leaders stand out as delivering comprehensive digital solutions, and while they bear the risk of market adoption, they maintain a reputation for innovation and industry leadership.

Banks can adopt one of three strategic postures in digital payments.

[1] A defended position on a beach taken from the enemy by landing forces, from which an attack can be launched. Second World War (originally US): formed on the pattern of bridgehead.

[2] https://www.bog.gov.gh/privatecontent/Public_Notices/Payment%20Systems%20report%202016%20FINAL%20COPY.pdf

https://www.bog.gov.gh/privatecontent/Publications/Annual_Reports/Annual%20Report%202016%20final%2024th%20June.pdf

[3] https://www.bog.gov.gh/privatecontent/Payment%20Systems/PAYMENT%20SYSTEM%20STATISTICS_Sept_2017.pdf

[4] https://www.ghanaweb.com/GhanaHomePage/business/Ghana-s-smartphone-adoption-on-the-rise-Jumia-527018