As the world becomes increasingly digitized and more consumers embrace the speed and convenience of contactless purchases, Jim McCarthy, president of payment technology and innovation firm i2c, said banks have been left behind and should focus on what they do best — compliance.
“Banks will never be great technologists,” McCarthy said in a conversation with Karen Webster. “They can be good, but that’s not their core competency. On the other hand, what they’re very good at is compliance.”
He said banks would be wise to accept that reality.
As he sees it, trying to compete against the likes of Google and Apple to build a rival mobile wallet, app or payments platform “is probably a fool’s errand.” But while compliance might seem tedious and unglamorous, McCarthy said it’s a critical skill set within financial services that’s important to both consumers and businesses and shouldn’t be underestimated.
“Banks need to recognize that a lot of their power is compliance as a service,” McCarthy said, suggesting they should focus on monetizing what they do well, and partnering with other companies that do innovation and tech well.
“There’s money to be made in compliance,” he said. “Focus on delivering great service and the highest reliability and integrity,” then partner with a successful neobank or FinTech.
“I do think there’s a hybrid model out there waiting, and I think it is a hybrid model that wins the day at some point,” McCarthy said.
It’s Not Science Fiction
But until that happens, McCarthy said legacy banks will continue to be stuck in the past at a time when competitors and consumers are enjoying the many benefits of their modern digital lives.
McCarthy said one would think banks would be running toward tech, but that’s not the case despite the cost and capex of maintaining brick-and-mortar branches, not to mention customers’ aversion to standing in lines, especially in the COVID-19 era.
“Here you’ve got this once in a lifetime shift — a forced march to digital — and yet there are still very few banks that can instantly issue and push a card to a wallet or truly manage my card,” he said. “All these other industries are changing, [but] the banks are stuck.”
McCarthy said it’s clear why FinTechs and challenger banks “are just running past them.” It’s because of how banks are organized and what technology stacks they use.
“This is not science fiction,” he said. “The user experiences [with FinTechs and challenger banks] are better. I mean, they’re flat out better.”
For example, McCarthy noted that many banks still don’t accept the idea that payments are the most important relationship they have with commercial and consumer clients. Or consider the fact that remote deposit capture still isn’t universally offered. Nor is the ability to easily transfer money inside of accounts as well as to others, even though these technologies have been around for some 10 years.
Meanwhile, neobanks have quickly come onto the scene and made the financial experience much better in terms of information and how it’s presented, McCarthy said.
All the while, “stuck banks” have been mired in the profits and losses (P&L) issues and internal fiefdoms fighting with each other over limited resources, he said.
The Digital Shift Will Stick … But Might Take Time
But McCarthy added that just as it took years to convince customers to stop writing checks to the grocery store, so too will it take time for everyone to embrace modern digital commerce.
After all, as much as COVID-19 has been a huge catalyst for innovations like touchless payments, curbside pickup and buy online, pickup in store (BOPIS), 2020’s digital shift has also come with its share of fraud.
“Habituation takes a while — sometimes it’s generational,” McCarthy said. “There is training going on, [and] it’s still early innings.”
But he’s certain that a lot of the new fast and frictionless habits are here to stay. There’s also the risk that many of these technologies are “underappreciated” and haven’t been leveraged and deployed to their fullest potential yet, McCarthy said.
He said eCommerce is following a similar track to the way system engineers coded workflow 20 or 30 years ago.
“There was no process improvement. It was just replicating the process and electronifying it,” McCarthy said.
Much as Amazon’s one-click payment button revolutionized shopping and Apple Pay democratized and obliterated the checkout process as we once knew it, so too will future revisions to eCommerce and payments change everything, he said.
The Future Of Wearables
One area in which McCarthy said he sees innovation happening is the wearables space.
But even though wearables technology has been available for years, banks have been reluctant to take it up, he said.
“Taking [wearable tech] into the commercial banking ecosystem became a P&L issue, and a question of: ‘Do I really want to sell rings [or bracelets]?’” McCarthy said. “So once again, you leave it to innovators to commercialize.”
He pointed to Purewrist as an example of a company that is successfully commercializing wearable payment technology, offering a hands-free, contactless-technology platform for the modern digital and cashless world.
“The best part about it is the digital controls and the instrumentation on the app that’s managed in a digital dashboard,” McCarthy said.
Like the combination of banking compliance and FinTech that McCarthy foresees eventually emerging, he said he also predicts a similar future relationship between wearables and payment techs.
“It’s this hybrid nature of digital control [and] digitally managed information tied to a physical device that I can use to pay … without touching anything,” he said.
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