The lines between consumer and financial worlds have drawn closer over time. This began several decades ago with mass adoption of credit cards, as banks got their first glimpse into daily consumer activity and habitual spending. Uber, Disney Magic Bands and the “invisible payment” were next, removing friction from the payment and checkout experiences. Finally, mobile wallets have now gone mainstream, creating an entire ecosystem of use cases around the point of sale and end-to-end customer experience.
Banks have historically played an integral role in consumer-focused activities by virtue of owning the payment rails and gateways to cash. Being the custodian of consumers’ transaction accounts was a breeze in a day where all consumer activity came in the form of cash or checks. But as payments and transacting graduate to new levels of complexity, the role of its custodian must keep pace.
These once-basic, daily consumer activities, and corresponding payments, are becoming increasingly dynamic. In today’s digital-first world, consumers want to be notified of relevant deals before walking into a store; they want to maximize store loyalty where they can; know when they’re approaching a spend threshold that will eat into savings plans; and interact with brands and service providers based on unique preferences, buying habits and behaviors.
Banks have traditionally been seen as trusted stores of funds and wealth advisors, but, as evidenced by the all too banking-oriented wallet solutions on the market today, are highly suspect shopping and spend management companions.
Accepting a Backstage Role in the Value Chain
Just as a business delineates between different cash flow – financing, investments and operating – an individual manages those consumer functions distinctly. He or she typically doesn’t interact with transaction accounts the same way that they do with the more complex, less-frequently-used financial instruments such as 401Ks, auto loans, brokerage accounts and money market funds. In an era of product specialization, should banks be suppliers of both the financial planning side of consumers’ lives (“save/borrow/invest”) as well as the more dynamic, day-to-day transacting (“spend”)?
Though they are deeply engrained in the pipework behind consumer transaction accounts – from ATMs to card networks to fraud protection to rewards programs – banks may be better-suited to have a fintech or third-party own the consumer-facing side of this world. And for credit card accounts in particular, banks should accept the inevitable: a backstage, utilitarian role in the value chain that enables a technology partner to deliver the richer, front-end experience sought-after by the consumer.
Banks are already being disintermediated where it has made sense from the consumer’s standpoint. What started as decoupled debit – the loading of bank funds onto a reloadable merchant debit card – has evolved to mobile wallet “wrapping paper”, managed by non-banks such as Starbucks, PayPal and Apple Pay. Data aggregation providers like Mint and Clarity enable personal financial management (PFM) across accounts while a series of other fintech solutions offer one-touch bill pay capabilities – all of which use APIs to side-step the underlying bank and its accounts.
The message is simple: Consumers feel comfortable performing their daily and weekly lower-dollar value transactions with non-bank tools – and in many cases, they prefer to. Why might that be? Because these technology-savvy third parties can deliver a richer, easy-to-use interface that employs additional context and external data to personalize the experience – a far cry from banks’ traditional playing field.
Identifying the Optimal Non-Bank Partner
Banks will continue to own the payment rails and other behind-the-scenes functions, but are better off finding a partner to provide PFM, product recommendations, integrated loyalty and the like. With that said, who should inherit the customer-facing side of transaction accounts? PFM fintechs, neobanks, wallet solutions like LevelUp and GAFA all come to mind.
For starters, the winning solution must focus on the customer experience over the payment itself (where current mobile wallets have fallen victim to commoditization). This means building a wallet solution that emphasizes pre- and post-purchase engagement over a certain payment technology. Table stakes for this solution would include a gamification element for attracting customers to merchants and real-time digital receipts that trigger responsive action by the consumer (e.g., return to Quizzno’s to redeem coupon just earned; limit future spending on electronics).
The ultimate provider will be one that has vast amounts of data on the extremely fragmented set of merchants nationwide, both brick-and-mortar and online. The provider must also offer a compelling reason to use it all the time, rather than the branded apps offered by each individual merchant. Lastly, the provider must allow consumers to seamlessly migrate funds from its non-bank transaction accounts to the longer-term financial accounts that continue to reside with banks.
The above is no small ask, but is more than possible with the emergence of geolocation capabilities, APIs and artificial intelligence (AI). The reward? A myriad of potential revenue streams built around using data to connect consumers with merchants, service providers and other consumer apps that are best-fit for them.
PFM apps like Mint cater to the financial side of the value proposition with recommendations on cards and products that mesh with a user’s financial behaviors. Neobanks like Moven add the coaching element of the finance equation through spend thresholds and real-time purchase notifications. Yelp and Amazon offer recommendations on merchants and products based on purchase and review history.
All of these providers deliver some form of consumer advisory and guidance based on vast amounts of profile and transaction data. Some of the insights are requested directly by the consumer and others are involuntary. Some occur instantly, prior to a purchase (based on location or another timing element), while others occur immediately after, as a means of reinforcing loyalty or spend coaching.
There are a number of other banks and technology companies that appear as ideal candidates for this type of partnership – Foursquare, Capital One, Google and American Express to name a few. Banks and technology companies must collectively reimagine the payment experience from the lens of the consumer and then work together to deliver a solution that is fully integrated with daily consumer activities, transacting and experiences.