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Payments Transformation: Customers should be the winners

As part of InstaPay’s thought leadership in the world of payments our latest webinar, ‘The Payments Transformation Race: Who’s winning’, investigated progress in the payments transformation space, including drivers for change, technology options and the role of data.

The consultancy firm McKinsey & Co. have predicted that payments will become a $2 trillion business by 2020 and potentially even $3 trillion by 2025. Whilst that growth has levelled off slightly, payments are still becoming big business. The promise of Open Banking, instant payments and other key industry programs can create a thriving and sprawling ecosystem that produce new and exciting solutions. There is no doubt that banks who have a clear and robust payments transformation plan will be more profitable than their competitors, widening the gap between the winners and losers in this so-called transformation race. Our speakers from HSBC, Icon Solutions and Nordea shared their views on the considerations and approaches to narrowing this gap.

Transformation is a balancing act

It is clear that banks are having to grapple with growing complexity in the payments landscape. New technology, increased regulation and entry of new competitors has spurred systemic and operational changes that are difficult for banks to navigate. However, this is a constant state of flux that banks need to get used to. The first speaker to present, Simon Wilson, Director, Global Payment Solutions, Icon Solutions, outlined the conflicting pressures that are putting a strain on banks’ profitability. Speaking on this Simon noted that ‘the three C’s – compliance, cost of complexity and competition are all stretching profitability but technology and industry changes can actually facilitate positive change’.

Speaking next was Mark Evans, Global Head of Payments Advisory at HSBC. HSBC are in the midst of a large-scale digital transformation project. Mark outlined the bank’s experience throughout this process and noted that ‘payments are the most frequent interaction clients have with their banks’. He added that ’it is our job to continue to provide innovative services to customers in this new landscape’.

 A wealth of technology options

All webinar participants observed that there is a plethora of technology options to consider when undertaking payments transformation. One of the most important aspects to consider is ensuring any technology choice is future proof. The biggest trend currently is being able to support real time payments, and this has often acted as a trigger for payments transformation within banks.

Simon noted that ‘there is a need to align with cloud/microservices but this should be seen as an enterprise technology initiative and not specifically controlled by payments strategy’. Banks need to ‘decouple the payments value chain’, with a shift towards ‘data-driven architecture to streamline platforms & merge channels’. Mark added that transformation is ‘not just about technology but also the operating models themselves’.

APIs are being used to support deep integration. AI and Machine Learning are also being looked at in various capacities. Marta Stensheim Haugen, Head of Payments at Nordea stated that ‘the bank is also looking at how we can exploit the Internet of Things, but all these initiatives must be looked at through the lens of sustainability’. An area not often discussed publicly across the industry.

Data at the heart of revenue growth

The speakers agreed that over the next few years we will see payments being refocused from a commoditised proposition to a strategic, value-adding one due to the wealth of data generated by payments. That being said, being “data-aware” is not good enough. Banks need to be empowered by that data. They must organise, analyse and use data to reshape their business model and improve client services. Banks must also use payments data to deliver more appealing propositions and revenue boosting value-added services. Yet according to research conducted by Icon Solutions and Aite Group, only 15% have made the switch from transaction-led to data-led revenue models – even though they could leverage mandatory Open Banking initiatives to generate further data analytics and deliver new customised products to drive new revenue streams.

The move to ISO 20022 will be of paramount importance for banks to take advantage of richer, standardised data sets. With more payment volumes set to adopt ISO 20022 by 2025, discussion is moving on from the standard as transactional and more about the data that can be extracted from it. Data is increasingly becoming cloud based, on-demand and as a service, with elastic storage capacity and an effective data strategy should be at the heart of any transformation program.

It was clear from audience engagement in the Q&A that there are questions about the how to take advantage of data whilst still ensuring regulatory compliance. But it is clear from the panellists, it is not about the bank or tech organisations winning in the transformation race, but the customer.

You can listen to the webinar here.

Author: Kate Nelson