With major changes in the markets and in how consumers are using payments, the payment landscape has constantly been changing over the last few years, with new technologies emerging, new players, such as Fintechs arriving on the scene, and non-traditional competitors epitomized by GAFA (Google, Amazon, Facebook, Apple) adding increased pressure. Faced with challenges around regulatory requirements and pressures on margins, banks must reinvent their models and embrace strong management systems for all of their payments channels in order to enhance the value chain.
Payments generally go unnoticed as part and parcel of consumers’ daily lives, but they have become a priority in order to deal with a number of business scenarios. They are also essential to offering an increasingly quick and seamless user experience. There are many types of payment methods and they are widely used, but we have never seen quite so many as we are seeing now.
Whether you look forward or backward in time, the fundamentals around payments are always the same: processing transactions or providing money in exchange for goods or services. People will continue to widely use cash and, while checks are losing ground to other payment methods, they are still very popular. At the same time, bank cards, which have long been seen as a symbol of a new era of banking, are constantly reinventing themselves in order to keep up. This technology is constantly evolving, with contactless and, more recently, biometrics, and continues to offer many potential online and in-store payment options. There are at least 81 million bank cards in circulation in France, for example, and 96% of French people have at least one.
With the industry undergoing a full-scale revolution, payments are now a huge market, potentially amounting to more than $2 trillion in revenue in 2025. This financial opportunity has not gone unnoticed by neobanks and Big Tech, which are taking a gamble on payments becoming digitalized on a large scale and are supporting the emergence of new payment methods, such as e-wallets and smartphone payments. If these new players want to create new customer journeys around payments, their main challenge is to compete with traditional banks and snatch away the transaction fees and other bank charges.
The challenge around new payment journeys
Businesses are the first to notice a change in habits among consumers, particularly as a result of the crisis, and to want to create new payment journeys to entice consumers and increase their sales. However, the increase in the number of payment methods has not been without its problems for banks, which are seeing more and more layers of technology added, but are not fully proficient with these systems. Even though the existing banking platforms need to compete with the digital players, the number of payment methods are increasing at such a rate that they are struggling to keep up. The cost and the time needed to modify, test and roll out these payment methods could get out of control. In order to keep up with the pace of this innovation, banks are having to expand their range of services and increase the number of interaction channels with external partners in order to be able to manage all of the payment types.
Looking beyond the major changes in how payments are made, banks must also move towards new frameworks and consider more open ecosystems, with the DSP2 (the second European Union payment services directive) giving the green light for
Open Banking in order to promote competition and develop more tailored services on the market. This model could further reshape how payments are used and would enhance transparency within financial institutions. However, it would also pose dangers to how customer data is managed as payments become quicker and quicker. With the specter of fraud looming even larger, banks need to put in place greater levels of security, using a
multi-layered approach. In addition to this trend, we are experiencing a rise in popularity in instant payments, including the SEPA protocol in particular, which have great potential, as they may be able to reduce management fees. However, in turn, they need a reliable system that complies with the regulations in place, by implementing strong authentication methods and streamlining back offices.
The challenge around creating a robust yet seamless payment ecosystem and sustaining it now requires banking systems to evolve and improve their capabilities so that customers can either withdraw cash at ATMs using their phones or perform P2P transactions. One of the biggest threats for banks would be not moving forwards with these changes out of fear of potentially losing customers. Payments are a major issue for traditional banks and their retail activities have been damaged by increasingly low interest rates. As a result, they now urgently need to adopt a holistic vision around payments in order to support their growth.
Moving towards simpler payment management
In a world of constant innovation, banks must embrace flexible processing platforms,
that are future-proofed with cutting-edge technological architecture in order to ensure that they can both continue to offer traditional payment systems and adopt the next generation of payment methods. Modernizing payment systems could potentially unlock value through operational efficiency, an enhanced customer experience and potential new sources through payment-operation costs and data.
The universal scope of payments means that banks must now put in place processes that can help to support interoperability. Adopting the latest technologies will help with rolling out smarter management platforms that deliver a compliant, secure and reliable framework for banks. These platforms would be suitable for our modern payment environments, with the cloud freeing up the computer systems of infrastructure that currently consume unnecessarily large amount of resources, and the microservices increasing the transparency of services across all channels. With
next-generation payment platforms, cash flow, cashing and settlement processes are being reinvented through smart routing, continuous management and immediate updates, irrespective of the payment type used.
The huge number of payment solutions on the market are now having to draw on the expertise of partners that have a comprehensive overview. As these banks are operating in a market that is evolving very quickly and presents a large number of opportunities, the inherited technology and infrastructure are no longer enough. Banks must be able to integrate the latest payment solutions, including real-time payments, into a single ecosystem in order to respond to new uses among consumers, who are eager to adopt flexible mobile payment methods, and offer them a transparent multi-channel experience. More than ever, banks must place payments at the heart of their modern monetization strategy while they try to seek out new sources of income and remain operational.
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