At a financial services consulting firm, we authored a study 20 years ago for the Financial Services Roundtable (then, called the Bankers' Roundtable) on the future of the payments system. At the time, Al Gore had recently "invented" the internet, banks were developing or expanding online services, and entrepreneurs were creating new platforms for bank operations, including providing consumers and businesses with more convenient ways to interface with their financial institutions.

In those days, cellphones were not "smart." Cellphones — which were unreliable, had limited functionality and were basically the size of a sub sandwich — were more status symbols than communication devices. Personal computers were not ubiquitous, and tablets and other mobile devices were not even under development. Then, nobody foresaw that cellphones would become integrated and powerful mobile computers, or that Amazon, PayPal, iTunes, social networking, YouTube and all the other applications that have shaped behavior and expectations so drastically over the last 10 years would become popular with the masses.

And yet, the most significant warning we issued in our study concerned the very nature of the payments system and banks' historical role within it. Through membership in the Federal Reserve System and the major card associations, large banks controlled the railroad and decided who or what could use it. The danger even then was that banks could lose their historical advantages if other providers built an alternative railroad or were allowed to put cars on the existing rails. In that worst-case scenario, disruptors would leave banks with the highest cost, highest risk and lowest margin pieces of the business.

Since the 1990s, there is no question that most banks have heavily invested in new payments technology, distribution services and capabilities for consumer and commercial markets. In fundamental ways, these new capabilities have altered how, where and when customers do business with their banks in addition to influencing cost structures and profitability models.

However, a whole host of industries have been altered dramatically by the entrance of technology-based category disruptors that have changed the competitive landscape and left once-powerful companies to either wither or die. Retail, media, news, entertainment and transportation are just a few industries that have experienced painful (for some) transformations. The question remains, "Is the banking industry next?" We believe the answer is "yes!"

The risks — which do not solely rest on ever-accelerating tech advancements — are far greater than they were 20 years ago. The primary threats lie in banks' unwillingness or inability to change: fundamental operating processes, rigid core systems that limit flexibility and innovation, high legacy costs and investments in outdated distribution channels. Banks are also struggling to understand a new and powerful demographic group that questions the very relevancy of banks.

Only adding to these reasons is an increasingly complex bank regulatory environment that does not seem to apply to new entrants — at least not yet. Addressing these threats effectively is no small task. It will require banks to make significant changes to long-held policies and practices, major capital investments in new technology platforms, transformation of payment and distribution channels and networks, and appropriate responses to a seismic generational shift in consumer attitudes, behaviors and expectations.

Payments have always been the banking industry's primary and most fundamental competitive advantage. Threats to the industry's control over this critical capability were visible 20 years ago, but they are even more apparent and real today. Technological advancements, changing market demographics and increasing demands for faster, easier and value-added payment services are creating challenges and opportunities for banks of all sizes.

In an environment in which choices are many and resources are limited, a comprehensive, clear and focused payments strategy is required to drive investment decisions, create market differentiation and maintain the relevancy of banks.

Rolland Johannsen is senior consulting associate at the Capital Performance Group, a Washington-based consultancy focusing on the financial services industry. He can be reached at