PAYMENTS MODERNISATION – STRATEGIC PRIORITIES FOR FINANCIAL INSTITUTIONS IN 2021

Dudley White, SVP, General Manager, Financial & Risk Management Solutions, Fiserv

 

As the steady march toward payments modernisation continues, financial institutions are responding, and a few are on the front foot.  Accelerated transformation, from cash to electronic payments and from physical to digital, has forced a reset of priorities. Add to this rapid technological advancement and changing market and regulatory dynamics, and the stage for a new way of operating is set. Here are four key payments modernisation trends to watch in 2021 and beyond.

 

  1. Accelerated Pace of Change

The COVID-19 pandemic, inroads by large technology companies into payments and emerging new regulations have accelerated the pace of payments transformation. What once would have been complex multi-year projects are now compressed into shorter agile transformation programs, implemented in months and not years. The shift to instant, real-time payments, the need to respond to compliance changes such as ISO 20022 and PSD2 and embrace new revenue-generating overlay services has further accelerated this pace of change.

 

  1. Data Insights and Liquidity

As we move towards faster domestic and cross-border payments, the need for real-time liquidity monitoring is increasing. For financial institutions, there is increasing regulatory pressure to effectively manage intraday liquidity risk. Real-time cash and liquidity services will provide greater visibility, access and control to corporate treasurers and improve intraday liquidity management. Financial institutions, as custodians to a large pool of customer data, have a natural advantage here, and intuitive, dynamic user dashboards can help them make the most of this data with extensive data modelling and machine learning capabilities.

Understanding the data surrounding a payment and the potential monetisation of not only that payment, but also the data that supports the payment, is becoming quite critical. These data insights are also driving investment in predictive fraud tools for financial institutions. The effective use of data, pattern recognition, artificial intelligence and machine learning applied at the time of processing the transaction is critical to detecting and preventing fraud.

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.

 

  1. Flexibility is Key to Manage Growth and Operational Costs

There is a growing concern from financial institutions over the cost and oversight of maintaining multiple legacy systems, alongside the growing regulatory and compliance costs of doing so. This is not surprising given the cost of technology upgrades, managing the cost and complexity of new changes and regulations, and reputational damage that can be caused by any disruption to services or systems.

As payments transformation becomes a priority, financial institutions are combining multiple payment types onto a single platform to help reduce costs and simplify systems, processing and operational oversight while ensuring a frictionless payment experience for their customers.

Financial institutions will also turn to tech enablement in the cloud. It’s the key to being ready for the next decade of evolution in financial services. A cloud-based strategy offers business continuity and compliance advantages, with adequate measures in place to address risk and data security. 

Large financial institutions have mature information technology stacks and can host or manage licensed payments solutions on-premise or on a public cloud. Small to medium-sized financial institutions can offer the same services to their client base by adopting a flexible approach, through a payment as a service solution. While reducing costs and complexity, they can access a compliant solution built on a highly resilient, scalable infrastructure.

 

  1. Strategic Choices

As the lines blur between merchant and non-card, commercial and consumer, instant and other payment types, going for a big bang payments modernisation approach can be daunting;  therefore a viable alternative is starting with foundational components, such as investing in a scalable and flexible payments platform.

Getting those foundational steps right and understanding the roadmap for incremental functionality will enable institutions to measure the lift associated with each payment type and each clearing, whilst also staying abreast of the changing ecosystem. They can then incorporate new concepts like data analytics for operational efficiency.

Financial institutions recognise the challenge from non-traditional technology players. They are evaluating their payments technology, underlying infrastructure and operational management to plan successful strategies for their organisations and be ready for the future.

 

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