Four Things Banks Can Learn From PayPal
If one were to look closely at PayPal’s success story, from its early outset through its monumental growth, there are two areas where their business model has excelled in delivering big ROIs. First, the e-commerce giant has been driving product portfolio development closely aligned with evolving needs of customers. Second, the company places strong emphasis on tapping new growth opportunities in latest technologies and emerging markets to balance downward pressure on margins and fees.
Incidentally, the 2013 World Payments Report also highlights these two approaches as key drivers for banks and financial services providers, if they are to gain a competitive edge in the fast evolving payments market. So what lessons can the banking industry draw from PayPal? What insights and knowledge can banks derive from the company’s steady pace of growth to redefine their approach to truly differentiate themselves? Let’s take a look at four aspects:
- Get it Right on Innovation: Since its acquisition by eBay in 2002, PayPal has been at the forefront of innovation in consumer-to-consumer online payment services. The company’s Innovation Center in New York demonstrates mobile app pilots and emerging technology to simplify shopping experience for users, bringing user preferences closer to mobile app design.
- Choice and Convenience for Users: The ease and convenience of payment along with a plethora of choices for consumers is yet another harbinger of PayPal’s success story. Right from simple steps to registration, highly secure foreign currency transactions, to easy access to payment mechanisms, the company delivers on improved customer experience. For example, the new shipping with United Parcel Service (UPS) service allows users the convenience to create and print a shipping label to ship their items.
- Take Security Seriously: While it’s true that no company today is immune to security exploits, the anti-fraud team at PayPal takes a proactive approach to counter persistent attacks on users and networks – ranging from data theft to phishing attacks. The online payment provider works closely with the FBI and other law enforcement agencies to help reduce identity thefts using sophisticated risk models and advanced encryption techniques. This is one of the reasons why the company has managed to stay ahead of the curve in the Person-to-Person (P2P) payments market, where many similar providers have failed to prevent targeted security attacks.
- Invest in New Technologies: Another key takeaway for financial services providers from PayPal’s business model is to be able to do just enough to keep pace with technology. PayPal started with an online model and then expanded to Mobile to tap into the mobile payments business. More recently, the company is placing bigger bets on the retail Mobile Point of Sale (POS) technology, with its wallet app that allows users to make digital transactions at POS terminals. In May 2013, PayPal released the PayPal mobile SDK for Android in the US.
Changing customer expectations and shrinking profit margins are forcing banks to strengthen their focus on innovation and achieve customer-centricity to truly differentiate themselves. Some banks are already taking a leaf out of PayPal’s book and looking at innovation and customer focus as a strategic differentiator in the payments business. For example, clearXchange is one such P2P payment network in the U.S. where three major banks – JPMorgan Chase, Bank of America and Wells Fargo & Co. – have collaborated to create a new P2P cash transfer product, which allows users to transfer funds through a web-based system. Another such payment provider is Paylib, where three banks in France have launched a web-based payment system that allows users to make payments using login details and password instead of having to enter their credit or debit card details.
While these developments are undoubtedly driving a shift in the mindset of major banks, it’s time they make swift efforts to leverage new technologies and improve customer experience, without compromising security and compliance.