Officially the NACHA conference that opened yesterday (May 1) is branded as “Smarter Faster Payments.” Both adjectives are music to the ears of attendees from financial institutions attending the Nashville event. “Smarter” mostly comes via the data that is made available through the continued momentum behind the ISO 20022 format as well as the data analytics that have become rocket fuel for stronger customer relationships. “Faster” is all about the real-time rails that have added an element of immediacy to payments and settlements.
While it’s tempting to make payments the star of the show, it’s important to prioritize the attendees at the conference. Bank executives and leaders at other financial institutions arrive in Nashville with a full agenda. There’s the looming entry of the FedNow platform, scheduled to debut a year from now. There’s the new $1 million limit on real-time transactions that will open up an entire new category of use cases. And there’s the continuing need to stay competitive in an environment where M&A activity is on the rise.
Bottomline’s client management executive Laurence Leinbach has seen the payments landscape evolve from the perspective of the finance leader for more than two decades. As he prepared to attend NACHA, he sat down for a Q&A on strategy, payment platforms and setting priorities.
Bottomline: Digital transformation and payments modernization are key issues this year. And a recent PwC executive pulse shows 60% of bank CEOs rate the issue as “very important.” What is your sense of the progress toward truly digital banking in the US? What are you hearing from Bottomline’s clients about managing capital expenditures for digital transformation?
Leinbach: I’m seeing a strong shift in expectations surrounding the commercial digital experience by business customers. They expect their bank to provide an intuitive solution that works based on their business process, instead of the bank’s business processes. Regardless of the size of the customer, regardless of the size of the bank, these high expectations exist. This shift has put increasing pressure on smaller regional banks to deliver a solution that was historically reserved for the largest banks. Here’s the the challenge: the cost of these advanced solutions has been too high for smaller banks. So a balance is needed between the vendors providing advanced features more economically, while the smaller banks develop new fee-based revenue streams to fund those features.
Bottomline: Are you concerned that banks are dealing with too much too soon? At NACHA there’s a slew of issues to address from real-time payments to ISO 20022 adoption to the entry of FedNow. How do banks prioritize their projects?
Leinbach: I see it as a prioritization effort with focus. Like any endeavor, you need a strong foundation on which to build those projects and that would typically point most banks to a focus on core payment platforms. However, in today’s world with the ever-growing pressure from fintechs, banks need to ensure they have an engaging online platform that can support their customers’ needs while they firm up their digital foundation. A flexible, engaging online experience that includes core banking capability in combination with effective fintech integration can help achieve this. It can provide an exceptional client experience, build brand loyalty and mask many weaknesses in the foundation while they are being repaired or upgraded. As the banking foundation is improved, the online experience can be incrementally adjusted with little to no impact to the client’s experience.
Bottomline: You get to see banks and their different strategies up close. What are the hallmarks of a successful bank in the current environment?
Leinbach: I’m my experience successful banks master the basics. Most banks know their weaknesses and can still develop a strategic plan to advance the business. That’s the easy part. Focus on efficiently completing projects by dedicating the right resources to each initiative is the hard part. And it’s also the key to success. Like many businesses, leaders can get distracted by the next shiny object, which can lead to distracted resources pulled in multiple directions. No surprise then, that these banks don’t deliver expected results. Time is money. The faster you deliver the faster the benefits begin accruing. So the cost of distraction can be seen in cost overruns but more importantly, it diminishes the benefit of the project.
Bottomline: The second most important CEO priority in the PwC survey is “increasing agility to compete in a turbulent business environment.” How would you recommend that they accomplish that? customer-facing
Leinbach: Agility to compete, means agility to develop and deliver. Banks must invest in platforms that can be nimble in their development and delivery. You can’t mask organizational agility at the point of customer engagement; you have to instill it throughout the delivery process. Banks have historically tried to have customer facing teams and products mask the rigidity of the back-office processes. That approach can only work for so long. You have fintech companies and other providers who are not saddled with legacy, complex platforms competing for your customers. And those customers expect greater agility. How do they capture that agility? Banks need to delve deeper into their delivery platforms to simplify and create embedded flexibility.
Bottomline: Tough questions given the full slate at NACHA, but what would you say are the most important issues here?
Leinbach: Banks need to increase the strategic importance of their role as a financial partner to their customers. Banks need to provide a compelling, integrated suite of services that address a pain point. That will necessitate a combination of products you deliver directly and it will also need products provided by third-party partners. You then need an online channel that combines all those solutions together into an integrated suite that enables the bank to occupy the center of the financial relationship. Integration dramatically reduces complexity, maintenance requirements, support and costs compared to traditional separate payment platforms. Banks can mirror how customers view payments provided they have the information and intelligence to manage and route them.