Strategies for financial institutions to unlock the potential of a changing payments ecosystem
In recent years, the payments ecosystem has been evolving at a pace never seen before, compelling financial institutions, banks in particular, to rethink their strategies and adapt to the ever-changing reality. In 2020, the global Covid-19 pandemic further accelerated the ongoing transformation processes as many chose to give up cash for good – in favour of quick, seamless, real-time cashless payments.
As market disruptions and innovations challenge a business-as-usual stance, financial institutions are reviewing business models to remain relevant and profitable. We touch base with David Chance, a payments industry expert and VP of Product Strategy and Innovation at Fiserv, to discuss the future of payments, the trends driving them, and the benefits to follow.
“Payments are where the necessity to adapt is most evident and pressing within the financial sector. What used to be innovative is now becoming inefficient, slow, or suboptimal,” says David Chance. “If financial institutions want to continue to thrive and attract customers, they will have to redefine their payments strategies. This is critical for them to be able to meet the requirements of the ISO 20022 standard, or cater to their customers’ growing demand for real-time payments.”
That is driving the need for implementing a modern payments platform – that is flexible, scalable, and reliable – which has become the need of the hour for most banks and institutions. The focus needs to shift from a bank centric approach to a customer focused one to retain and grow business.
“Customer experience dictates the direction that we are taking nowadays. Traditionally, a payment took place when a bank was open – clearly this is now an obsolete approach. This interaction has to happen at the time that the two parties need it to happen which means financial institutions must be available 24/7 to businesses,” explains Chance.
Instant, real-time payments do have another crucial characteristic making them sought after by both retail and corporate customers, i.e. finality. This is what consumers today expect. We simply have no time to wait any more: we pay, the transaction is accepted, the goods or services are delivered.
The motivation behind the need for an instant payment may also be non-commercial. Its use cases might include a quick transfer to a family member or a last-minute outstanding bill payment. Real-time payments might also help businesses manage their cashflow by enabling the option to release the funds until the moment they must be disbursed on the one hand, and control revenue from their clients and quicken delivery on the other. Considering its global momentum and customers’ rising expectations, it is a matter of ‘when’ and not ‘if’ real-time payments will significantly grow their market share.
“Another trend we are seeing is the commoditisation of payments. All payments carry data, but data in itself is almost useless. Only in context, can we speak of information that presents value to financial institutions or regulatory bodies. To better understand it, corporates and financial institutions are moving to ISO 20022 that offers a single, standardised approach to support all aspects of a financial interaction,” says Chance.
A measurable benefit resulting from the adoption of ISO 20022 is that it compels financial institutions to replace numerous, siloed aging systems, with a single solution. One that meets compliance and is tailored to the needs of twenty-first-century consumers, that is easier to manage, and contributes to immense savings in operational costs.
Additional value of this migration to the new standard is its normalised data that can be thoroughly analysed using AI-powered and machine learning tools. And the data are not limited to payments only, but to the entirety financial messaging, including securities, trade services, cards and foreign exchange, thus providing banks with a comprehensive picture of their financial landscape.
Both trends bring us to the need to have a modern, agile, and consolidated payments platform. Such a product not only normalises the information in the data that is held by the banks and financial institutions, it provides customers with the optimal solutions, and also facilitates growth and payments transformation.
Consolidation of all available payment types and processes on a centralised platform enables financial institutions to provide scalability, uninterrupted connectivity, and stability. Being able to process large volumes and different transaction types starts to open up some of the more interesting future use cases around cross-border instant payments. The younger the generation of customers, the more it leans towards solutions that are flexible and versatile, but are still able to meet user-specific needs.
“The future of payments for consumers lies in optichannel – being able to choose the optimal payments solution. The coming years will bring further changes and those financial institutions that are willing to adapt and reinvent themselves will thrive and grow,” concludes Chance.
Find out how your bank can build a winning payments strategy. Join our webinar on 9 December 2020 at 1 pm CET as our Fiserv subject matter experts David Chance and Andrew Foulds discuss key trends and their implications for financial institutions.