Payment innovation seems to be where FIs are placing their chips.

Banks Placing Eggs in Payment Technology Basket

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The banking industry is nothing if not relentless. With online banking, digital tools and automation providing futuristic capabilities once only found in the world of George Jetson, FIs must constantly be ready and willing to upgrade to the latest technologies to serve their "what's next?" customer base.

That said, one may wonder which services banks are most prioritizing to keep pace with their competition, or better yet, outperform them. FIs are casting their nets into a bit of everything, but above all else, payment technology is what they're reeling in.

That's according to a newly released study conducted by PYMNTS.com. Roughly 200 banking executives participated in the analysis, which assessed where decision makers are prioritizing investments when it comes to delivering better quality and convenience to customers.

2 in 3 have prioritized payment technologies
Perhaps the biggest takeaway from the study was that nearly 63% of core/IT-enabled FIs execs had developed new payment technology in the previous three years, well ahead of their acquisition of products focused on credit, fraud and security, and improving the user experience.

The same was true for companies that haven't innovated yet but intend to do so. Indeed, roughly two-thirds of respondents said they planned on introducing or optimizing payment technology between now and 2023, Pymnts.com found.

"Consumers utilize just about every purchase option that's available to them."

FIs' focus on payment technology may be driven by consumer behavior. In a nutshell, consumers are now utilizing just about every purchase option available to them. Taking up nearly a third of the bill-payment pie are online tools (e.g. recurring ACH payments), according to analysis conducted by ACI Worldwide. Mail is in a distant second at 18% – specifically driven by mailed checks, credit card numbers or money orders – followed by online banking (17%), mobile device (11%) and ACH auto-debit (9%).

Clearly, consumers are the ones driving the payment innovation engine, but competition from FinTech and platform-based providers is also having an influence on how FIs are prioritizing their services, noted Rahul Singh, president of financial services at HCL Technologies.

"As the emerging breed of FinTech and platform-based competitors challenge traditional incumbent behemoths, those traditional players need to embrace technology innovation that will allow them to keep pace and stay ahead of FinTech rivals," Singh explained.

This substantiates why FIs are taking a similar approach to ATMs. When it comes to what aspects of ATMs financial institutions use to determine which ones to invest in, they're guided by technological capabilities – meaning what else they can do for users, according to multiple ATM Marketplace trend reports. 

Speed drives consumers' payment habits
FIs' innovative efforts in payment technologies may also be informed by the customers' need for speed, so often observed both in and out of the branch. As noted by Blackhawk Network, in the retail segment in particular, buyers largely determine what payment vehicle to select based upon what's the fastest and most convenient. While mobile wallets and smartphones are gaining ground in frequency of usage and compatibility, the top payment methods remain credit cards, cash and debit cards – which are all in the bailiwick of financial institutions. FIs' mission is devising new, more streamlined ways of utilizing old standbys. 

Singh warned that this may involve taking some calculated risks.

"Banks and financial services firms need to shrug off the perpetual 'wait-and-watch' approach and invest in innovative solutions that deliver cost savings and a better customer experience," Singh advised. "They need to adopt agile methods, incubate experiments and forge partnerships that can break through the clutter and existing setup." This extends far beyond payment solutions, encompassing the trend toward in-branch technology.

Beware of the 'Kodak phenomenon'
A classic example of what can go wrong with a wait-and-see approach is the rise and fall of Kodak. As documented by CBC News and Forbes, Kodak was at the top of the photograph and camera mountain throughout much of the 1970s, '80s and '90s and invented the world's first commercially produced digital camera. However, Kodak didn't capitalize on its ingenuity; instead they funneled valuable resources to pursue opportunities in unrelated industries. In the end, Kodak failed to "stick to its knitting," and in doing so, lost sight of the importance of the digital disruption. By the time the company caught up with its competitors, it was too late. Kodak was forced to file for Chapter 11 bankruptcy protection in January of 2012.

Singh warned that FIs that don't prioritize innovation and future-proofing "risk succumbing to one of the most dangerous existential threats of the digital era – the 'Kodak phenomenon.'"

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