The rapid shift to digital payments due to the recent COVID-19 pandemic has accelerated the need for banks to modernize their antiquated payments infrastructure as demand rises for contactless payments and automation of accounts payables.
While banks’ corporate and retail customers have constantly strived for faster and secure payment experiences to ensure seamless business operations and fulfill commerce needs, now is the time to act.
According to GlobalData, in the next decade, 2.7 billion transactions worth $48 trillion will shift away from cash to cards, interbank payments, and alternative payments instruments. This can be attributed to changing customer demands in this digital era, where users want immediate execution, security, transparency, and a low-cost and omnichannel payments experience.
Payments modernization is also a key imperative for banks as the industry transitions to real-time payments infrastructure. Across the globe, government and private organizations are collaborating to launch real-time payment schemes to support innovation in low-cost multi-currency payments processing. This is pushing banks to invest in the consolidation of fragmented legacy payments systems to achieve interoperability and support these payment schemes.
Regulations also are creating pressure. Market infrastructures such as the Federal Reserve, The Society for Worldwide Interbank Financial Telecommunication (SWIFT), European Central Bank, and Bank of England have announced the go-live date for the ISO 20022 payments messaging format. ISO 20022 will become the de-facto standard by 2025 for high-value payments systems of all reserve currencies. As banks face compliance deadlines for ISO 20022, they need to invest in convertors or translation systems to upgrade their existing payments infrastructure that cannot support the new messaging format and leverage opportunities it presents.
On top of this, the cloud-native and integrated platforms offered by BigTechs and FinTechs to disrupt the digital payments industry are also forcing banks to rethink their payments strategies. As central banks do not completely regulate these new market entrants, they have more freedom to innovate in the payments market. They can leverage their customer base to commercially distribute payments to end-users and utilize payments data to build other profitable overlay services.
As banks face the triple mandate to meet customer requirements, comply with emerging payment regulations, and control costs, it has become imperative for them to either build a proprietary system or leverage a third-party modular payments platform.
Banks should keep the following in mind in their modernization journey:
As banks undergo their payments modernization journey to bring payments innovation for their customers, reduce the cost of payments processing, and manage evolving regulations across geographies, they are leveraging payments platforms from third-party vendors such as ACI Worldwide, Global Payments, and Temenos.
These payments technology vendors are expanding their payments offerings to deliver integrated payments solutions and provide support for multiple global real-time payments schemes by investing in partnerships and augmenting their digital technology capabilities.
Some examples of these investments by payment technology vendors include:
In our recently released report, Payments State of the Market Report 2021: Modernizing Data, Applications, and Infrastructure for the Next Phase of the Payments Revolution, we take a deeper look at the payment technology market trends across products, experiences, infrastructure, regulations, data, and technology themes. We also study how technology vendors and service providers are gearing up their investments to cater to these demand trends.
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