Developing A Payments Strategy Part I

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!