This blog was co-authored by Eddie Chin, Senior Director Business Development of Rightpoint and Ritika Kumbharkar, CX BCM Business Analyst of Genpact.
The increased use of digital payments is a central element of the push toward a digital economy. Our Banking and Capital Markets (BCM) practice works with many of the world’s largest financial services companies and has seen the acceleration toward the use of digital payments for consumers, small businesses, and large multinationals alike. Research from organizations such as Oracle Financial Services shows a 300% increase in electronic payments in the last eight years with around USD $577 billion in transactions.
The adoption of digital payments started slowly years ago with micropayments, but it has recently expanded to accommodate much more substantial transactions as society has embraced the convenience and ease of digital payments." Rightpoint expects this trend to continue with expansion from payments for goods or services to the adoption of many new use cases such as collections and transactions like lease payments and utilities. Combined with the continuing need for improved operational strategies—including real-time fraud detection and live risk analysis—we believe that national and regional banks, which already have a proven infrastructure, are well-positioned to be not just the foundation of the emerging digital payments economy, but also powerful providers of digital payment services.
Two factors that determine success in digital payments are trust and user adoption. The trust factor for digital payments has improved over time. The micropayment environment of yesteryear—when the general public would stare incredulously at early adopters trusting their money to “computer phones”—has grown to include millions of everyday users entrusting billions of transactions to all types of digital devices. Banks who have earned their clients’ trust will be in the enviable position of being able to overcome consumer skepticism of new apps and services. Trust will drive adoption of a bank’s services, giving them the opportunity to become a first-class digital payments provider.
User adoption is extremely important to establishing momentum in the digital payment space. And user experience is critical to driving adoption. In fact, it is often a key differentiator. A great experience not only determines what the user sees, but also the interactions the user experiences, the services the user receives, and, ultimately, the habits the user develops.
Creating an effective payment experience can be a daunting undertaking that requires more than just an application. Key considerations include platform modernization, employee experience, and using a service design approach. To achieve truly differentiated user and employee experiences, you must align your digital payments strategy and vision with necessary modernization.
5 Proven Strategies for Delivering a Superior Digital Payments Service Experience
1. Digital Payments Is a Service, Not an Application
A consumer’s interaction with digital payments services take place almost exclusively through a browser-based or mobile app. The experience may be at the app level, or may even be at the embedded level, where a digital payments provider’s widget is embedded into the app. The embedded option creates an experience that unifies two components: the widget and the container application.
Regardless of the application’s architecture or audience (consumer, small business owner, or a corporate treasurer), the user experience goes well beyond the front-end application. Your implementation of a digital payments service must consider many front-to-back service functions such as customer support, communications and notifications, and payouts or reimbursements.
These service functions should include activities triggered behind the scenes as well— administrative activities, invoicing administration, account maintenance, and reconciliation. In addition, it’s important to capture and integrate analytics to support both customer value and operational insights such as real-time data, risk management, and fraud detection.
Companies like Stripe increase their value as a full-service payment provider by offering more advanced invoice, administration, and fraud protection capabilities on top of core payment capabilities. We’ve also seen a proliferation of API-based payment services, like Plaid, that enable organizations to create their own front-end experience.
While companies such as Stripe and Plaid do offer services backed with advancements that enable real-time analytics and fraud detection, this is an area where traditional banks have an opportunity to excel if they can pivot to offer payment services backed by the full strength of their well-tested, PCI-compliant infrastructure. J.P. Morgan Chase & Co, for example, recently debuted its Concourse payments service, a flexible front-end for payments integration.
To provide a world-class digital payments service often requires modernization of aging infrastructure and siloed applications or functions. Modernization activities provide a unique opportunity to drive greater value and an improved experience by framing your digital payments product as a service or set of services rather than just an application. Modernizing the risk infrastructure for example, will positively impact not only the customer experience with payments, but also with other services that depend on risk infrastructure.
One way to define the services in your product is by applying service design techniques. Service design considers products not through their UX design, but through the interaction of humans, technology, and process. The goal is to unify all three around the single focus of helping the customer accomplish his or her goals in the best way possible. Using a service design methodology, your focus widens from only transactions to encompass the entire customer and employee experience. A service design blueprint can map the process and touchpoints that an activity such as a transaction reversal has with the support agents, ledger systems, and reconciliation activities that execute that transaction reversal.
Making the customer experience your primary focus and considering your digital payments as a service will pave the way for the trust and adoption your digital payments service needs to stand out in today’s competitive marketplace.
2. Digital Payments Are a Balance of Security, Ease, and Agility
A great digital payment experience is a balance of security, ease-of-use, and agility. Payments have evolved over time to provide richer user experiences. These digital transformations will continue. Consumers are already warming up to futuristic payments capabilities such as voice-activated payments, payments on smart appliances through IoT, security powered by AI and machine learning, biometric authentication, and using temporary codes for transactions instead of cards.
The current state of digital payments is not as optimal or seamless as it could be. It is incompatible, slow, vulnerable, and costly. Current payment networks often run on inadequate legacy infrastructure and are highly fragmented with many different sets of rules. Processing a payment may take as long as three to five days because the transaction must pass through multiple checkpoints. And there is still a high probability that the transaction will fail at some point because of disrupted data flow. Finally, payment processing costs are high, averaging $25-30 per B2B payment. All these issues negatively impact the user experience, driving customers to seek alternative solutions. There is a great need for payment reconciliation transformation across the industry.
To achieve the optimal state, you and your product team need to think about foundational investments. Platform modernization is absolutely necessary to ensure smooth processing in the middle and back end. Banks that have conquered the payments space should invest in cloud-based infrastructure that provides consumers with the ability to make real-time payments with the utmost security. Additionally, leveraging real-time data with the help of AI and machine learning (ML) will personalize the payments experience and increase security through digital authentication, fraud detection, and prevention.
You and your team don’t need to take this transformation on alone. There are many third-party providers out there with best-in-class services that enhance the payments ecosystem. Leveraging them will not only save time and reduce costs, it will also enable you to go to market faster with your new and improved payments capabilities. Take BBVA Compass’s collaboration with Dwolla, in which one of their objectives for digital transformation of payments was to address the consumer’s need to make payments in real time. It is important that the infrastructure you use is available 24x7 given that your digital payments service is a global product.
At the end of the day, you need to transform payments in a manner that brings value to your users and makes them feel secure about making payments. Payments are relevant throughout the customer journey; balancing ease with security ensures that users feel important throughout their experience.
3. Mobile Is Not Your Only Channel
When it comes to digital payments, mobile isn’t the only channel. It is now very common to release mobile apps or mobile payments as the new and inventive ‘digital’ service. However, in 2019, McKinsey & Co. classified consumers into four segments according to their preferences and outlook on digital payments. Each of these segments preferred multiple types of payment channels, not just mobile.
The largest segment, ‘offer junkies’, preferred to make their payments through browsers that allowed them to conduct price comparisons. The second segment, ‘digitally averse’, in which only half of the users have performed a digital payment, instead preferring traditional methods (cards, cash, checks) due to the heavy security concerns around digital payments. The third segment is ‘convenience seekers’ who are the most active when it comes to making digital payments. They are interested in using digital wallets as replacements to physical ones. The final segment are the tech-savvy respondents who are more than willing to adopt alternative payments such as digital point-of-sale loans and social media-based payments.
Payments is a core activity for consumers, so it is important to ensure they have options and aren’t forced to engage in a single payment channel. Limiting options hampers the customer experience, leading to higher attrition rates. In addition to multiple payment channels, it is crucial to ensure seamless interaction between channels. Giving consumers the ability to switch from app to website to social media to phone call without disrupting their experience is the best way to foster high adoption across all consumer segments.
There are four popular types of payment channels used by consumers: online payments, offline payments, conversational commerce, and phone-based payments. By catering to the strengths of each type of channel, payments providers are creating innovative solutions for customers.
There are a couple of notable examples of how payments channels have elevated consumers' experience. Customers are able to use their smartphones to scan and pre-order items before they even reach the retail store. QR payments have become wildly popular and are available on eCommerce as well as social media to allow consumers to directly purchase products or services on the spot.
Companies like Google Pay and Paytm allow users to easily make secure payments. Google Pay partnered with Pine Labs in July 2019 to allow merchants to initiate payment requests by punching in a customer’s mobile number on their PoS (Point-of-Sale) devices. Paytm launched a Tap-to-Pay card in April 2018 that allows customers to load money onto the card—with or without internet access—and then make payments by tapping the card on the merchant terminal.
By having a variety of payment channels, your business will not only acquire a larger customer base, it will also be able to cater to a wide variety of customer demographics in a personalized, unique manner.
4. Think of Your Product as a Global Product From Day One
Being able to cater to and work with different users all over the globe is critical to your digital payments experience. It’s often easy, particularly for U.S. based companies, to unintentionally exclude non-U.S. currencies, languages, or product expectations.
Rapid adoption of digital payments, especially mobile payments, is taking place in countries across all continents. India’s digital transformation, for example, included a demonetization component with estimates of up to USD $33 billion less cash in India’s economy today than before the demonetization policies took effect. With less available cash and fewer cash transactions, digital payments products have stepped in to close the gap.
It’s imperative that your digital payments service accommodate the global nature of payments today and include basic global capabilities such as:
- Handling currencies and currency conversions outside of your local region
- Displaying content in the user’s target language, potentially requiring adjustments to your application design or design system to handle longer text strings, global character sets, and right-to-left content placement
- Making use of and prioritizing local digital payment methods prevalent in a user’s local geography and economy
The operational activities that support your digital payments service also need to adapt for a global audience. Your risk management system should be able to identify risk when your customers are conducting international transactions. Likewise, your fraud detection system needs to detect risk whether it happens within your home geography or elsewhere.
Platforms such as Flywire specialize in global payments, focusing on the experience of a payment as it crosses international boundaries and converts from one currency to another. Another platform, Circle, makes use of its cryptocurrency standard to address money movement and payments across various geographies.
Fortunately, most of today’s payment hubs and supporting platforms have supported internationalization for quite some time, but it’s always worth checking to be sure a platform meets your internationalization requirements. Some of the modernization activities, such as updating a design system to handle Asian languages for example, may yield other benefits such as support for expansion of other applications into those countries that conduct business in that language. There may be potential for cross-project support for some of these initiatives as a result.
5. Your Payments Ecosystem Includes Multiple Personas
Within the payment ecosystem, there are multiple personas. Each of these personas is a type of customer who will need their own personalized and seamless payments experience. For example, if you intend to expose APIs, developers are the customer, and they will have specific needs of the developer experience.
It may be straightforward to come up with a list of what needs to be done in order to have a seamless, secure, and personalized payments experience; but when it’s time to get down to work, you may realize that you lack all the tools or infrastructure to achieve the experience you envisioned. That realization can be overwhelming and may lead your team to cancel its digital transformation, potentially resulting in sunk costs if your team realizes the lack of tools or infrastructure late in the process.
Journey maps can help avoid this scenario, addressing the multiple personas involved from the very beginning, and mapping the steps each persona takes when using your digital payments service. Each persona has their own journey map within the service, and all the journeys connect into an overall process depicting the digital payments value chain. The completed journey maps make clear from the beginning what each persona needs and what the team needs to deliver to ensure that your digital payments service works smoothly for each persona.
In addition to the customer journey mapping, a VoC (Voice of Customer) program is an asset that enhances and adds precision to your journey maps. Leveraging customer feedback starts conversations and breaks the silos between each customer persona and your team, promoting more collaboration and communication that ultimately benefits everyone.
At the end of the day, it is important to be aware of the different components that make up the entirety of the digital payments service. Without all the components working efficiently and conversing with one other, you cannot create a seamless payment experience for anyone.
The payments ecosystem is rich with players from traditional banks, collaborations such as Zelle, and other financial entities such as PayPal and Venmo. While traditional banks enjoy a high level of trust when it comes to payments and security, this advantage will not last forever. McKinsey & Co. recently reported that, among Android users, trust in PayPal exceeded trust in banks in 2019. So, traditional banks that want to retain leadership must move quickly to adopt a successful payments system.
If there is one thought to take away on payments, its that digital payments are a service, not a product. We call payments “DPS'' for Digital Payments Service with an emphasis on “service.” Your DPS goes beyond a mobile or web app or even a singular product. A successful DPS considers infrastructure modernization, risk, fraud, customer service, and all the other components that make up your payment's ecosystem.
Once you have evaluated your ecosystem, your team will require a plan and roadmap to outline the most pressing features in your DPS. When you’re building your roadmap, be sure to keep an adaptable and flexible mindset. Your DPS roadmap will inevitably require changes over time. The payments ecosystem is constantly evolving, and you and your plans need to be resilient. For the financial institutions that are willing to invest the time and focus, the potential is vast.