The list of new payment technologies that pose a competitive threat to the banking industry is long, varied and perhaps a bit overwhelming.

In fact, so many tech firms are out to eat banks’ lunch that many bankers, particularly those at smaller institutions, seem to be steering entirely clear of the cafeteria.

A recent survey of 219 U.S. banks found that 87% do not have a formal payments strategy. Meanwhile, 71% said that they do not analyze payments data to gain insights into customer behavior. Smaller banks were substantially more likely to be behind the curve than their larger counterparts.

The survey was conducted by the American Bankers Association, which framed the findings as a call to action.

“Payments have always been the banking industry’s primary and most fundamental competitive advantage,” the trade group stated in a report summarizing the results of its inaugural payments survey.

“However, technological advancements, new digital entrants that are reshaping the customer experience, changing market demographics and increasing demands for faster, easier and value-added payments services threaten to erode banks’ historical position.”

The survey’s results suggest that small banks are particularly vulnerable in the face of game-changing technological change.

Among banks with at least $10 billion of assets, 57% said they have a formal payments strategy. But just 13% of all respondents — the large majority of which have less than $1 billion of assets —said the same.

The report highlights several of the payment technologies that pose a competitive threat to small banks. They include digital currencies, person-to-person payment apps, real-time payments, mobile wallets and distributed ledger technology, all of which threaten to chip away at the indispensable role that banks have long played in their customers’ lives.

Of course, many of the nation’s largest banks are making big investments in payments, as are tech giants like Google, Apple, Amazon and PayPal. So it is easy to see how small banks might become pessimistic about their ability to compete.

Still, there are certain moves that even small banks can make to better position themselves.

One step is simply to start thinking about payments holistically, which is the idea behind developing a formal strategy. Too many banks are operating their businesses in separate silos, with credit cards hived off from mortgages, which are hived off from corporate banking, said Michael Moeser, director of payments at Javelin Strategy & Research.

“The banks, without an overarching strategy, they’re not seeing the forest for the trees,” he said.

Another step that banks can take is to push their core system providers to adapt more quickly to the rapid changes in payments technology. The survey found that banks’ reliance on core system providers was identified as the biggest impediment to the timely execution of a payments strategy.

“Some banks do take a more passive role,” lamented Steve Kenneally, a vice president at the American Bankers Association.

A third potential step is to partner with fintech firms that can help modernize banks’ payment capabilities. The survey of bankers found that 70% of them have never entered into such a partnership.

One bank taking a more aggressive approach is ConnectOne Bancorp in Englewood Cliffs, N.J. The $4.5 billion-asset company recently joined Zelle, a person-to-person payment network that gives banks the opportunity to compete with the likes of Venmo.

ConnectOne is one of just 34 banks and credit unions that have joined Zelle so far, and one of only six institutions on the network that have less than $10 billion of assets. “This is something that our clients will really want,” CEO Frank Sorrentino said in an interview.

The ABA report also recommends that banks evaluate open banking platforms, which would allow customers to pick and choose products and services from different companies. And the report points out that even adopting last-generation technology could help banks improve their competitive position.

“It is worth noting that 37% of banks do not offer a consumer credit card, which may put them at a competitive disadvantage in light of the central role that credit cards play in e-commerce and mobile payments,” the report states.

For banks, new payment technologies often do not provide a significant short-term revenue boost. So their benefits — while important for maintaining long-term relationships with customers — can be hard to measure.

As a result, bankers often see payments as more of a nuisance than an opportunity, a problem to be handled whenever a transaction gets reversed. But that is a short-sighted view, said Bob Steen, the CEO of the $90 million-asset Bridge Community Bank in Mechanicsville, Iowa.

Steen serves on a Federal Reserve task force that is looking at how to modernize the U.S. payment system, and his bank was among the first to process same-day transactions on the automated clearing house network.

“I’ve literally spent the better part of the last 25 years trying to convince my colleagues that this is important,” Steen said. “I don’t know how to push the rope any harder than I have.”

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.