U.S. banks are finding themselves at a crossroads, balancing the advantages of relying on dominant service providers with the pressing need to maintain operational autonomy.
From core banking systems to payment processing, service providers offer banks the ability to scale their operations, increase efficiency, and reduce costs. But too much reliance on third-party service providers has pitfalls.
During a recent PaymentsJournal podcast, Oscar Munoz, Vice President of Sales, Ren Americas at Euronet, and James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research, discussed the double-edged nature of relying on large service providers and the imperative for banks to have the flexibility to innovate.
PaymentsJournalHow Banks Can Navigate the Path to Operational EfficiencyPaymentsJournal How Banks Can Navigate the Path to Operational EfficiencyPaymentsJournaljQuery(document).ready(function ($){var settings_ap16662549 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"16662549",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_429754_29",settings_ap16662549); }catch(err){ console.warn("cannot init player", err); } });
A More Autonomous Outlook
Banks face a potential erosion of operational autonomy when they delegate to external providers. They also risk losing control over data security, customer experience, and regulatory compliance.
“Many financial institutions are taking back control of their issuing and acquiring offering from the full outsourced model that we have seen become so popular in the U.S.,” Munoz said. “A lot of the sponsor banks in the U.S. are looking to own their own tech stacks instead of continuing to refer that forward to another company, which many times puts them at risk.”
Munoz emphasized the need for banks to control the final mile of customer interaction, highlighting its increasing importance. When banks take back control, they regain influence over how they communicate with their customers, something that’s especially critical for mid-tier and smaller financial institutions that place a high value on their customer relationships.
Striking the Right Balance
In the search for operational efficiency, banks must strike a balance between in-house capabilities and external services, all while staying compliant with evolving regulations. However, excessive reliance on third-party service providers—as mentioned before—can lead to generic, one-size-fits-all solutions that may not align with the value propositions every bank offers.
Wester pointed out that adaptation is not just a choice but a necessity. Banks must reevaluate their legacy systems and technologies in this fast-evolving landscape, even if they have been reliable and effective.
“For the longest time, that was acceptable,” Wester said.