October 20, 2017 – Digitization is increasingly altering the nature, direction and opportunity of traditional value chains. We can no longer view them in a linear fashion where products move in discrete steps from supplier to manufacturer to distributor to point of sale. The comparable value chain for financial institutions–from receipt of a deposit to development of debt instruments or securitized products (e.g. credit cards, mortgages, etc.) to the distribution and delivery to merchants or consumers (formerly through branches, today through apps)–is being similarly restructured.
Advances in digital technology are permeating this linear value chain, transforming it into a complex, dynamic and connected value ecosystem. Traditional lines between industries are blurring, as firms offer broader ranges of products and services or as new startups emerge. Firms should gain a deeper understanding of these technologies and how they are reshaping consumer preferences and behaviors. For example, mobile devices have dramatically changed the way consumers interact with both retailers and financial institutions. Today, consumers can order a pizza by sending an emoji and withdraw cash from the ATM without their debit card. And the rise of the Internet of Things (IoT) will only further alter the traditional purchase and payments system; think refrigerators that place orders to restock themselves.
Firms seeking to maintain or extend their position in the new value ecosystem will require a truly customer-centric approach that goes beyond their historic core competencies and broadens the touchpoints and offerings they provide.
Leveraging the new value ecosystem
For most financial institutions, responding to this new, broader concept of value generation will require changes to or expansion of their overall strategies. Increasingly, value creation depends on the exchange of knowledge among providers, as well as the fostering of continuous innovation that leads to new products and services.
The good news is that collaboration opportunities abound across the ecosystem to provide value for both issuers and merchants. For example, collaborations related to connected cards enable issuers to digitally issue cards that consumers can use immediately in their preferred digital commerce use cases–helping place issuers top of wallet and enabling merchants to remove friction from the purchasing experience. Similarly, when institutions are able to engage customers with products and services on the platforms where they’re already spending time, the entire value ecosystem stands to benefit. These opportunities come to fruition when financial institutions and merchants consider the pain points their consumers face and consider ways to work together that can mitigate these challenges. Almost always, that creates incremental value for all parties involved.
And because new innovations can provide opportunities for collaboration they can help reduce innovation costs and mitigate risk to the institution. Responding to changing circumstances creates new challenges for firms in the financial industry, but the opportunities and outcomes can be significant. More importantly, failure to address the changing needs of today’s consumers enables more accessible, seamless, and digitally focused providers to gain market share.
Visa: taking on the challenge
As financial providers and technology platforms integrate and intertwine to meet the consumers’ various financial needs, there is a need for a network that is scalable, innovative and most importantly, secure. Visa is continually working to build a suite of capabilities so its clients can embrace the disruption in payments and deliver innovative payment experiences, revolutionizing the way consumers pay digitally in the same way that it has for consumers paying in stores.
With innovations across product platforms such as Visa Checkout, Visa Token Service, Visa Developer Platform and Visa Direct, Visa is committed to making network-based payments futureproof with consumers’ evolving needs. For example, Visa Checkout provides merchants with an easy way for customers to pay online and in-app, and issuers with a digital product to further engage with their cardholders in the rapidly growing digital commerce channel.
Visa also recently opened the Visa Checkout platform so the payment capability can be integrated into digital wallets, collaborating with Google Pay and Samsung Pay to enable consumers to pay with their preferred mobile wallet wherever Visa Checkout is accepted. These relationships will enable cardholders to pay across more digital use cases, and will extend issuers’ mobile leadership and reach as consumers further habituate to shopping and paying on their mobile devices.
In short, Visa provides scale, infrastructure and expertise for payment ecosystem players as they consider adding payment capabilities to their digital products, facilitating greater innovation and value for cardholders.
To learn more read the fourth post in the series: Learning from disruption, or the full report: The next wave in digital payments.