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Today’s Global Payments Ecosystem and the Five Factors Influencing It

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Richard Smith, Chief Executive Officer & Co-Founder, Payen

 

Online payments are critical to the advancement of developing regions and the global economy. And as an industry, the importance of global payments has only increased for local and national governments amidst a period of geopolitical disruption and the end of low inflation and interest rates.

Essential for advancing the digital economy and promoting inclusion, the payments industry helps to nurture competition and enables businesses to use e-commerce, which in turn helps to promote economic growth.

Geopolitical influences, macroeconomic conditions, the continued growth of ecommerce, technological progress, and corporate social responsibility (CSR) are all paving the way for unexpected changes in the payments environment. Business success now depends on gaining a better understanding of these five factors and what they mean for regional activity.

 

Geopolitical influences

Local, regional and national networks are increasingly becoming custodians of central infrastructure. With unstable global geopolitical environments driving the need for local and regional payment solutions in many parts of the world, more countries are investing in modern payment systems.

Instant-payment solutions were once homogenised across the globe. But with a growing number of businesses and consumers advocating for domestic payment systems and services, it’s likely we’ll soon see the related regulations and requirements behind them placed under the microscope. Providers offering simple and efficient out-of-the-box payments solutions for services like security and Know Your Customer (KYC) – helping to streamline cross-border payments – will be poised to capitalise.

New domestic networks developed to support regional goals have reduced reliance on international providers. Now, online applications of point of sale (POS) systems and local payment solutions are being deployed by countries using fiscal and business models and access rules that bypass international solutions. This fostering of local e-commerce that allows individuals and businesses to receive affordable financial products and services has significantly improved financial inclusion.

Sanctions arising from world events also affect international trade and treasury payments, reshaping geographical zones and segments and fortifying regional relationships. Even so, some things aren’t changing. Offshoring remains a trend – the process of bringing manufacturing and the supply chain to home soil from a foreign country – and nearshoring, the same exercise at a more domestic level.

Nevertheless, global supply chain issues remain. Sectors including electronics, automotive and healthcare are still experiencing disruption, causing suppliers to diversify as businesses seek to overcome their reliance on a small pool of third parties, production delays, high transport costs and logistic disruptions. However, the level to which this alters trade corridors will only be fully revealed in the coming years.

 

Macroeconomic conditions

In light of the highest levels of inflation seen worldwide in decades, business models are being reassessed by financial services and payment providers. From a payments perspective, this has created opportunities for organisations like banks that hold deposits.

As a response to inflation, many central banks changed their policies, leading to higher net interest margins and interest rates. Combined, these factors influence how people and businesses manage their cash and financial strategies and encourage the transfer of balances into deposit accounts with higher rates and away from their transaction counterparts.

In tandem, economic growth concerns, and unexpected events, like the rise in global energy prices, are increasing the prospect of a recession. The likelihood of which will vary from region to region and affect household and business spending and investment, altering the dynamics of the payment ecosystem, including the supply and demand side of the equation.

Payment providers are still adjusting to the high interest rate environment and the arrival of untested payment products such as buy now, pay later (BNPL). With liquidity often going to account-holding organisations, traditional banks and card issuers are in a favourable position for this landscape.

 

Enhancing the e-commerce experience

Powering the high valuations of fintechs and startups is the forecasted increase in revenue from developing customer relationships. Today’s payment providers are fused into the customer experience, having evolved beyond simply offering one-off money movement or financial transactions.

E-commerce transcends borders. It’s a chance for merchants to reach new territories and cut their dependency on stagnant markets, particularly during times of economic downturn. Digital payment providers allow small businesses to offer seamless shopping experiences and contribute to the economy. This then creates a positive domestic impact, producing jobs and generating local taxes.

The impacts online payments have on the economy go further than reaching across borders. It also increases competition, improves productivity via better supply chain management, and promotes greater information and communication technology adoption.

But perhaps the most promising growth area is the integration of financial products into the non-financial environment. Data is the new oil, in that it has become a truly vital commodity, so those who can monetise data via their service will gain a greater market share.

 

Technological progress

Originating from the pandemic, which acted as a catalyst, the pace of innovation continues to snowball. Improvements to financial and enterprise networks and payment systems are now common, leading companies to introduce structural rather than piecemeal improvements to infrastructure.

Exemplifying this are the tenacious improvements banks are making to their payment infrastructure and systems. These changes are providing real-time data insights accelerated by demand for instant payments, open banking and cloud technology.

The next S-curve for model risk management (MRM) includes strategies to meet new standards and changing business needs. Global shifts indicate many countries are entering the next growth phase for instant payment transactions, with the global volume expected to rise by up to 60%.

The continued growth of embedded payments means that digital citizens will expect the
provision of personalised services and easy to access payment information through APIs. Under pressure to deliver the experience sought after by consumers and businesses, payments providers will be compelled to reinvigorate their payment infrastructure.

Together, these components are changing the relationship between payments and traditional providers as more players migrate to software as a service (SaaS) models.

 

Corporate Social Responsibility

McKinsey’s annual survey of global banks revealed the expectations of governments, investors, regulators and consumers to address climate risks and sustainability issues. And at COP27 the focus was on bringing together national and local governments, cities and businesses to advance sustainable innovation with corporate social responsibility in mind.

As such, social responsibility has an impact on shaping the payments landscape, given the importance of data privacy’s role in financial inclusion.

Environmental, social, and governance (ESG) is also influencing domestic payment services. Formerly, international providers ruled the roost. Now, payment companies contribute to the stability, security and compliance of economic systems. Similarly, banks are acting as gatekeepers against fraud, KYC and anti-money laundering – key drivers of industry investment.

Access to financial inclusion and an emphasis on customer protection is also rising up the agenda of payments providers as they enter emerging markets. Digital wallets and payments have helped bring financial services to the underserved in cash-based economies. As such, as consumer demand increases in developed markets, the part played by payments in emerging markets, such as cannabidiol (CBD) and online gaming, will be increasingly scrutinised.

 

Global payments landscape opportunities

Intrinsic to global commerce and the digital economy, the global payments industry is currently valued at $2.1 trillion, and by 2026 is expected to grow by almost 50% to $3.1 trillion.

In an increasingly complex environment that is seeing significant shifts, players in the payments industry who can shape local and global operating models with consideration to the five factors while displaying a dedication to social responsibility will be well placed to take advantage of the new ecosystem.

Banking

How banks can help customers during the cost of living crisis

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 Lavanya Kaul Head of BFSI, UK & Ireland, LTI Mindtree

 

Surging energy and food prices are significantly driving up household expenditure, which means living standards in the UK will fall to 2.2% this year, according to the Office for Budget Responsibility. This is the biggest drop in any single financial year since the records began in 1956-57.

It’s a tough situation for many consumers who are still struggling with financial hardship following redundancies and pay freezes from the pandemic. According to TSB’s Money Confidence Barometer, 82% of people have experienced an increase in the day-to-day cost of living. This resulted in almost a quarter of them using their savings, while one in five changed their usual spending habits and behaviours.

As the financial situation worsens, consumers are increasingly relying on their banks for help and support. But, while banks can’t control inflation, energy or food prices, they can play a more supportive role by adapting their services to offer stronger customer service, better tools for financial management and be more flexible with loan repayments.

 

Strengthen customer service with intuitive AI solutions

Since the pandemic, consumers have changed the way they bank, using more mobile apps for primary banking rather than going into physical branches. This provided an opportunity for banks to accelerate their investment in digital services including automation and offer customers more support during the cost of living crisis.

Lavanya Kaul

Effective tools include AI-powered chatbots which respond intelligently to customer enquiries to quickly help troubleshoot problems and provide useful advice. But to be successful, you need to ensure you strike the right balance between an efficient and convenient process and creating a personalised experience. Customers need to feel like you understand and care about their problems and are here to help, rather than just fobbing them off with a monosyllabic bot. To avoid this, banks need to embrace intuitive AI solutions to ensure that empathy comes across in all automated interactions with customers. While doing that, messaging is key. In times of stress, we don’t function as well and financial struggles are a huge stressor. The clearer the message and the simpler the instructions, the better.

Financial education, when combined with technology solutions such as open banking, can offer more long-term solutions for people to navigate their finances. This can help put more information into the hands of the consumer to help them grasp their financial situation better. Some banks have cracked this with innovative solutions like HSBC’s Financial fitness score tool that can analyse your money habits and signpost you towards ways to improve your financial health. This may include joining one of the financial education webinars run by the bank or having a ‘financial health check’ with a member of staff.

 

Launch money management features & apps

Introducing money management features and apps to increase the visibility of a customer’s financial situation, empowers them with the information they need to make smarter choices.

TSB offers Spend & Save and Spend & Save Plus current accounts which include a savings pot that enables customers to put extra money aside when they can and an auto-balancer feature that automatically transfers money from the savings pot into their current account if their balance falls below a certain level. This allows them to start building up savings and protects them from unnecessary overdraft charges.

Personal financial management (PFM) apps also help customers get a better understanding of their finances. These connect with a customer’s bank account and enable them to keep a close eye on their spending habits and track upcoming bill payments. An example is Prism, a PFM app which allows customers to manage bill payments by sending them reminders about due dates. It also provides a summary of their income, account balance and monthly expenses at a glance, therefore consolidating all their financial information in one place and saving time on bill payments.

Lloyd’s Banking Group and HSBC launched a subscription management tool for all customers on mobile, allowing them to see and cancel recurring card payments for things like TV subscription services. HSBC says that during the first quarter of the year, it led to customers dumping around 200,000 subscriptions.

 

Introduce payment holidays

While improved customer service and financial management tools are important support tactics, they might not be enough for more vulnerable customers. For example, those who are about to default on mortgage payments or loans due to redundancy or periods of ill health need banks to do more, like offering payment holidays. Banks relaxed the rules for payment holidays during the pandemic, so they should consider doing it again to help more vulnerable customers through the crisis. Customers need to understand that they are not alone when experiencing financial difficulties and that help is available

 

Ride out the crisis together

As inflation reaches a 30-year high, customers are now more reliant than ever on banks for guidance and support. But to provide the right level of service, they need to move away from their traditional ways and behave more like technology companies by embracing automated solutions to create the right products and services for customers. Then layer on top of that the need for more personalised and empathetic customer interactions, as well as consider additional support for more vulnerable customers.

While we don’t know how long the cost of living crisis will last, what we do know is that the pressure on household finances is likely to get worse before it gets better. Therefore, banks need to step up, be the supportive partner and do whatever they can to help customers. After all, the only way we can ride out the crisis is by supporting each other and working together.

 

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Banking

Coreless Banking: How banks can thrive in 2023

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By

Hans Tesselaar, Executive Director of BIAN

 

In recent years, banks have faced immense disruption and struggled to transform with technology. In fact, our research with IBM found that 88% of banking executives are troubled by their bank’s commitments to multi-year projects, interoperability across technology environments and theft of sensitive data. A lack of industry standards is also causing significant problems and hindering the organisation’s ability to bring new services, at the desired speed, to market.

While banks have made significant advancements in recent years, in order to truly embrace digital transformation throughout the industry,and meet the needs of today’s digital first-customer, banks must focus on adopting a coreless banking model.

In 2023, coreless banking approach will enable the delivery of banking services that aren’t longer dependent on legacy systems, and will support the digital-first customer, bringing real transformation to the industry.

Hans Tesselaar

Putting the Customer First

Without the comprehensive digital infrastructure necessary for today’s environment, financial services organisations are unable to bring services to market as quickly and efficiently as they would like – and need. The extensive use of legacy technology within banks meant that the speed at which these established institutions could bring new services to life was often too slow and outdated. This challenge is also complicated by a lack of industry standards, meaning banks continue to be restricted by having to choose partners based on their language and the way they would work alongside their existing ecosystem. This is instead of their functionality and the way they’re able to transform the bank.

To move forward into the ‘digital era’ and continue on the path to true digitisation, banks need to overcome these obstacles surrounding interoperability. Additionally, with today’s digital-first customer in mind, financial institutions need to take advantage of faster and more cost-effective development of services. Failing to provide these services may force customers to take their business elsewhere. One thing is certain, consumers will continue to prioritise organisations that can offer services aligned to both their lifestyle and needs.

Coreless Banking 

The concept of a ‘Coreless Banking’ platform is one that supports banks in modernising the core banking infrastructure.

This empowers banks to select the software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability and being constrained to those service providers that operate within their language. By translating each proprietary message into one standard message model, communication between financial services is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data.

With the capacity to be reused and utilised from day one, and the ability to be used by other institutions, Coreless Banking provides these endless opportunities for financial services industries to connect, collaborate and upgrade.

Banking in 2023 and Beyond

Throughout 2023, banks must prioritise their digital transformation journey and adopt a Coreless Banking model. This approach will empower technology leaders to tackle problems head-on knowing they aren’t tied down by the usual restraints caused by outdated legacy systems.

After the last few years, it is impossible to predict what is around the corner, but banks will rest easier knowing their architecture can modernise and change as needed with a Coreless Banking model.

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