Advancing payments and lending in anticipation of customer needs

Evolving customer expectations are putting pressure on banks to redefine their value propositions, particularly as customers consume financial services as a part of the user journey they are undertaking. The embedding of payments and lending into these journeys is already upon us and will accelerate. Embedding payments and lending functionalities will be a key source of revenues for banks, as they develop API-based technologies to extend and provide these capabilities to players that are reaching consumers through different channels.

New rails are being mandated by regulators around the world, supported by innovations such as the new global standard for financial messaging, ISO 20022. At the same time, customer demands for real-time payments are becoming more prevalent and banks risk losing customers if they do not provide this offering, particularly as the costs to switch banks are decreasing rapidly.

The use cases of real time payments, coupled with broader messaging standards such as ISO 20022, will give rise to a host of new services such as Request to Pay or the ability for businesses to offer incentives for immediate settlement of their receivables. In addition to the speed of payments accelerating, the ability to charge outsized margins for cross border transactions will also be dramatically reduced as new payment alternatives become more prevalent globally.

As payment volumes grow, banks will accelerate their adoption of cloud-based technology to lower their operational costs, as they work to cover the costs of transitioning to new standards. They will also seek to modernise their architecture, allowing them to choose what elements of a tech stack they develop themselves and what they use third parties for, utilising a platform that allows them to seamlessly implement third party apps to drive efficiency. The days of banks building all their own technology may be past us, but they will still want to retain flexibility, which a containerised architecture allows them to have.

CBDCs are moving from ideation to reality. More than 100 countries are now involved in a project, while 10 have launched their own digital currency. CBDCs are underpinned by an exciting technology that can bring specific benefits, for example in making cross-border trade and payments much more efficient and cost effective in comparison to traditional rails. In 2023, more governments will focus on developing these use cases to launch or evolve their offerings.

Barry Rodrigues, EVP Payments, Finastra