Value-added services: A missed opportunity for banks in commercial payments?

Fintechs and Big Techs are pushing the frontiers in the payments space, increasing competitive pressure on traditional banks and incumbent payments providers. While there are many reasons behind non-bank institutions outperforming banks, part of it is that their established rivals are held back by legacy systems.

Consequently, more than half of bank clients are already employing commercial payment solutions provided by fintechs to get more flexibility in their banking experience, according to a new report by Accenture.

Providers and clients consider accuracy, security, and speed of transactions as critical factors in business payments. But while providers failing to offer value-added services (VAS) was clients’ second-biggest pain point, payments incumbents did not list it as a pressing concern.

Leveraging this gap can be a key differentiator for incumbent FIs in retaining a central position in providing payment services and increasing customer satisfaction. It appears banks are still not aware of the full potential they can unlock by providing pertinent VAS by leveraging data. Too frequently, data is siloed, impeding banks from getting on the path to a more collaborative, data-driven culture.

Breaking down data barriers by taking a different approach followed by the analysis of customer data can play a pivotal role in enabling banks to understand consumer needs, behaviors, and preferences. Deep customer insights are at the core of how banks can modify their strategies to develop personalized products and offer additional non-bank services to reap benefits like increased revenue and build long-lasting customer relationships down the line.

Commercial payment clients are willing to pay 8.1% of their annual payment costs toward value-added payment services, which could be worth $371 billion in value in the next five years. Value-added tax system integration, real-time access to payment data insights, and bill payments are some of the most sought-after services. However, 33% would consider another provider if these services are provided free of charge. 

Banks stand at an advantage despite the shackles of legacy technology

Banks that plan to offer VAS to their customers stand at an advantage. Customers trust their banks when it comes to personal data protection among other things, which puts them in a better position than non-bank institutions. 

More than half, nearly 51%, of clients would prefer to receive value-added services from their banks. This is primarily because of the back-end experience and compliance in the financial industry which provides banks with a major competitive advantage, in addition to the trust customers have in them.

But are banks’ investment priorities in line with growth opportunities?

Banks’ investment strategies to embed VAS apparently don’t evenly align with rapid growth areas.

Although merchant acceptance is forecast to be the fastest-growing segment in commercial payments with a CAGR of 9.6% over the next five years, only 26% of banks have prioritized it for investment. The commercial card segment is one area in which investment is comparable to growth potential. It is expected to grow by 8.8% a year and is a key investment priority for 36% of banks. 

However, banks’ investment approach is erratic. They are prioritizing investments in payables (41%) and receivables (41%), which are expected to grow by 5.3% and 5.4% respectively, while 36% of them are also backing documentary trade finance, which is the slowest-growing area (2.2% CAGR) and a low revenue stream.

Keeping on top of what customers want and reinventing business models to address their needs is crucial for banks and established payment providers to acquire new customers and retain existing ones. The report emphasizes that to hold on to their market share, incumbent FIs may require an evolving strategy firmly anchored in overcoming legacy technology, forming ecosystem partnerships, and embracing a client-centric approach across the board.