How can banks prepare for a ‘tsunami of payments’?
InstaPay interviews Toine van Beusekom, Head of Payments, Icon Solutions, on why payments transformation is such a hot topic and what issues banks should be addressing when transforming their payment systems.
1. Payments transformation is a hot topic at the moment, why do you think that is?
Ultimately, we are facing a myriad of changes for payments. Initiatives such as Instant Payments, ISO20022 implementations taking off, the move to cashless & micropayments, machine 2 machine payments etc are already having a major impact on the landscape – essentially creating a ‘tsunami of new payment volumes’. The challenge for banks is dealing with this ‘tsunami’ with decades old payment infrastructures designed for a different era (think 10/5/250 in batch compared to the 24/7/365 needs of real time payments).
After a slow take up, recent regulatory initiatives such as PSD2 and Open Banking have opened up the market. Banks need to rethink their business models as a result and identify the technology (think open source and cloud) which will enable them to futureproof and compete against the many new entrants. In a time of significant cost pressures, payments processing has also become a ‘loss leading’ exercise – payments transformation is key for banks looking to drive down reduction in spend, whilst increasing scalability and move to real time.
2. So is this ‘mission impossible’? How do banks find the opportunity in amongst the challenges?
By focusing. The Icon Solutions tagline is “Complexity Simplified” and that is what Banks need to do. They need to make the problem as simple as possible by carving it up to enable focused, informed decisions as to what to do next. If you have a clear view on your Value Chain, you can distinguish the ‘strategic’ from ‘commodity’ and build a business case & strategy for each part.
3. How do banks know whether they are on the right path?
There is a lack of hard data and understanding available to identify the ‘right’ path for transformation. To help deliver these insights to the banking community, we’ve commissioned research with Aite, a leading analyst, on the payments transformation progress of top global banks. The research, which is out in September, explores the drivers for transformation, the progress made to date and the impact it has on banks’ business models and revenue streams.
Early findings from the research identify that there is no ubiquitous approach across banks, and there are varying priorities within the organisations. However, what is clear, is that the banks that are focussing on pushing boundaries and transformation are also the ones that are making the most money from payments and are retaining a level of profitability.
4. If nothing else, what should be the top three priorities for banks to address?
One – know where you want to go and especially why. It’s like going on vacation, don’t go to Venice ‘because everybody goes there’. You’ll just be miserable standing in the water flooding St Marco square with a €10 ice-cream amidst thousands of others pointing to the passing cruise ship as the culprit. However, if you’ve always wanted to see the major works of cubism at the local Guggenheim, go for it!
In that light, don’t transform because all the banks are doing it. Do your homework and align to the Bank’s overall strategy – take relevant market drivers into account to define tangible, achievable KPIs. Get to know what you do and don’t want to do in the Payments domain, and understand the costs, the associated risks and the level of flexibility you need to bring new products to market.
Two – Don’t ‘put lipstick on a pig’. If you decide to drive to Venice and you know that your 35-year-old Ford Capri probably won’t make it, don’t go to Halfords to have LED lights, a chrome exhaust and cool striping fitted and drive off. Find alternative transport. A decade(s) old payment system was built to different requirements in another era – find an alternative.
And finally, three – An all-inclusive buffet sounds like a good idea, but beware it will either become very expensive if the drinks are not included or if you are stuck with the same food and entourage forever. An all singing all dancing payment hub can work, but its an expensive investment in time and money that will be hard to recoup. If you’re willing help with the ‘cooking’ and if you are sharing the hardware (think kitchen), you will find an a la carte Payment Processing a more viable alternative for your payments transformation.
To find out more on how Icon Solutions can help accelerate payments transformation, click here.