The payment experience is taking center stage and redefining the direction of the industry. The sixth annual payments survey of financial institutions, commissioned by Fiserv, highlights that shift and the need for financial institutions to accelerate their payments modernization and technology transformation.
The survey, “Payments Transformation: Immediate, Intelligent and Inclusive,” indicates financial institutions are focusing on payments modernization initiatives, including instant payments, the move to ISO 20022 and the adoption of open banking. At the same time, there's a strategic shift to determining how those changes can work together in an ecosystem and drive value for financial institutions and consumers.
Some trends are accelerating during COVID-19, but most were evident before the pandemic. For example, financial institutions are keenly aware of the threat from large, digitally driven technology companies. That is spurring a customer-centric digital transformation that goes beyond individual products to an intuitive experience and end-to-end customer engagement.
Here are highlights from this year's survey.
During the pandemic, consumers and businesses rely more on digital payments, which has highlighted the importance of business continuity.
Instant Payments Drive Consolidation
As instant payments become the norm, financial institutions are incorporating other elements, such as overlay services and alternative payment initiation methods, to holistically meet the needs of businesses and consumers. Among those surveyed, 86 percent said overlay services enable alternative payments initiation methods, including QR codes and Request to Pay. Providing a broad range of new payment options and value-added services increases retention and loyalty and helps financial institutions struggling with a reduction in payment income and increased competition.
The survey highlights the shift to real-time money movement with the same finality and availability of traditional cash payments, which have been on the decline in many economies. That shift is driving the consolidation of payment rails – allowing simplification of processes, systems and payments processing. The survey found that 87 percent of respondents agreed that payments consolidation is driven by instant payments.
More than four out of five respondents agreed that consolidation will provide opportunities for new revenue. But the challenge is how to extract new forms of revenue, generate value from the movement of funds, provide greater visibility for cash management, normalize data across all payment types and support innovative overlay services.
Monetizing Payments Data and Insights
As we move toward faster domestic and cross-border payments, the need for real-time liquidity monitoring increases. For financial institutions, there is increasing regulatory pressure to effectively manage intraday liquidity risk.
To do that, financial institutions can build out a series of intuitive, dynamic user dashboards that leverage extensive data modeling, enrichment and machine learning. The survey found 84 percent of respondents agreed that real-time cash and liquidity services will provide greater visibility, access and control to corporate treasurers, and more than 85 percent said a real-time approach to cash and liquidity management will improve intraday liquidity.
Financial institutions and their corporate treasury clients are increasingly interested in benefits of the rich data that comes with ISO 20022 and 24/7 instant payments. The challenge – and therefore the opportunity – will be how to use data to make informed decisions, improve operational efficiencies, uncover new revenue opportunities and gain an enterprise view of what's happening in their institutions.
A focus on investment in technology is a consistent theme. Among respondents, 85 percent said they would increasingly adopt cloud-based strategies over the next three years.
The Need for Business Continuity and Greater Efficiencies
Financial institutions are aware of the operational risk and cost when systems and processes aren't resilient and flexible. With subsecond processing and 24/7 operations, financial institutions cannot afford for payment environments to be down. During the pandemic, consumers and businesses rely more on digital payments, which has highlighted the importance of business continuity.
Four in five survey respondents expressed concern over the cost and oversight of maintaining multiple legacy systems and were wary of the growing regulatory and compliance costs of doing so. Combining multiple payment types onto a single platform helps reduce costs and simplify systems, processing and operational oversight while ensuring a frictionless payment experience.
In our 2019 Payments Transformation Survey, 85 percent of financial institutions said payments transformation was a priority. In the 2020 survey, 75 percent said the pandemic has further accelerated payment infrastructure investments.
A focus on investment in technology is a consistent theme. Among respondents, 85 percent said they would increasingly adopt cloud-based strategies over the next three years. Given the critical nature of payments, financial institutions often look to partners for support. A cloud-based strategy offers business continuity and compliance, but adequate measures also need to be in place to address risk and data security.
Cloud services range from basic hosting of IT infrastructure to payments as a service on behalf of the financial institution. For smaller financial institutions with fewer resources, payments as a service enables growth without the difficulties, risks and costs of managing multiple complex payment systems. The survey found 81 percent of respondents believed that smaller financial institutions would take the managed services route for payments and cash and liquidity management.
A Path Forward
The payments landscape is always in a state of transformation. By focusing on the value for consumers and businesses, financial institutions can prioritize and differentiate their products and services. Consolidating multiple payment types onto a single platform simplifies systems, streamlines processing, increases operational oversight and generates greater insight and revenue opportunities.
Forward-thinking financial institutions critically evaluate their payments technology, underlying infrastructure and operational management to plan successful strategies for their organizations.
Interested in learning more? Download the 2020 Payments Transformation Survey report.