Don’t Let Third-Party Payments Apps Limit Your Customer Experience

In the rapidly evolving landscape of financial technology, banks are facing increasing pressure to adapt to changing consumer preferences and expectations. One area where this is particularly evident is in the realm of payments. 

With the rise of digital wallets and peer-to-peer payment platforms like Venmo and PayPal, many banks are seeing engagement slip in their digital channels, with some even eliminating certain payment channels they think are no longer necessary. 

However, this trend can have significant long-term consequences for banks. Financial institutions must stay in the payments game and explore how they can do so effectively.

First, by limiting or prioritizing only a few payment options, banks risk losing a vital touchpoint with their customers. Payments are an integral part of everyday financial transactions, and customers expect a variety of payments choices.  

By abandoning channels such as P2P, banks also surrender the opportunity to build and maintain direct relationships with customers. These relationships are not only important for fostering loyalty but also for gaining valuable insights into customer behavior and preferences. By staying fully invested in the payments business, banks can leverage their existing infrastructure and customer base to offer competitive and differentiated payment services, thus strengthening their overall value proposition.

Moreover, by retaining control over all payment options, banks can do a better job of ensuring the security and privacy of their customers' financial information. By driving customers to other payment methods, banks expose themselves and their customers to potential security breaches and data vulnerabilities. Additionally, the CFPB has warned consumers that holding funds in popular payment apps lack federal insurance. 

In contrast, by maintaining control of their payment methods, banks can implement robust security measures and encryption protocols to safeguard sensitive information. This not only enhances customer trust but also protects the bank's reputation from potential breaches that could occur through third-party systems. Even the federal agencies are warning of third-party security risks in their latest guidance issued this month. 

As mentioned above, staying in the payments business allows banks to capture valuable transaction data and derive insights from it. Payments generate a wealth of information about customer spending habits, patterns, and preferences. This data can be harnessed to gain a deeper understanding of customer needs, personalize offerings, and improve overall financial planning and advisory services. By ceding control of payments, banks miss out on this valuable data, limiting their ability to create tailored products and services that meet the unique needs of their customers.

Furthermore, by maintaining their own payment systems, banks can retain control over the entire customer experience. Third-party payment providers may offer convenience and cutting-edge interfaces, but they often lack the comprehensive suite of financial services that banks can provide. By integrating payments seamlessly with other banking services such as savings, loans, and investments, banks can offer a holistic and integrated experience to their customers. This not only strengthens customer engagement but also increases the stickiness of the bank's offerings, making it less likely for customers to switch to competitors.

So, how can banks stay in the payments game effectively?

Banks must invest in modernizing their payments infrastructure. Outdated systems can hinder efficiency, speed, and innovation. By adopting advanced payment technologies, such as faster payments, mobile wallets, and open banking APIs, banks can enhance their capabilities, streamline processes, and offer a seamless omnichannel experience to their customers. Not only is this now a customer preference, but it’s also an expectation. Banks that fail to modernize will lose out to the organizations that do.

About Author:
By Jeff Harper, Chief Revenue Officer of Allied Payment Network

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