FIs & Fintechs Are Global Leaders in Payments Innovation, Study Finds

Retail banking and fintechs are the leading sectors when it comes to payments innovation, with regulation playing a key part in forcing industry change according to the “Culture of Innovation Index.”

Naples, Fla.-based payment and banking solutions company ACI Worldwide and London-based research firm Ovum launched the index, a global cross value chain view of the factors that drive success across the banking, intermediary, merchant and corporate sectors.

The study identified five types of organizations, as defined by their approach to innovation and business transformation — laggards, emerging, tech-led, advanced and trailblazers – and provides an interactive self-assessment tool to benchmark organizations against peers and competitors.

According to the “Culture of Innovation Index,” based on a global survey of almost 1,200 enterprises, real-time payments significantly drives innovation among financial institutions, while merchants and corporates focus on new payment options (especially mobile), with payment security a continuing concern. In addition, trailblazers across the sectors plan to move mission-critical workloads into public cloud infrastructure either this year or into 2020.

“The pace of change in the payments ecosystem continues to be relentless,” Mike Braatz, chief product and marketing officer, ACI Worldwide, said. “More than ever before, innovation will be a significant driver of business success. While technology is – and will remain – an important part of the answer, it is people who truly change organizations. Businesses that align cultural change with technology leadership place themselves in the best position to thrive in the future.”

“The aim of the index is to identify not only the factors that separate the most innovative businesses from the laggards, but also what this means in terms of product innovation,” Kieran Hines, head of industries, Ovum, commented. “Digital transformation is not a single project – it is an ethos, an approach, focused on continuously translating business challenges into a series of initiatives and projects to drive the organization forward.”

Here is a breakdown of some key findings by industry.

Financial Institutions and Intermediaries

• Real-time is a key driver of and enabler for innovation. Ninety-six percent of retail banks, 94% of corporate banks and 92% of intermediaries globally report they will develop new and innovative services on top of their investment in real-time payments in 2019/20.
• Mission-critical workloads, including payments, can and should move to the cloud. Eighty-two percent of corporate banks, 74% of retail banks and 79% of intermediaries (84% of fintechs) globally plan to move mission-critical workloads into public cloud infrastructure in 2019/20.
• Capitalizing on potential of open payments is the biggest competitive differentiator. Ninety-one percent state the move to open banking helped change the way they approach delivering new products and services, with 89% actively exploring a platform strategy.

Merchants

• The merchant segments (telecoms, retail, digital goods and hospitality) spread across the laggard, emerging and tech-led categories, placing them behind fintech, retail and corporate banking in the overall ranking.
• Polarized merchants in the U.S. separate into the laggards (34%) and trailblazer’s category (16%), reflecting the growing gap between more traditional merchants and many of the more digital native businesses.
• Innovation in payments focused on areas that enhance customer experience – new payment options, mobile (especially in-store), and a stronger, more seamless cross-channel payment experience.
• Security initiatives like the EU’s revised Payment Services Directive (PSD2), as well as strong customer authentication (SCA), drive the technology innovation need to balance fraud prevention with maximizing conversion rates; and regulatory requirements may drive merchants to close the innovation gap relative to financial institutions.

Corporates

• Most corporates are laggards, with higher education, healthcare and utilities leading the sector. Security remains a top concern for corporates with 50% experiencing theft of payment data (up from 22% in last year’s study); investments in value-added services like mobile-optimized billing and digital customer experience will improve customer loyalty while driving innovation; 60% of advanced and trailblazer corporates already offer mobile-optimized billing and 57% currently offer personalized communications to collect payments.

“The innovation gap between payment trailblazers and laggards will manifest itself in growing competitive differentiation in the near future,” Rachel Hunt, director, solution & segment marketing, FI&I, ACI Worldwide, said. She added, “Digital-first strategies can become key customer experience differentiators for credit unions, if they can balance the benefits of technologies such as API integration into platform ecosystem and cloud deployment models. A culture in which financial institutions are identifying new product and service opportunities is essential.”