As the payments landscape continues to evolve, financial institutions of all sizes are challenged to modernize their payments infrastructure to improve speed, increase efficiency, and maintain the highest standards of security and resilience.
Payments play a critical role in consumer purchases, trade & commerce, supply chains, finance, securities trading, and much more. This ubiquity, combined with an evolution that is driving speed and ease of money movement, creates unique opportunities for financial institutions.
However, financial institutions are at risk of missing these opportunities due to a persistent view of payments as a commoditized necessity, rather than a differentiator. In a hyper-connected world where businesses and consumers expect payments that adapt to the way they live and work, continuing to relegate payments to the back burner of transformational priorities is a potentially serious mistake.
Taking a holistic approach
Financial institutions that have developed holistic and differentiated payments strategies to support their specific business goals are finding success. They understand that payments are ever-changing and that new developments will continue reshaping the value chain. Typically, their strategies are aimed at simplifying operating models, fully shifting to real-time, and supporting more intelligent, information-rich services. This enables them to deliver real-time, integrated payment services through multiple channels, expedite new products to market, scale as required, and quickly take advantage of market opportunities as they arise.
Financial institutions such as Intesa Sanpaolo started with an overhaul of a single payment type before introducing a new real-time payment rail and enabling other payment types over time. More than 10,000 Intesa Sanpaolo customers use the new payment service daily. In less than one year, Intesa Sanpaolo has processed more than 1.5 million instant payments with a €1.5 billion value.
Others, such as Allied Irish Bank, have taken a more transformational approach, implementing a full payments platform to enable multiple real-time and integrated payment types right from the start.
At the beginning of 2019, Hungary’s commercial banks have begun a test phase of a domestic instant-payment system expected to go live on July 1. Under the new system, which has been in development since 2017, domestic bank transfers worth up to $35,306 will be settled within five seconds, seven days a week.
By nature, the payments back-office can be complex, and as consumer and business expectations move to real-time, financial institutions are choosing an approach which best suits their overall growth strategy and business needs.
Improving customer experience
Understanding and anticipating consumer and business preferences is essential for financial institutions that want to improve their engagement and relationships with customers. Over 20 billion connected things will be in use by 2020. The baseline expectation is that payments can be made from anywhere, and consumers want the flexibility to use any payment method at their discretion, whether credit cards, debit cards, ACH, or cash. They want to decide whether it’s a one-time or auto payment, and they expect reliable and timely alerts and notifications — regardless of the channel.
The good news is that by being flexible enough to let customers interact when and how they want, financial institutions can address these demands head-on and drive deeper engagement.
Forward-thinking financial institutions are seeing this opportunity and strategically thinking about payments. Banks such as Citizens Bank are complementing their existing payments capabilities by launching real-time payments for corporate customers. They are recognizing the need for change and providing intelligent, data-driven payment processing, as well as the flexibility to integrate dynamic payment routing, automated repair, transaction alerts, and other new capabilities at a pace that is increasing the speed of the payments evolution.
Financial institutions that fully embrace change will benefit the most from opportunities brought about by the payments transformation. Embracing change means rethinking decades-old approaches and operating models associated with organizational silos and manual processes that have made seamless, large-scale change virtually impossible.
Modernizing the payments infrastructure allows financial institutions to break down organizational silos and offer services that are more in line with what customers need, whether faster, more complete information about the status of payments, or more flexible payment choices across the wire, ACH, and in real time. When properly executed, this can enable the delivery of a seamless experience tailored to the customer. For institutions on the leading edge of the payments transformation, such modernization is foundational to their competitive differentiation across multiple business lines.
In retail payments, an example of increasing momentum is the evolution and adoption of Zelle that, in the face of competition from the likes of Venmo, has spurred banks to improve the services they offer to consumers.
Likewise, in the face of competition from companies such as TransferWise, the banking industry’s SWIFT global payments innovation (GPI) launch is improving speed, reliability as well as transparency of international payments, and it’s now being used to send more than a million payments every day with a combined value of well over $100 billion.
Putting change into practice and minimizing risks
Financial institutions, both large and small, need to find a way to manage the pace and complexity of change as they each progress on their payments transformation journeys. Change can be uncomfortable, but the urgency to prioritize payments is increasing. Whether a financial institution utilizes a point solution to meet an immediate market opportunity or is working towards a strategic payments platform, it is important to clearly scope out business needs and evaluate vendor capabilities accordingly. It is equally important to choose a partner that is culturally aligned and able to provide referenceable implementations.
Ensuring that organizations have the right partner – one capable of delivering end-to-end payments solutions and offering a full range of deployment options – is key to putting payments change into practice and minimizing the risk inherent in the transformation of this mission-critical function.