The path to success in payments modernization

John Barber, VP & Head of Europe, Finacle.


Change is on the horizon in the banking industry, especially in payments. Multiple forces are behind the disruption and building enough momentum in banks to modernise their payments landscape.

One of them is the emergence of cashless economies. From being cash-reliant, countries across the globe are racing to become cashless. For instance, several countries in Europe are leading the move towards 100% digital transactions. Rapid urbanisation and technological advancement marked by the pervasiveness of mobiles and smart apps have led to this surge in online and digital payments. Cash is giving way to cards, e-wallets, tap-to-pay, or mobile-based methods, as payments become increasingly digital and real-time.

Riding on digital prowess and differentiated business models, Fintech firms are briskly deploying innovative payments products. In parallel, big tech firms with billions of global users are stepping up with disruptive models in the payments ecosystem rendering it an intensely competitive space.

These developments are in response to changing customer preferences and expectations, which are veering towards fast, seamless, contactless, single-click, and effortless payments. Studies predict that by 2025, more than half of the world’s population will use mobile wallets. This shift is significantly influenced by millennials, who embody the digital life and expect banking transactions to be consistent and frictionless too. Dissatisfied customers are highly likely to switch over to another bank who can onboard without any delay or hassle.

Corporates too, are overwhelmingly digitising their businesses, adopting digital commerce and opening up for digital transactions. From payment gateways to structured, time-bound payments, collections etc., they are including digital payments in their value proposition. Unsurprisingly, the global digital commerce market’s transaction value is expected to reach upwards of $8.9 trillion by 2027.

Meanwhile, the geopolitical power transition is reshaping the digital payments landscape. There is a clear move from country-specific silos to alliances aimed at enabling seamless payment corridors and transfer mechanisms. Digital payment propositions such as Single European Payment Association (SEPA), Instant, and P27, which is attempting a seamless payments infrastructure across the Nordic region, are great examples.

Regulatory institutions and industry leaders are enforcing modernisation with multi-pronged initiatives to reduce risks, enhance security, and standardise through an industry-wide move to ISO 20022. The growing traction in digital currencies is also a precursor to digital payments of the future. Reports indicate that 86% of central banks are considering CBDC adoption. Sweden and Norway were testing CBDC prototypes, while members of the Euro Area and the UK are still in the research stages.

Finally, new technology – cloud, Open APIs, distributed ledger technology, etc., – are preparing the ground for novel business models in payments and bolstering the transition to cashless transactions.

Modernising payments – An ongoing journey

Since the pandemic, the pace of change is faster than ever with no signs of slowing. That has kept the payments business busy in terms of tech adoption. It’s highly complex and sensitive too – one misstep puts the reputation of the bank at stake with broader repercussions, including regulatory penalties. Therefore, most banks shy away from big-bang modernisation. Nevertheless, they are continuously modernising, often resorting to quick fixes.

To thrive in the digital economy, banks must reimagine their payments roadmap and establish the right technology foundations for it with the following attributes:

  • Open architecture powered by a host of APIs to foster collaboration and participation in an open payment ecosystem, and drive innovation.
  • A population scale payment processing engine which will become essential as more regions and countries support digital initiatives; digital payments will only grow exponentially.
  • Enterprise-class processing capability to seamlessly handle payments originating from multiple business divisions such as retail, corporate, private banking, and wealth management, and to support the complete payments lifecycle. A single payment hub has to cater to the entire enterprise.
  • Comprehensive real-time processing capabilities with seamless connectivity, leading to real-time rails to drive agility and accelerated adoption. While digital propositions differ by region, they are all geared to make payments real-time, instant, and faster. So the bank’s solution must ensure all transactions are processed right away and settlements proceed with this objective in mind.
  • Cloud-native and innovation-centric approach to enable data processing and real-time insights so that banks can understand the customer and drive innovation deeper into their banking journeys.

A payments technology base built with the above considerations will help banks gain better control over their payments business on multiple fronts. It will enable frictionless customer experiences and help manage time and costs of compliance in this highly regulated space. Banks can also scale better and innovate quickly, engaging in the expanding ecosystem of real-time payments on the back of stronger processes and automation.

All this will become achievable at lower costs of technology maintenance while establishing a firm footing for banks to explore propositions where their offerings are seamlessly embedded into the customer’s primary journey.


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