Over the course of the last decade, banks across the globe have made slow progress in updating their back-end payments platforms which are appearing increasingly archaic compared to today’s requirements.
“It would be wrong to say that banks are not innovative,” explains Peter Hazou, director of solutions for financial services at Microsoft. “Quite the opposite: banks have made huge progress in delivering new front-end payments applications that delight users.”
Indeed, in a bid to compete with non-banks such as Google, Apple, Facebook and Amazon, and to meet customers’ increasing demands for ‘instant everything’, banks have poured much of their time and energy into delivering very modern front-end payment applications that offer customer-centric experiences.
Unfortunately, however, there is a significant disconnect between these modern customer facing applications, and the back-end systems that they run on. According to reports by the UK’s Financial Conduct Authority (FCA), nearly 50 per cent of banks do not upgrade old IT systems as soon as they should. Meanwhile, research from Reuters has found that 43 per cent of US banks still use COBOL, a programming language dating from 1959.
“All too often, banks are managing older generation payments platforms that have built up incremental functionality over time for which they were not originally designed. They are inefficient to manage and expensive to maintain at a time banks are trying to reduce ‘run the bank’ costs.” Hazou explains. “Not only this, but they cannot cope with the copious data demands that are the heart of today’s data culture. Systems not only need to be able to process richer data, they also need to store, analyse and contextualise ever-growing quantities of information in a secure way.”
For those banks that get it right, the opportunities are huge. According to Accenture’s recent Banking Pulse Survey, global payments revenue will likely grow at an annual rate of 5.5%, from $1.5 trillion in 2019 to more than $2 trillion by 2025. Only banks that change their business models to adopt the latest technologies and focus on providing value-added services to customers will capture a share of the $500 billion in incremental revenue growth.
Get it wrong, however, and there’s a hefty price to pay. As much as 15 per cent of banks’ global payments revenue, or $280 billion, will likely be displaced by the growth of digital payments and competition from non-banks, as payments become more instant, invisible and free, according to the Accenture report.
“Rather than being at the forefront of the new wave of the booming payments market, banks are feeling the heat from new competition and seeing their margins squeezed,” said an Accenture spokesperson in a recent press release. “We face an inevitable world of instant, invisible and free payments, which spells trouble for banks that don’t want to be relegated to the plumbing of payments. But it also presents an opportunity to tap into a new business model based on this digital boom.”
Hazou agrees, adding that this is a watershed moment for banks. “Banks are recognising the need for change – and are taking action thanks to a push for digitalisation that has been exacerbated by the current Covid-19 pandemic, along with the adoption of ISO 20022 and the increasingly widespread use of instant payments.”
Microsoft and its partners are also playing a pivotal role in the drive for change. “By working with the best partners in the industry, such as Finastra, ACI Worldwide, Temenos, Volante Technologies, FIS and Fiserv, we are enabling banks to reap the many benefits of the Microsoft Azure cloud, including lower total cost of ownership (TCO), increased scalability, speed to market and security,” says Hazou.
Earlier this year, for example, Finastra and Microsoft announced a strategic, multiyear cloud agreement to help accelerate the digital transformation of financial services.
“We believe the future of finance is open,” said Simon Paris, Finastra CEO in a press release. “Together with Microsoft, we can provide people, businesses and communities with the solutions and services that fit around their needs and lives, unlocking the power and potential of finance for everyone. As the pandemic has brought the future forward with regard to digitalisation, our vision to transform the world of financial services aligns closely with Microsoft’s ambitions, and I believe that together we can help accelerate this digital shift.”
This move marks a commitment and builds on the 3,000 banks and financial institutions already supported by both companies across payments, lending, treasury and retail banking on Azure. The agreement will reimagine the way banks and credit unions use technology and how we all think about sustainable, open finance. Using Microsoft platforms has already enabled Finastra to accelerate its product road maps to bring even more of its mission-critical solutions to the cloud for its 8,500 customers, alongside advancements in data, artificial intelligence and open banking.
ACI Worldwide, meanwhile, has extended the reach of its Universal Payments portfolio through the Microsoft Azure cloud.
Through this relationship, ACI on-premises customers will benefit from enhanced security, as well as a reduction in long-term capital expenditure, adopting a scalable model for cloud-based infrastructure.
“As global trends, changing business models and innovation create a new set of challenges for the world of payments, this collaboration will allow banks and other organisations committed to innovating and moving to the cloud to become more agile, deploying new payment services more quickly,” said Craig Saks, chief operating officer, ACI Worldwide in a press release. “In addition, they can develop proof of concepts, and launch and test them in the marketplace at a low cost – this is already gaining traction among our customers.”
And Volante Technologies’ U.S. Wire Payments as a Service solution, which also runs on the Microsoft Azure cloud, provides end-to-end processing of wires from corporate initiation through to clearing and settlement, with direct connectivity to the Fed. US bank First American Trust FSB has recently selected this solution to replace its legacy infrastructure. By automating wire processing with Volante’s U.S. Wire Payments as a Service in the cloud, the bank will benefit from resilient, reliable, and scalable payments technology. They will be able to smoothly handle increasing wire volumes, and ensure that their customers’ wires are never missed, duplicated, or delayed.
These examples show that progress is already being made right across the world – and Hazou is keen for the momentum to continue. “Satya Nadella recently said that we have seen two years’ worth of digital transformation in two months – and that has certainly been the case in financial services,” he explains. “I’m certain that we will now start to see a permanent shift to digital commerce – and, in turn, much lower run-the-bank costs and agility to meet client needs. Since the new business environment is going to be much more cost-conscious than ever, this is incredibly important in order to safeguard the future of our industry.”
Partner Perspectives
We asked a selection of key Microsoft partners about how they are helping banks to optimise their payments processes. Below are extracts from their responses, which you can read in full from page 125 of the digital edition of the Autumn 2020 issue of The Record.
Ciaran Chu, head of public cloud at ACI Worldwide, says: “With an ever-evolving regulatory landscape and increasing consumer adoption of digital technology accelerated by Covid-19, banks are turning to ACI Worldwide as a trusted partner to support their payment and digital transformation journeys.”
Ayelet Eliezer, vice president of products at BioCatch, says: “BioCatch’s behavioural biometrics technology, which is currently delivered as a service on the Microsoft Azure cloud, is helping financial institutions to detect mule accounts before fraud is perpetrated.”
Omri Kletter, global vice president of cyber crime and fraud management at Bottomline, says: “Banks are continuously being tested on their weakest link – if the fraud aspects and connectivity aren’t modernised properly and in parallel, the intention fails.”
Robert Mancini, head of payments at Finastra, says: “At Finastra, we see the momentum towards open banking and publicly available application progamming interfaces now as universal.”
Jim Casale, head of electronic fund transfer solutions at FIS, says: “The cloud’s inherent capability for ‘right-sizing’ capacity and resources offers banks and payment providers a first line of defence against the unpredictability associated with sudden changes to end-customer behaviours or preferred methods of payment.”
Antonio Montiero, head of pre-sales and delivery at ITSCREDIT, says: “ITSCREDIT’s Pay With Credit Software allows online payments with instant credit, using services and widgets to allow online merchants to make use of different payment methods.”
Karen Reichle, vice president of customer success engagement at Nintex, says: “Banking and financial institutions leverage the Nintex Process Platform to improve the customer and employee experience by automating workflows, digitising forms and more.”
Deepak Gupta, global head of payments-as-a-service at Volante Technologies, says: “We help optimise payments processing for banks by providing them with end-to-end processing-as-a-service in the cloud, as a superior alternative to either on-premises legacy systems or older service models.”
This article was originally published in the Autumn 2020 issue of The Record. To get future issues delivered directly to your inbox, sign up for a free subscription.