Facing the payments challenges

Banks and financial institutions know that to ensure they can adapt to the fast-changing demands of their customers and frequently disrupted markets, while remaining competitive and profitable, they must modernize. But says Houssam Chaker of Volante Technologies, they must focus on the correct strategies for success.

What are the common payments challenges that most banks and financial institutions face today?

Today, digitalization of the banking industry is accelerating. Being digital at the core, flexible and ready to collaborate to meet ever-increasing customer expectations is becoming a necessity. Fundamentally for a customer, an account-to-account payment must be secure, reliable, simple, transparent, instant, cost effective, traceable, and personalized. Expectations that were typically seen in retail banking are becoming the norm for corporate clients across all product lines. That aside, financial institutions are continually encountering roadblocks with their current fragmented or legacy systems and infrastructure limitations. They cannot scale up efficiently to meet the increasing volume of transactions, nor can they evolve at the speed of the payments landscape, to keep pace with emerging payment methods, new regulations, new features and of course sustaining high availability standards 24x7x365.

More specifically and in direct correlation with the democratization of instant payments globally, since volumes are rising faster than revenues, it is essential for financial institutions to improve productivity and efficiency and reduce the cost of payment processing—these are the table stakes for modernization.

What can banks, financial institutions and the industry do to meet these challenges while remaining competitive and profitable?

To meet today’s challenges and satisfy the growing and ever-changing needs of their customers and the market while remaining competitive and profitable, financial institutions must concentrate their efforts on the right modernization strategy. They must capitalize on a scalable digital payment solution in a collaborative environment. This will eliminate technical challenges and provide a frictionless transaction experience, enabling them to offer value-added services to their clients.

From a technology perspective, the winning strategy will rely on multiple foundations:

  • Adoption of cloud-native and cloud-ready solutions to benefit from the extended available services; microservices-based.
  • Application Program Interfaces (API’s) enabled for better connectivity between corporations
  • ISO 20022 fluency
  • The use of artificial intelligence, automation, and data analytics to better understand customers and provide personalized assisted services.

Today, with cloud democratization globally, a new paradigm for payment processing has emerged, based on the Software as a Service (SaaS) platform model. Platform approaches range from providing the entire bank experience at scale (“Banking-as-a-Service”) to the provision of an entire product capability, such as payments, through a cloud “Payments-as-a-Service” (PaaS) environment.

Whether it is to simply change the hosting model to benefit from the efficiency and cost reduction advantages of cloud, or a strategic move to build on Open APIs, Microservices, and PaaS, cloud is the way forward. Cloud allows banks to accelerate exponentially their overall digitalization programs and address the productivity, scalability, resiliency, and future-proofing needs of their payment businesses.

How instant payments is reshaping and disrupting the payments business globally and regionally

Driven by consumer demand, regulatory bodies, digital disruption, and new methods of payment, the way consumers and corporations manage finance and liquidity was already going through an intense period of change prior to the COVID-19 pandemic. The pandemic has only accelerated the speed of this change and increased the already-rising adoption of instant payments. We provide instant payments solutions in many markets, including the US (RTP) and Europe (SEPA instant) and globally, we have witnessed an increase in IP transaction volumes resulting in high adoption of new use cases such as proxy, request to pay, and integrated payables. This has also been underpinned by the need for tighter cash management, predictability, efficiency, and speed to market.

Instant payments were once known strictly for domestic payments, however there are now use cases for a combination of instant cross border and instant domestic payments, like Swift GPI instant, AFAQ/GCC RTGS, BUNA, RIPPLE & SARIE (Kingdom of Saudi Arabia, instant payment system). This is supported by the extended data offered by the ISO 20022 standard, enabling interoperability and frictionless payment transactions between different counterparties, offering instant / real-time or near real-time cross border payments at an effective cost.

How can technology and scalable digital payment ecosystems help financial institutions formulate a winning strategy?

With today’s payment ecosystem evolving faster than ever, banks and FIs need to play a balanced game, mitigating risk, optimizing investment, and scaling up progressively and efficiently in sync with market demand. In this way, they can provide the right offerings based on their DNA, their differentiators, and their customer-based segmentation and expectations, without exceeding their budget, and while staying profitable and competitive.

This is why it’s important for financial institutions to invest in the next generation of cloud payment solutions and partner with innovative payment providers, co-creating a digital payments ecosystem based on modern hub models offering continuous real-time operation, 24×7 availability, cloud-native and cloud-ready for future evolution and collaboration, with ISO 20022 messaging embedded into every step in the payment lifecycle.

Ultimately, institutions must move away from the spaghetti and silos of legacy architectures, so that they can bring new capabilities and services to market with minimal effort. If they do this properly, they will be able to provide their customers with a single solution to process any payment through any payment method available today, while offering multiple business criteria to the customer to decide how to process and execute their payments transactions. This is the future of payments: more advanced, flexible platforms that can improve innovation and meet client demands, using digital scale for better fraud protection and client intelligence, all with minimal effort.