Deep-term Planning for Payments Across the Decades – the Art of the Possible

Kris Carrera
Business Line Executive, Credit
Posted on September 12, 2017

Technology has revolutionized much of the banking industry. Organizationally and strategically, however, many firms are still locked into a mindset more akin to the industrial revolution than the digital one.

Many financial institutions, especially around the world of payments, are still failing to organize around truly long-term strategies, focusing prioritizing short-term profits over innovation. It is time to recognize that won’t sustain another century of growth.

We must expand our long-term horizon to focus on goals that will truly move business – and our industry – forward.

Short Circuiting Strategic Planning

We’ve all seen banks proudly evangelizing their short-, medium- and long-term plans to analysts, shareholders, and employees. The problem is that the event horizon is too close. A typical long-term plan is five-to-seven years and still equates to little more than a guesstimate because few have confidence in bringing such plans to fruition given how quickly things change.

But traditional financial institutions are in trouble. Despite widespread computerization, the industry is beset by outdated technology that hampers innovation, often leaving many financial institutions a decade behind other industries. And the wolves are circling; according to McKinsey (report link), competition from fintechs could see bank profits decline 20-to-60 percent by 2025. With interchange a dying revenue stream and annual fees a soon-to-be historical relic, how can payments remain profitable?

Technology is often touted as the answer to everything, but new technology does not equal innovation. Technology is just a commodity that everyone can acquire. The deciding factor will be how it is utilized and how well it meets market needs. With increasingly deregulated financial markets, and many governments worldwide actively encouraging disruptors to enter the markets, banks are no longer just competing with each other. Everyone from fintechs and tech giants like Google and Facebook to retailers and niche startups wants a piece of the action, and the payments space is hot property.

Rethink the Timelines

Looking only a few quarters ahead ensures short-term revenue, but does little more than provide the vaguest of directional targets. That’s not enough. Institutions must look at the next half century – taking a deep-term perspective that crosses decades. The aim is to ensure that the institutions we work for will not only outlive our careers but outlive our life span.

As the landscape changes, banks need the vision and ability to execute change. Given that change comes from the top, and institutional changes take time, the first order of business is to ensure dynamic leadership that is committed to an agenda of innovation is at the helm. That means accepting the risk of some short-term failure in the pursuit of true long-term sustainability and relevance. It is about an ecosystem approach rather than hard and fast goals that return quick shareholder dividends.

The problem, of course, is that we won’t know if we have answers to many questions: What is the future of money movement? Will cash die? Will virtual currencies reach their predicted heights, and how will the revenue of money movements be shared? Will national currencies as we know them today exist or will “value” be a commodity that can be exchanged for goods and services? If life expectancies increase, how will retirement planning operate?

Such questions are just the beginning and don’t even take into consideration the changes future generations will enact on our economy. The point is that change is inevitable and we must prepare for it.

Clearly, some bold thinking is required. Therefore, payment institutions need to invest in minds capable of taking bigger, futuristic views. Such concepts may not resonate strongly now, but payments innovators need to plan deep-term and then create plans that connect those ideas to the current world. Technology remains a driving and enabling force, but adaptability is central.

Avoiding the Kodak Moment

Executives are well versed in the dangers of a “Kodak moment” – the textbook case of a company failing to evolve and prioritize in the face of innovation. But the payments industry is only now experiencing this potential paradigm shift. The world is littered with similar examples and the mantra of “innovate or die” brings up memories of Nokia, Blockbuster, Myspace, Xerox and many others who failed to grasp the potential of what they had or ignored the signs of a radically changing market.

All industries need to evolve to keep abreast of innovations and ever-changing trends. However, unlike the natural selection that Charles Darwin referred to, changes in the payments industry are measured not in eons, but in decades, even years. Traditional thinking and reliance on stability can be dangerous. This is a globalized world, and many countries already are making their move. The BRICS economies (Brazil, Russia, India, China and South Africa), for instance, constitute two-fifths of the world’s population, and they have bought the second world and put a firm down payment on the first. They are innovating fast without being encumbered by old-fashioned planning strategies. It’s up to us to keep up.

To remain relevant, long-term market leadership is necessary. Bold decisions that are designed to establish the future, even if some don’t pay off, must be made. So long as lessons are learned and accommodated, long-term sustainability will be ensured.

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Kris Carrera
Business Line Executive, Credit

With over 25 years of international payments experience, Kris was responsible for the launch of the first successful cobranded card program. A leader in risk-based pricing and target marketing using predictive data analytics, she specializes in merchant services, credit cards and home equity. Kris has received Best Travel Card, Best Cobranded Card and Best Private-Label Program awards.