Why Technology Will Drive Competitive Advantage in the Payments Industry (James Tomaney)

Recently, I have seen a growing number of decision makers in financial institutions taking a different approach to technology. This is because they have realised that many of the systems they relied on in the past on are now struggling to cope, and there are major questions about their future resilience.

According to an Accenture report this June, as much as $416 billion in revenue will be at stake as the era of open banking finally gathers momentum globally. This revenue is likely to be captured or defended by players who recognise the opportunity early. This means that technology, and the need to innovate and connect with different systems, will become a critical element for remaining competitive and gaining an advantage.

The pace of change 

A separate Accenture article, called ‘Payments Modernization: Playing the Long Game,’ identified that 75% of payments executives agree on the urgency of accelerating payments modernisation programs. They believe the pandemic has increased the disruption in payments, as new alternative systems gain traction and take share. Accenture conclude that there is an important opportunity for financial institutions to improve their payments transformation strategy as customers migrate to digital channels.

The big question is, how can you do this with confidence and within a controlled budget?

Industry challenges 

Financial institutions are generally responding to this through one of two approaches to investment decisions:

  1. Remain locked in an expensive and risky game of “patch-up and catch-up” with their existing infrastructure and vendors
  2. Take a fresh look at their investment plans and technology to establish a sustained and future-proof competitive advantage

Executives taking the first option often feel comfortable staying with what they know, to minimise risk. However, while this may be relatively risk free in the short term, it stores up much greater risk, currently hidden over the horizon.

Those taking the second option have seen over the horizon, and appreciate the need for a different approach to their payment infrastructure. They recognise the benefits of moving their IT out of their dark data centres and putting the technology into the Cloud. They see that deploying highly adaptable, Cloud-native payment applications can remove the problems of rigid architecture with systematic release schedules.

But what exactly have they seen?

What lies over the horizon?

Rapid change. That’s what most people see when they look towards the future. According to Accenture, three quarters of payment technology executives agree that the pandemic has made modernisation programs more urgent. Core banking and payment systems are likely to struggle to adapt to the post-pandemic world. Although these systems are operationally strong, they are not designed to cope with the pace and agility required to meet changing consumer and business needs. Organisations unable to innovate rapidly and with confidence will simply get left behind.

Cultural change is required

Generally speaking, large financial institutions get involved in system changes when reacting to regulatory requirements or operational weakness. Historically, they have not been the leaders in driving innovation. This results in organisations investing in payments modernisation by bolting on additions to a system dating from the 1980s.

We are now working with more institutions who are investing in new ways of working. This cultural shift is now becoming the norm and those still questioning new approaches risk storing up major problems for their employees and customers in the future.