Banks are able to generate additional streams of revenue through cross-sell opportunities, more easily providing tailor-made offers to customers based on their profile.
The convergence of real-time payments and open banking – two of the key trends that have shaped the global financial services industry in recent years – holds promise for consumers and the banks that they serve. But while most conversations around building new payments systems have been primarily focused on speed, it is equally important to consider how to monetize these new systems. Ultimately, new products and services—in both consumer and corporate payments—have the potential to create new revenue streams, and to help banks and other players realize a return on the investment made in faster payments systems.
The union of real-time payments and open banking also creates a plethora of opportunities, beyond payments, for banks to offer new products and services to consumers in areas such as investment and financial management.
Consumers benefit from the convenience and more seamless payment experience, which encourages them to consider new financial services suppliers. On the other hand, banks can reduce their costs through automation and ensure the first touch with newer prospects, making it a favourable situation for both parties.
How can data be collected in the service of these personalised services? With open banking, third-party partners such as Google Pay (in the case of UPI) are another source of data for banks, where an API (Application Programming Interface) helps build a more complete customer profile. Banks might get customer data from an internal or an external platform and can use that data to cross-sell other products, create tailormade personalised offers and more.
Banks are able to generate additional streams of revenue through cross-sell opportunities, more easily providing tailor-made offers to customers based on their profile. The result could be improved loan interest rates, a personal loan offer based on purchasing habits and income, suggested investments to take advantage of excess cash, or simply more convenient everyday payments. Responding to a customer with a loan offer can be cut from days down to mere minutes.
On the other hand, although it’s harder to monetise P2P (peer-to-peer) instant payments, doing so will enable banks to provide new services to corporate customers and charge them for that functionality. And the business case for retail banking? It’s retaining existing customers and acquiring new ones – through either their own or third-party channels
To reap the full benefits of the monetisation opportunities presented by the convergence of open banking with real-time payments, financial institutions must uncompromisingly focus on reducing friction through design, seamless customer experiences, convenience, and accessibility. Building efficient payments infrastructure is of utmost importance for success, but banks will need to build robust front-end product development capabilities to get the most of the new system. If they do, the investment in faster payments will bring about the desired returns.
Banks could also look at partnering with fintech, which opens new revenue avenues for them. This approach allows fintechs to continue focusing on seamless user experience, while banks could acquire new customers. The emergence of open banking could deliver several benefits in the case of a partnership between banks and fintech. Firstly, banks are able to acquire new customers at a much lower cost, which also increases their market share. It also creates cross-selling opportunities, as outlined above. Finally, most fintechs today have an additional revenue channel through data or lending, therefore banks that tie up with fintech partners for a lending could optimize their revenue model.
Digitization and the rise of mobile commerce are undoubtedly going to have an impact on the existing revenue streams of banks in our country. Coupled with the expectations of consumers, which are constantly rising, new avenues will open up for banks to increase customer involvement and have them transact even more on their platforms as overall transaction volumes rise. In the constantly evolving payments ecosystem, open banking and real-time payments are two sides of the same coin: they are part of a larger transformation in how banking is conducted today. While banks currently have a checklist of to-dos and many competing priorities, capitalising on this convergence promises to open a whole new world of opportunities.
Somya Patnaik is Senior Product Manager, Real-Time Payments, ACI Worldwide. Views expressed are the author’s personal.