Compliance and Innovation Make Profitable Bedfellows for Banks

The world is becoming increasingly digitalized and more consumers are embracing the speed and convenience of contactless payment options. According to Jim McCarthy, president of i2c Inc., banks have been left behind and should focus on what they do best – compliance.

“Banks will never be great technologists. They can be good, but that’s not their core competency. On the other hand, what they‘re very good at is compliance,” said McCarthy in a conversation with Karen Webster of PYMNTS.com.

He went onto say that banks would be wise to accept that reality. Trying to compete against the likes of Apple and Google to build a rival digital wallet, app or payments platform “is probably a fool’s errand.” While compliance may seem unglamorous and time-consuming, 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 companies that specialize in innovation and technology.

“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

Until compliance becomes their focus, legacy banks will continue being stuck in a time where competitors and consumers are enjoying the many benefits of their modern digital lives.

Despite the COVID-19 pandemic and consumer aversion to standing in lines, many banks have still chosen not to shift toward tech, instead maintaining their brick and mortar branches despite the cost and capital expenditures expended.

“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.”

“This is not science fiction,” he said. “The user experiences [with FinTechs and challenger banks] are better. I mean, they‘re flat out better.”

Many banks still don‘t accept the idea that payments are the most important aspect of their relationship with consumer and commercial clients. Simple remote deposit capture still isn‘t offered across the board by banks nor is the ability to easily transfer money inside accounts or outside to others, albeit the technology for these have been around for at least 10 years.

Meanwhile, neobanks have quickly risen onto the scene and made the financial experience much better in terms of information and how it’s presented.

The Digital Shift Will Stick … But Will Take Time

Once upon a time, consumers writing checks at the grocery store was commonplace and it took years to convince them of a more convenient payment alternative like debit, credit or prepaid cards. Similarly, it will take time for everyone to embrace modern digital commerce and all its benefits.

After all, COVID-19 has been a huge catalyst for innovations in contactless payments, curbside pickup and buy online, and pickup in store (BOPIS), not to mention the increase in fraud that’s been incurred as a result of 2020’s digital shift.

“Habituation takes a while – sometimes it’s generational,” McCarthy said. “There is training going on, [and] it’s still early innings.”

But McCarthy is certain that a lot of 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 integrated to their fullest potential yet.

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.

Just as Amazon’s one-click payment button revolutionized shopping and Apple Pay democratized and removed the need for the standard checkout process as we know it, the future revisions in eCommerce and payments will change everything.

The Future of Wearables

According to McCarthy, one area in which innovation is happening is the wearables space. Even though the technology has been available for years, banks have been reluctant to get on board. “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.” A great example of this is Purewrist, which 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.

Similar to 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.

To keep up with the complex field of contactless and cardless payments, i2c and PYMNTS collaborated to create the ‘Beyond the Card – Toward the Cardless and Contactless Future‘ report. Through analyzing consumer trends and highlighting case studies from FIs and FinTechs, the report provides a glimpse into the future of digital transactions as we know them.

To learn more about how digital payments are evolving, download Beyond the Card – Toward the Cardless and Contactless Future: