Developing A Payments Strategy Part II: The Nitty Gritty

    Feb 22, 2017
    Getting started is the most difficult part of any undertaking, but if you’ve been able to accomplish most of the steps I outlined in my last post, the really challenging work in developing your community bank’s payments strategy is done.

    Your next step is to identify any and all corporate strategies at your bank that are payments related. Examples could be your bank’s delivery channels or perhaps a goal of increasing non-interest revenue. Next, you’ll want to concentrate on strategic areas of focus such as integration, improving client interaction and/or user experience. I always tell ICBA Bancard clients to: 

    • Think digital first;
    • Emphasize relationship/service;
    • Focus on security;
    • Evaluate multi-channel capabilities; and
    • Pick the right vendors with open architecture for API solutions.

    In my former role as a community banker, I always found it helpful to create visual aids to clarify complex relationships and concepts. In the example below, you can see how a bank’s payments strategy initiatives can be compartmentalized based on whether you are expanding an existing channel or innovating through new channels.  
    170001_CBU_BDP Newsletter Jan-Feb_charts1

    For a more complex or rapidly evolving product like mobile, you can use a chart like the one below to track and evaluate opportunities against your bank’s key metrics. In the example below, mobile wallet opportunities are examined and measured against pre-determined criteria such as:

    • Is this product relevant to our clients? Remember, your clients today may not be your target clients in the future.(Competitive Differentiator/Table Stakes)
    • Will it increase our revenue or reduce our expenses? (Table Stakes/Quick Hits)
    • What resources including cost and time will be needed for implementation? (Quick Hits)
    • How is marketplace adoption? (Black Hole/Shooting Star/Competitive Differentiator)
    • How will the product/service integrate with our existing offerings and what will the customer experience look like? (Competitive Differentiator/Quick Hits)
    Payments Strategy Initiatives
    Your bank’s payments strategy should be thought of as a dynamic blueprint that is always evolving. This isn’t a one-and-done proposition and there is no one-size-fits-all plan that is perfect for every community bank. As consumer behavior and technology continues to change, community banks must be flexible enough to respond.

    Developing A Payments Strategy Part I

    Jan 23, 2017

    Happy New Year! With a nod to the new ways we share information, and a desire to connect more personally with ICBA Bancard’s community bank clients, I’d like to welcome you to my new blog, Tina’s Take on Payments. My goal in starting this blog is to share with you the latest information on trends affecting payments, while occasionally highlighting some of the work we are doing at ICBA Bancard.

    In the six months that I’ve been president and CEO of ICBA Bancard, a recurring question I keep hearing from community bankers is, “How do I develop a payments strategy that will best position my financial institution for the future?” As a former community banker, I absolutely understand this concern.

    According to the Federal Reserve’s 2015 Consumer and Mobile Financial Services Study, one-third of Millennials and Gen-Xers were already conducting mobile payment transactions two years ago. These adopters represent 160 million cardholders and will be the biggest adopters of mobile payments. Millennials are already using the name of PayPal’s money transfer service Venmo as a verb. Do you know what other brand names are frequently used as verbs? I’ll hold tight while you Google that.

    I don’t think any of us needs a crystal ball to see what’s coming. Fintech will continue to migrate to mobile-first solutions. Tablets will replace computers. The Internet of Things will explode, driving digital convergence. Change is inevitable, but it doesn’t have to be scary. The British Army has an old saying about proper planning preventing poor performance that I’ve found applies to any monumental task I’ve undertaken. Below I’ve outlined some practical steps that you can follow to evaluate your payments landscape and engage leadership and the appropriate stakeholders at your bank. In a future post I’ll share more about the nuts and bolts of developing a payments strategy. But in the meantime, let’s get started!

    1. Determine your target clients – the clients you have today may not be the clients you target in the future.
    2. Assess your current payment offerings – take inventory of what you offer and usage.
    3. Identify gaps in your current offerings – are there products missing that would be considered table stakes?
    4. Determine your current costs by product/service – vendor invoices are helpful if there are not unique general ledger accounts. Don’t worry about overhead initially – just identify your processing and any hardware/software expenses.
    5. Determine your revenue by product/service.
    6. Determine what percentage of your non-interest income is generated from payments – a high-performing bank should derive 35 percent or more from payments.
    7. Assign a senior manager and executive sponsor to your payments solutions.
    8. Determine your risk tolerance.
    9. Identify trends by payment type – are volumes increasing, about the same or declining?
    10. Benchmark against peers – the Federal Reserve Tri-Annual Payments Survey is a good place to start, and it’s free.
    11. Establish a payments committee – be sure to include all stakeholders, including commercial, retail, IT, compliance, finance and executives.
    12. Determine vendor offerings and roadmaps.
    13. Develop a payments strategy.
    14. Prioritize initiatives based on your organization’s risk tolerance, target segments, ROI, and growth goals.
    15. Review and refresh regularly!