Financial institutions worldwide are helming major technological disruptions and transformations across the banking industry, and the payments technology space is no different. In a world where consumers expect efficiency and speed at every turn, the evolution of traditional payments to instant payments is proving to impact the way people transact in the modern era.
Instant payments are defined as electronic transactions made in real-time, making funds available to the end user immediately. The adoption of instant payments is rapidly growing—51% of consumers currently use instant payments, with 80% expected to utilize this method of transacting within the next two years. As traditional payments are quickly becoming popularized by payment methods of the future (think: SEPA payments and the digital euro), it’s imperative for financial institutions to continue to explore the future state of payments, balancing the power of digital transformation while leveraging the options of traditional methods for their customers.
Traditional vs. instant payments technology – where to start?
New payment types are proliferating, all while consumer and business demands are rapidly changing, straining legacy payment platforms. Traditional payment systems are built around a card-based paradigm and the associated networks. They are often very inflexible to change and unable to adopt new concepts required, such as tokenization and the ability to create account-to-account connections. Therefore, these legacy processing platforms can create a slowdown within the transformation of the banking eco-system. Conversely, the technology required to process instant payments requires the ability to process a transaction instantaneously at scale outside the traditional card rails. The inner workings of instant payment technology are designed to be directly connected with the core banking account platforms. They can offer consumer features, including availability at nearly any time of the day or week, cross-border transactions, interoperability with electronic payment systems outside their banking networks, and digital currency payments. What’s more, instant payment networks are not only faster for both individuals and businesses but also more affordable, providing both cost savings and convenience for the institution and end-user. This, however, leaves a big question: how to transform from current legacy card-based payments systems that support today’s ATM and POS transactions towards a common infrastructure that, in the best case, supports all forms of payments to a consumer of a bank?
From ATM to instant payments and digital currencies.
Diebold Nixdorf’s first-hand experience of instant payment platform transformation proves how financial institutions can successfully leverage seamless integration across their business. In recent years, Diebold Nixdorf partnered with a leading payment processing provider within Europe, activating in six countries with different currencies. The challenge was rooted in the complexities of managing diverse payment systems. From supporting card-based ATM and POS transactions all the way to instant payments, delivering the basic rails for upcoming digital currencies. With an increasing array of platforms, functionalities, regulatory requirements, and solutions to support and maintain, adding to the difficulty of successfully transforming its payment platform. Addressing these challenges involved evaluating their impact on development processes, including time, skills, tools, and total cost of ownership. A modern architecture was essential – one that adhered to industry standards of today and tomorrow, that was cloud-native and designed as a collection of micro-services. Diebold Nixdorf and the customer partnered together to drive customer satisfaction, product usability, and alignment with company strategy. This setup allows for agile adaptation, positioning the organization to efficiently handle future developments such as the introduction of the digital euro. What’s more, with the increasing intertwining and integration of different payment services, a top priority for Diebold Nixdorf when partnering with financial institutions is building a single comprehensive platform that can then support a wide array of payment services for today and the future, including the digital euro once it’s introduced into the market.
How FIs can future-proof payment platforms
As payment services become increasingly integrated into consumer journeys, and legacy systems are more costly and hard to maintain, financial institutions must look for a way to significantly reduce cost and complexity while keeping their organization agile. Therefore, the optimal way forward is a single comprehensive platform capable of supporting a wide array of payment options. Financial institutions, including global banks, often have core business processes embedded in millions of lines of code developed for the needs of previous decades, making it extremely difficult to adjust to new customer and market demands. Investing in a cloud-native environment unlocks the potential of a modernized payments system, enabling institutions to drive transformation and innovation swiftly and ahead of the market while managing efficiency and cost. This investment allows for rapid adaptation to evolving regulations, schemes, payment types, and channels while optimizing payment operations to capture additional margins by introducing new services to consumers. Through robust API and business modeling functionality, institutions can effectively integrate and migrate, leveraging partners equipped with tools to rapidly configure new payment offerings. By doing so, they can drive change with both speed and scale at lower cost, adapting to market trends and consumer demands while developing new financial services that meet evolving needs.
Whether it’s a global banking leader or a small brick-and-mortar credit union, financial institutions face the same payment challenges. People expect banking and payment solutions to be convenient, easy, and available anytime and anywhere. Future-proofing these solutions remains an uphill battle, as embracing change always pairs with risks. By leveraging Diebold Nixdorf’s expertise and real-life examples of successful transformation implemented worldwide, financial institutions can follow a proven, low-risk, step-by-step migration approach. This blueprint can help them prepare for the next step in the evolution of consumer payments while minimizing risk, as demonstrated successfully by some of the largest financial institutions in the world.
If you’d like to start your journey to transform a legacy platform to a cloud-native payment platform ready for the future, Diebold Nixdorf can help. Leveraging Vynamic® Transaction Middleware, our transaction processing platform based on cloud-native, microservice architecture, you can respond at speed and scale in this rapidly evolving payments landscape.
Original published in Banking & Payments Bulletin.