Quick Guide: Banking’s Digital Transformation (#Payments)

Developing faster payments capabilities is a critical element within the banking industry’s digital transformation.

In yesterday’s post (The 5 Corners of Technological Innovation in Financial Services), I looked at the introduction of an Innovation Group at Wells Fargo that, in the words of their CEO, “puts an even larger focus on creating the products, services, and technologies” that will allow the institution to stay competitive and allow its customers to do their banking when, where, and how they would like.

As I dug into the Wells story — which received a lot of play from the press — It strikes me that to successfully transition one’s business model, innovation teams such as this one need to work in concert with major business groups like wholesale and commercial banking, commercial real estate, trust and wealth management, and payments / consumer banking.  As I consider how banks actually operate — e.g. how work is done, the degree of automation, the pricing and design of products and underlying compensation systems — I revisited several videos from Bank Director’s annual FinTech Day @ NASDAQ.  One, of Ben Plotkin, Vice Chairman of Stifel / Executive Vice President of Keefe, Bruyette & Woods, stands out, as he shares his perspective on how banks of all sizes can find success.

Ben touched on the payments space, and I too am curious to explore the role banks must play in the emerging payments ecosystem.  Here, Accenture provides valuable context as the world becomes more digital: “speed in all aspects of financial services is increasingly important. The payments ecosystem is no exception. Faster payments are taking shape across the globe—and may become industry standard.  While faster payments can enhance the customer experience and improve cash flows, it introduces a number of complexities, such as capital costs, and accounting and fraud systems impacts. In the short term, providing the impression of a near-real-time payment through memo posting and verifying the certainty of payment could be implemented sooner, and may meet expected market demand.”

Certainly, the trend toward digital money continues to gain momentum, and when it comes to the payment space, there are emerging technologies that have the potential to dominate the financial landscape (e.g. P2P & Blockchain methods).  Case-in-point, Stripe, the California-based online payments company, has raised new investments which have raised the company valuation to $5 billion.  Per a report in yesterday’s Let’s Talk Payments (h/t Brad Leimer @leimer), the funding “was led by financial giant Visa and experts believe this is a huge endorsement for Stripe. The company had previously raised a total funding of $190 million from high-profile investors including PayPal co-founders, Sequoia Capital, Box CEO Aaron Levie, Khosla Ventures, Andreessen Horowitz and others.”  As The New York Times reported, the companies’ strategic alliance will give Stripe access to Visa’s global network of issuers and acquirers.  BI Intelligence Payments Insider notes the companies will also collaborate to create online checkout solutions and buy buttons that can be plugged into developers’ websites anywhere.

How we pay, borrow and invest continues to change the way we conduct our financial payments.  It is fascinating to watch as companies like Stripe, PayPal, Dwolla, etc hustle to simplify how businesses accept payments through mobile applications while banks like Wells Fargo invest to do the same.

Before I pack my bags

DC food trucks got some business...
By staying local, a few DC food trucks picked up extra business this week…

For the first time in nearly two months, I did not leave the friendly confines of Washington, D.C. for work.  Next week, AA gets my business back with a trip to San Francisco — followed by one the following week to Chicago and the next, to New York and Nashville.  Yes, I anticipate sharing a number of stories in the weeks ahead, but these three had me excited to post today.  As always, my #FridayFollow-inspired post on things I heard, learned or discussed that relate to financial organizations.

(1) File this one under “things that make you go hmmm.”  Earlier this week, the American Banker published an interesting piece entitled “Fed Reveals Secret Lessons of Successful Small Banks.”  As I’ve written in multiple M&A-focused posts, many investment banks  predicted a wave of consolidation among community banks after the financial crisis hit while positing that financial institutions need at least $1 billion of assets to compete/remain relevant.  This piece, however, cites recent St. Louis Fed research that shows the asset range with the most “thrivers” — the term the StL Fed used to describe remarkable banks — was $100 million to $300 million.  As the American Banker notes, much of the research stemming from the crisis focused on the mistakes banks had made, so the St. Louis Fed decided to take the opposite approach.  If you have a subscription to AB, their recap is worth a read.

(2) Disruptive technologies were front & center a few weeks ago in New Orleans at our annual Growth Conference.  Yesterday afternoon, McKinsey put out “Disruptive technologies: Advances that will transform life, business, and the global economy.”  While not specific to our industry, the fact that the “mobile internet” placed first should reinforce the conversations taking place in bank boardrooms today.  According to the authors, 4.3 billion people are yet to be connected to the Internet, with many expected to first engage through mobile devices.  Considering the six-fold growth in sales of smartphones and tablets since launch of iPhone in 2007, well, you can see why I’m bullish on banks getting social and enhancing their mobile offerings ASAP.

(3) Finally, for those quants looking for a good, non-Krugman economics piece, look no further than the NY Times’s “Economix” blog.  The most recent post: How a Big-Bank Failure Could Unfold.  In the piece, the authors consider what could happen if there were a hypothetical problem at a major international financial conglomerate such as Deutsche Bank or Citigroup.  As they note, “defenders of big banks are adamant that we have fixed the problem of too big to fail.”  This entry considers the alternative.  So for those with a desire to stay up late during this Memorial Day three-day weekend?  This might be a read for you.

Aloha Friday!

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