'Payments transformation' has emerged as probably the single biggest chance of banks. But getting payments transformation right is no easy task. With simply 9% of banks nearing completion within their transformation efforts, many organisations are reporting a lack of information across strategy and best-practice. Myths and misconceptions about payments transformation can stall progress and hamper innovation; listed here are my head regarding how to avoid common pitfalls and seize new opportunities.
Myth 1 – Instant payments would be the end goal for payments transformation
While the very first wave of instant payments adoption was largely concerned with the implementation of the system itself, the focus is now on leveraging instant payment rails to provide value-added services to customers at speed.
'Request-to-Pay' is potentially the most valuable from the new services, promising to provide the autonomy, flexibility and convenience increasingly demanded from financial products. Similarly, QR code solutions built on real-time payment rails has the potential to revolutionise bill, physical an internet-based payments. The potential of leveraging the ISO 20022 data standard to provide data-driven services and products is also huge.
But to distinguish themselves in the competition, banks should do a lot more than patch-up legacy infrastructure to help keep the lights on. Expect future banking leaders to construct a foundation for innovation now to assist them to seize new possibilities to their full extent in the future.
Myth 2 – Payments can't be profitable
Payments profitability is without a doubt challenging, although not impossible.
First things first. Banks must dramatically reduce the ever-increasing total cost of ownership by upgrading legacy platforms. Streamlining back end systems using Cloud and Open Source, to produce more responsive and cost-effective platforms, should be a cornerstone associated with a transformation strategy.
In the long-term, this will just take banks to date and it is correct that the days of creating money just processing payments have gone. With traditional transactional-based revenue model under existential threat, data-driven approaches must be considered.
Banks should also assess the strategic role of payments to their personal organisation beyond 'just' processing. Outsourcing may be an attractive short-term proposition to enhance overall profitability, but the long-term need for payments should not be underestimated.
Myth 3 – The cloud is simply too risky for payments
With outages making the headlines all too regularly, Cloud platforms have come under regulatory scrutiny like a source of 'systemic risk'. This is something of a fallacy. Operational resiliency issues are mainly caused by creaking legacy infrastructure, not cloud systems. And when banks look to upgrade, poor change-management has often resulted in high-risk migrations.
In contrast, Cloud providers' business models are dependent on maintaining security and resilience. Consequently, they dedicate much more time, money and brainpower than banks could ever.
Of course, due-diligence is required to deliver the necessary resilience, security and agility. Repurposing on-premise solutions for that cloud has limitations, as opposed to Cloud-native solutions which are specifically designed for environmental surroundings. In parallel, multi-cloud models are preferable to mitigate damaging dependencies and guard against a single point of failure.
Myth 4 – The only real choice is in-house or outsourced
When working on mission-critical infrastructure, building in-house can seem the 'safer' option. Meeting the requirements of payments transformation is a daunting task however, and may lead to exposure and high-risks, spiralling costs and interminable delays.
Yet, outsourcing also creates challenges. Pressurized to maneuver quickly, monolithic solutions from a single vendor can leaves banks dependent on expensive and rigid approaches that can't deliver the independence, long-term flexibility and customisation demanded by modern bank customers.
Rather than think solely within the binary terms of in-house and outsourcing, hybrid 'smart sourcing' approaches can deliver control and flexibility. Collaborative platforms that leverage best-of-breed products and services might help expand offerings, keep costs down and accelerate time-to-market.
Complexity, simplified