How Regional and Community Banks Can Compete (And Win) in Payments

By Sai Rangachari, Temenos

Published on June 11th, 2025 in Payments

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Executive Summary

Payments are an increasingly important driver of banking relationships, but going head to head with major players is an impossibility for all but a handful of regional and smaller banks.
Knowing where to compete is critical — as is knowing where not to compete.
Figuring out where to compete demands clear understanding of what consumers and smaller businesses need.
Strategy set, let technology enable execution. Don’t let tech drive strategy.

The payments ecosystem continues to grow exponentially, prompting many banks to seek a larger share of transaction volume. However, this landscape is dominated by a few massive players — Visa, Mastercard, JPMorgan Chase, PayPal, Stripe and others — that have invested billions in building and optimizing infrastructure.

Every day, businesses and consumers engage in millions of transactions, expecting speed, security and seamlessness. Payments have evolved beyond a simple utility, becoming central to modern customer experience and economic activity.

For regional and community banks, the strategic challenge is not whether to have a payments strategy, but determining what kind of strategy is most effective in this rapidly changing landscape.

As the payments industry evolves, not every bank needs to compete in the infrastructure arms race. The key to success lies not only in knowing where to play but also in identifying where not to compete.

Understanding the point of payments is also critical. The most successful banks treat payments not as a standalone function, but as a core driver of engagement and retention.

Remember that payments are one of your institution’s primary relationship drivers. The goal in modern payments isn’t to nickel-and-dime customers with fees but to use payments as a tool to grow deposits, increase engagement and reduce churn.

Payments are how customers interact with your brand daily. Done well, they create stickiness. Strategic card issuance, for example, can capture interchange revenue and boost top-of-wallet placement — particularly in mobile-first environments like Apple Pay and Google Wallet.

Know Where to Play — and Where Not To

Payments infrastructure is complex, expensive and highly regulated. It requires constant upgrades, security measures, compliance management, and integration support, yet it offers razor-thin margins. Unless a bank can operate at massive scale or offer disruptive technology, competing to be part of the payments infrastructure is unlikely to make economic sense.

Regional and community banks can excel here by building trust, providing personalized service, and leveraging local knowledge. Diverting resources to develop infrastructure pulls focus away from these core strengths.

For these institutions, the more effective strategy is to concentrate on where differentiation and value are still achievable: the experience layer.

The user interface, functionality and customer engagement shapes how payments are used. By embedding seamless and intuitive payment experiences into digital channels, banks can create significant value without reinventing the backend.

Consider how platforms like Venmo or Uber handle payments.

For example, when a driver cashes out $100 instantly, Uber charges $1.50 for the convenience. Of that $1.50, approximately 20 cents goes to the bank or payment processor. The remaining $1.30 is captured by Uber. This margin structure is typical in the modern payments landscape. Whether it’s consumer-to-business, business-to-consumer, or business-to-business, the experience layer consistently captures the majority of the value.

Regional and community banks have an opportunity to take advantage of this dynamic by embedding clean, modern payment experiences within their digital channels and finding their niche. They need to understand customer behaviors and what drives customers to do business with their bank to deepen engagement and loyalty.

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Start with Strategy, Not Technology

A successful payments strategy begins not with technology such as real-time payments, digital wallets or blockchain solutions, but rather with a clear understanding of customer needs.

Before developing or adopting any payment technologies, banks should address a few core questions: Who are the target customers? What are their pain points? What growth opportunities exist within specific segments?

Once these strategic pillars are identified, banks can implement the right payment solutions. Technology should be an enabler of strategy — not its driving force.

For many customer segments, the ability to receive real-time payments has become a baseline expectation. Whether it’s a gig worker cashing out earnings or a small business getting paid by clients, instant access to funds is critical. If your bank doesn’t support receive capabilities via RTP, FedNow or Zelle, customers will find one that does.

Let strategy lead. While receive capabilities are table stakes, how you enable send is where banks can differentiate. The decision to embed RTP or FedNow into specific flows, such as payroll, disbursements or bill pay, should be directly tied to your broader growth strategy. For example, embedding real-time pay-out options for small and mid-sized businesses or marketplace platforms can drive new customer acquisition and deepen relationships in key verticals.

Especially in the retail and business segments, the mobile app has become the new branch. Payments must be seamless, intuitive and deeply integrated into the digital experience. Any friction — slow transfers, confusing interfaces, lack of control — can drive customers to competitors.

Integrated Payments for Business Workflows

In the commercial space, the expectations shift. Businesses require reliable, seamless payments that integrate directly into their existing operational streams.

For these clients, payments are a critical, functional necessity rather than a standalone feature. Banks must offer foundational payment services like the automated clearing house, wire transfers, RTP and commercial cards. While these are now expected, differentiation comes from deeply understanding the unique needs of each commercial segment and embedding payments into their daily workflows.

To succeed, banks should focus on partnering with best-in-class providers, integrating these solutions into their existing treasury and cash management platforms, and adding value through light-touch features that enhance their core offerings. The objective is to make business banking more efficient and integrated without overburdening internal resources.

When payments are seamlessly integrated into a business’s workflow, the bank becomes an indispensable operational partner.

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The Power of Payment Partnerships

Payments innovation is fast paced, with new standards, fraud prevention methods, and user expectations emerging constantly. Even for most regional banks, trying to keep up with all of this complexity is a losing proposition.

The smarter approach is to partner with specialists who can manage the complexity. By focusing on vendor governance, system integration and strategic partnerships, banks can avoid the cost and risk of maintaining an in-house payments infrastructure. This approach will enable banks to concentrate on their core competencies while leveraging the expertise of external partners.

Banks should invest in:

Vendor diligence to ensure stability, security and alignment with the bank’s long-term goals.
Seamless integration to facilitate the smooth flow of customer data across platforms.
Compliance oversight to maintain control while ensuring partners adhere to regulatory standards.

These investments allow banks to focus their resources on what matters most: serving customers and enhancing their banking experience.

The Quiet Winners in Payments

Pursuing infrastructure revenue can be tempting. However, the reality is that for most regional and community banks, it’s a race that cannot be won. The real opportunity lies in making payments a seamless, integrated part of the customer experience.

When banks lead with strategy, understand their target segments, and form the right partnerships, payments can become a powerful tool for engagement, growth, and retention. The most successful banks will not be those that boast about their payments capabilities, but those able to demonstrate the customer problems they were able to solve.