Why banks need to evolve their legacy payments operating models

The payments game has changed. In the last decade, waves of new regulation and digital challengers have raised the bar for all participants in the landscape. This relentless disruption has prompted many large banks to embark on modernisation programmes to remain competitive and compliant.

While these efforts have helped elevate efficiency, banks are still challenged with transforming payments from a cost line into a revenue driver. To capture a slice of this potential value, banks need to understand the true customer drivers for a transaction and add value beyond just regulatory compliance to become truly customer centric.

We uncover how banks can embed customer centricity, unlock the value of payments and transform their operating models to drive long-term, sustainable value.

So, what is standing in the way of customer centricity?

Today, it’s hard to find an organisation that doesn’t proclaim the importance of focusing on the customer. Yet, all too often, banks’ transformation programmes have been driven by the need to cut costs and comply with regulation. While these are, of course, vital imperatives, a lack of customer focus limits banks from truly transforming payments.

Moreover, banks are often restricted by regulatory budgets that disincentivise customer-centric use cases, focusing primarily on regulatory requirements rather than differentiated customer experiences. There’s often an emphasis on compliance, but it misses the spirit the regulator intended and achieving the minimum fails to realise the actual customer value that regulators are looking to enable. There’s also fragmentation between payments and the business. Payments are often perceived as a utility instead of a critical enabler for driving significant customer and revenue benefits.

Many of these challenges are rooted in current payments operating models. Banks need to evolve their operating models to enable a genuine partnership between payments and the broader business and create experiences that reflect the reality of customers’ needs and deliver real value.

Three steps to evolving your payments operating model

We see three steps as foundational in reshaping transactions into a customer-centric driver of innovation and growth:

1. Create a unified customer strategy  

• Your strategy should seamlessly integrate innovation into the transaction journey to give customers what they need and generate revenue for the business. Payments and the business have an equal role to play in shaping this joined-up strategy. Having been at epicentre of recent technological change such as open banking, payments has the opportunity to innovate traditional products areas and influence customer behaviour and expectations. Open finance will be a critical growth area for banks looking to leverage the power of data with digitally differentiated mobile experiences, as emphasised in the Future of Payments Review 2023.
• For its part, the business can share valuable first-hand insights into customers and the moments that matter for a transaction beyond just the payment. This allows banks to build a better understanding of who their customers are, and what they value most. With this insight, banks can shape payment experiences to reduce friction and provide an enriched transaction experience. Merging payments innovation and customer insight is where the opportunity for unlocking true transformative value lies.
• Prioritising opportunities that enable customer value and align to high-growth areas is key to maximising return on investment. Prioritisation should be a joint exercise between payments and the business. 

2. Bring it to life.

• The next step is understanding what needs to change in your operating model to make your strategy a reality. To gain this insight, you should be clear on your customer use cases and the specific value you are providing with each. This is about understanding what your customers truly expect and value in their payments experience, whether it be speed, transparency or flexibility.
• You should identify the data (payments, customer or external such as credit or government agencies) that you need to deliver on customer expectations. Here, it’s crucial to understand how the data will come together to create the value you seek, which may mean creating new integrations between payments and business systems.
• And you should break down legacy silos between payments and the business. This will be critical to maximise your effectiveness and unlock future use cases. It will take strategic, formalised action to make this happen; for instance, by establishing one central governance body to help drive cross-organisational joint decisions or pivoting to re-organise into customer journey-aligned value streams. 

3. Prove it quickly, then iterate.

• Traditional payment modernisation programmes are complex with long delivery timelines for the base infrastructure alone, with actual customer value typically realised at the end – if at all. To successfully round out an operating model transformation, banks must instead pivot to a mantra of “always delivering customer value”. Focus on realising customer value as you modernise, not just at the end. This is especially critical within the current industry landscape, where nimble challengers continue to give traditional banks a run for their money to deliver new customer features rapidly.
• You should build in customer value minimal viable products (MVPs) with clear and measurable outcomes at each phase of a payment modernisation programme. It’s vital to test, learn and refine quickly before taking on bigger commitments and costs. This approach will help to increase NPS and customer loyalty by proving to customers that you exist for them.
• You should also set tangible objectives and key results (OKRs) that enhance and strengthen the relationship between payments and the business by driving the right customer-centric behaviours. These will, in turn, lift revenues in a way that can be attributed equally between payments and the business.
• And finally, it's vital to iterate the approach. This provides a vital opportunity for the new operating model to mature through tangible, road-tested use cases that have generated customer value and which will enable a unified customer-centric strategy.

As you work to transform your ways of working around payments, you’ll also need to transform ways of thinking, starting at the top from your leaders. You’ll need support and sponsorship from key payments and business executives. Success will demand a fresh leadership perspective, which recognises the value of centring on customers and nurturing closer relationships between payments and the business – a topic that we’ll explore in our upcoming article on future payment leaders. 

To learn more about how Baringa can help evolve your payments operating model and unlock greater value for your business and customers, please get in touch.