By Andrew Dellow, Director of Strategic Accounts at Modulr, the payments platform.
Building societies, lenders and other specialist banks are losing the battle when it comes to providing their customers with better services. While they have the innovative know-how, experience and talent, they simply don’t have the resources, money or time to invest in their offering to play catch-up with their customers’ demands.
This is proving to be a real challenge for SMEs across the country, who need quick credit decision-making and equally as quick access to cash as they look to recover from a year of financial turmoil. In fact, the latest figures show almost half of UK small business owners had to seek financial support in 2020.
A google of ‘quick business loans’ reveals a crowded market, dominated online by alternative lenders. And while the pandemic has certainly pushed us all to find solutions online, there’s still great brand equity in local or niche lenders who demonstrate a human and deep understanding of a fellow local or niche business’ needs.
Harnessing the power of payments, building societies, banks and lenders can move faster to meet customer demand. By fixing issues related to reliability and slow, legacy infrastructure they can deliver greater connectivity to payments and remove inefficiencies standing in the way of supporting customers. But that is easier said than done.
Map out the customer experience
Too many building societies and lenders still rely on manual processes when making, reviewing and reconciling payment flows. Not only are they error-prone and incur significant admin costs, they also don’t provide the real-time experience customers want or need. All of which is leading to intensified competition from alternative banking providers. Building societies and lenders need a robust, secure and flexible payments infrastructure to innovate and deliver new products.
It’s at this point that we should recognise the unique position many building societies and banks are in with their incredibly loyal business user base. There’s no suggestion regional building societies or banks should adopt an appified service or mimic challenger brands to appeal to a younger crowd (though it might help attract new customers and futureproof). Rather, whatever your target audience views as a convenient and easy service, could and should be supported by your back end infrastructure.
For instance, while the older generation continues to embrace digital services, a recent study by The Finance Foundation found that 86% of seniors still opt-out of digital banking because they “want people, not machines.” This means building societies and lenders need to ensure their payments are an enabler of their organisation’s growth – despite the service – not a barrier that holds them back.
But before doing any tinkering with back-end payments infrastructure, the customers’ journey needs to be mapped out. This means looking at the front end from the customer’s perspective, and understanding what payment processes they do and don’t like. Common issues that affect customer experience include inconsistent loyalty, limited personalised banking services and shifting security perceptions. Only once identified can a solution that resolves these exact issues and builds on an efficient payments process be created.
Locate and fix hidden payments inefficiencies
One of the biggest inefficiencies in payments is the agency model or distance of an organisation from critical payments infrastructure to settle funds. Without direct access – or direct control of flows – to payment schemes, building societies and lenders are reliant on (and dictated by) clearing banks to reconcile and settle all payments. This means they can’t easily integrate accounts and payments functionality into core banking systems to drive efficiency or scale at pace.
For lenders, these inefficiencies can seriously hamper the service they provide customers. A significant issue as many businesses currently need near real-time access to funds and financial information to survive. By reducing their reliance on legacy infrastructure, lenders can offer fair lending decisions, using real-time financial information to determine borrowing limits quickly and efficiently.
The butterfly effect of payments
Fixing these inefficiencies in the back end can make a world of difference to the front end customer experience. And not necessarily in a direct causal way either.
Consider a scenario where you move from batch-based Faster Payments to single, immediate Faster Payments for loan disbursements. A borrower would no longer receive an initial uncertain experience of not knowing where their money was. They would not have to phone up or wait impatiently to speak to your customer support team. A simple change in the back end – in this case, moving from batch-based – could spin up an instant notification. Not only does this provide the direct positive of a convenient and easy customer experience, but it also provides the indirect positive of saving resource on customer support.
This is one small example of the butterfly effect of payments. The macro impact of multiple butterfly effects increases innovation and delivers market-leading, real-time banking services to attract and retain customers.
Harness the power of modern payments infrastructure
Overall, building societies, lenders and tier two banks can make instant experiences, underpinned by a real-time payments infrastructure a reality and deliver new services to customers by integrating accounts and payment functionality into core banking systems.
This opens the door wide for future innovation. Banks and lenders could launch new services that, on the one hand, efficiently automate payment flows and operations, and on the other, embed innovative payment offerings into workflows and customer experiences, and even build new financial services to make their brand stickier. For any building society, lender or specialist bank that accepts or deals with payments, meeting today’s business customers’ expectations requires an agile infrastructure. It all begins with mapping your payment processes and how it feeds through from back end to front end.
