United States
Banks have always played a central role in payments. Over the centuries, the role has evolved, but for contemporary financial institutions that see merchant services as a strategic line of business, the alliance between payments partners and financial institutions holds great promise.
In the future, successful community and regional banks will partner with their payments provider to cocreate new synergies. Banks will own the merchant relationships, the insights, and the payment experience, while their payments partners will deliver the expertise, support, and technology that make modern payment solutions possible for their clients.
A History of Banking and Payments
Before we look ahead, let's take a brief glance backward. Starting in Mesopotamia and the temples of ancient Greece and Rome—as far back as 2000 BC—priests and merchants stored grain and precious metals for safekeeping, issued loans, and recorded transactions. These were the first banks. By the medieval centuries in Italy, true banking arose, with merchant banks financing trade, issuing credit, and enabling cross-border payments. The 1700s and 1800s saw the rise of commercial and savings banks across Europe and North America. Banks began adopting check-based systems in the 1800s and managing payment clearing systems.
By the early 20th century, banks were the beating heart of commerce. And in the 1950s, when credit cards arrived on the scene, banks were the first acquirers. Bank of America introduced BankAmericard, which became Visa, and Master Charge (now Mastercard) was introduced by a group of banks. These credit-card innovating banks were both the card issuers and the merchant acquirers. In other words, banks were payments.
Banks and Payments in the Modern Era
Banks were the original merchant-services providers. It wasn’t until the 1990s and the rise of ISOs that sales agents became the acquirers and eventually the merchant-services providers themselves. This is how payments peeled off from smaller banks. While larger banks remained acquirers, most smaller banks began to form referral partnerships with ISOs or built white-labeled referral programs. This is where we are today.
But in the decades to come, banks will once again have the opportunity to become more integrated and essential in the payment ecosystem. Let’s take a look at how that will likely happen.
Embedded Partnerships
Banks are moving toward embedded partnerships with payment companies, where merchant onboarding, funding, and reporting will happen inside the bank’s digital channels. The partner will still own and run the back end, but to merchants, the experience will look and feel bank owned. Existing business asset accounts will be fully integrated with payment accounts. Imagine how convenient and powerful this level of integration will be for business owners and managers.
Do Today: Bank leadership can prioritize and strengthen the partnership with their payments provider, laying the groundwork for coming technological developments.
Payments Data As Asset
Today, banks with strong merchant-services partnerships already know that sales and payments-data reporting provide insight and opportunities. Moving forward, this data will become even more integrated into banking systems, so bankers will be able to see real-time transaction data and offer products and services accordingly.
Cross-selling treasury, lending, and payroll services based on payments data will happen quickly and with precision. This will create a major competitive advantage for banks that are ahead of the curve.
Do Today: Talk to your payments partner about how to interpret and leverage current reporting data. Train staff to make the most of data opportunities.
Faster, More Transparent Revenue Sharing
There is currently a lag between merchant activity and revenue sharing from payments partner to financial institution. In the future, this information will flow in near real time, and transparent dashboards will show up-to-the-minute portfolio performance. The transaction data will also inform business strategy, with metrics such as profitability by vertical, attrition alerts, and retention tracking.
Do Today: Ask your payments partner to hold quarterly business reviews with your leadership team to review revenue performance and develop goals and strategy for the following quarter.
Broader Payment Ecosystems
New payment company/bank payment flows will evolve beyond card acceptance. Within the bank ecosystem but powered by the payments partner technology, embedded ACH, real-time payments, digital wallets, and buy now/pay later integrations are on the horizon. AP/AR automation and cashflow-forecasting modules linked to merchant data will arise. And through the ever-tighter dovetailing of these processes, banks will once again become central financial hubs for small and midsized businesses.
Do Today: Use your state association relationships and educational opportunities to stay abreast of integrated payment-technology developments. Work with your payments partner to ensure your bank is on the leading edge of payment-ecosystem enhancements.
A New Day Is Dawning
For centuries, small and midsized businesses have relied on and trusted banks. That relationship may have become more tenuous in the digital age, but there are fantastic opportunities on the horizon for financial institutions to reemerge as true business hubs.
Banks that see merchant services as a strategic product and choose the right payments partner today will be positioned to capitalize on the future.
Payroc sees the vision and is poised to innovate with you into the coming decades. We not only offer a complete merchant-services product lineup, POS and payment-system recommendations personalized to each merchant, and award-winning support for both our FI partners and merchants today, but we are also hard at work innovating to bring more and more value to the relationship tomorrow. We will continue to develop the technology that will help you win the future.
To learn more about leveraging and enhancing your merchant-services partnership, connect with me by selecting “Get started” here.