Developing a Strategy for Payments Modernization

Sep  21 
Rossana Thomas  Head of Enterprise Payments Platform EMEA 

Reimagine payments for differentiation and sustainable growth

No industry is going through such fundamental and rapid change as the payments industry. Financial institutions are being pushed to redefine their payments strategies to meet a growing demand for real-time payments, enhanced customer insights, digitalization, data sharing and increased profitability.

Solutions that were on the cutting edge a decade ago may not work now. So how do financial institutions decide on a strategy that is right for them?

Generally, there are two paths financial institutions can take toward payments modernization. The short road employs a tactical approach that focuses on compliance and one-off solutions. The longer route means investing in a more strategic approach that reimagines their entire payments strategy. Either choice will have long-term implications for differentiation and sustainable growth.

Finding the Right Path for Your Organization

Determining the best path forward starts with an analysis of the terrain. Consider how your financial institution can address (or is addressing) these areas:  

  • Adapting to the rise of real time – Consumers and businesses want to move money faster, globally, and with more information. Incorporating real-time services into a payments strategy is an essential component to staying relevant and competitive
  • Gaining insight into the entire customer journey – Next-generation customers gravitate toward solutions that are versatile, structured and all-encompassing to satisfy business and personal needs. Meeting this challenge starts with understanding the customer journey across the entire value chain
  • Moving money and information together – The majority of businesses believe money and information should move together efficiently. While the payments industry has slowly adopted ISO 20022-based messaging, businesses and consumers have rapidly digitalized their interactions through adoption of Open APIs. Financial institutions should be careful not to fall behind
  • Ensuring underlying infrastructure capabilities – Large fintechs have shown the value of an agile, flexible, always-on, API-first digital ecosystem that can rapidly adapt to strategic goals; financial institutions should follow their example

 

Providing real-time payments is key to retaining customers and remaining competitive.

Real-Time Payments Take Center Stage

Real-time payments processing was one of the fastest-moving developments in the financial industry and has become the new-normal for payments. Consumers and businesses demanded streamlined ways of moving money and information. Providing real-time payment capabilities is a key requirement for your financial institution to retain customers and remain competitive.

Interoperability of domestic instant payment networks is the next stage of improving the customer’s experience, bringing the benefits of speed, availability and finality to cross border payments – in the same way you can order goods and services from any country at any time, the payment for them will now take place at the same time. As interoperability expands, there will be a shift to secure API interaction between these networks to remove single points of failure. 

With instant payments comes risk at a quicker pace. Financial institutions can rely on accurate and complete data monitoring in real time to minimize fraud risk exposure, improve Anti-Money Laundering/Combating the Financing of Terrorism detection and enhance regulatory reporting.

The Customer Journey 

Historically, financial institutions have focused more on the payment instead of what the customer needs. Customer journeys vary; even customers within the same vertical may not have the same needs. By mapping each journey, your organization can determine how to best digitize the value chain.

Financial institutions can use current and emerging technologies to engage customers upstream and downstream from the point of payment to leverage all related data and increase straight-through processing. Then, using capabilities such as artificial intelligence and machine learning, a financial institution can help interpret the data to make intelligent decisions.

Turning Payments Data into Information

The adoption of ISO 20022 should have led financial institutions to adopt new and better technology; however, many only saw the change as a mandatory compliance requirement and not the basis of a radical evolution of the payments environment. For these, making minimal changes has left them in a difficult position, unable to satisfy customer demand for innovative, API-led solutions that enhance their financial journeys. While adopting ISO 20022 has allowed these institutions to hold more data, it does not turn that data into the information demanded by customers.

The financial institutions who understood adoption of ISO 20022 was only part of the framework needed to enhance their customer’s experience have created information-centric financial ecosystems that rapidly adapt to customer demands, interacting seamlessly with their devices and applications and understanding every interaction necessary for them to complete their business.  

Deliver the payments experience consumers want by harnessing technology investments that add value over the long term.

Underlying Infrastructure and Technology

Over time, systems and technologies have grown to be too expensive to maintain and too slow to adapt to the changing needs of many financial institutions. Fortunately, advancements in technology provide more options.

The days of deciding between standardized, large-scale, cost-effective platforms and highly customized but costly solutions are gone. With technology advancements, financial institutions can have both standardization and customization. Capabilities such as nonlinear scaling, cost-effective configuration, microservices and cloud computing provide the means and agility to deliver customized – and affordable – solutions.

The Road to Long-Term Value

The payments transformation target will always be moving. Technology doesn't rest; customer expectations will continue to evolve. For those reasons, taking a short-term approach to payments modernization, including upgrading systems simply to comply with a new standard messaging format or changing regulations, will lead to missed opportunities.

Rather than narrowing the focus to format or compliance, there may be greater value in expanding the view. Is the underlying technology robust and flexible to adapt dynamically to evolving customer and regulatory needs? How are your solutions positioned? How can your organization use additional data to create more value for customers?

Consider investing in a single, intelligent and secure platform that meets immediate regulatory needs and is responsive to change. With an enterprise view of all payments, financial institutions can leverage payment-rich information to customize new products and services. Starting with one functionality and one access point at a time, financial institutions can progressively transform their payments infrastructure.

The strategic path forward may be longer and it won't always be easy. By taking an enterprise view of payments, financial institutions like yours will be better positioned to manage competing priorities and uncover new revenue-generating solutions. The key is to stay focused on delivering the payments experience consumers want by harnessing technology investments that add value over the long term.

Stop by booth D16 at SIBOS to learn more about payments modernization or set up a meeting in advance through our landing page.