If we’ve learnt anything over the course of the past 18 months, it’s that those organisations that are most likely to succeed are the ones that can adapt fast, no matter how uncertain the future.

This remains true for financial services organisations, especially when it comes to payments.

Indeed, the rapid shift to digital payments due to the Covid-19 pandemic is urgently increasing the need for banks to modernise their systems, according to Accenture’s Playing the Long Game in Payments Modernization study.

In the report, Accenture forecasts nearly 420 billion transactions worth US$7 trillion are expected to shift from cash to cards and digital payments by 2023 – and increase to US$48 trillion by 2030. The rapid move to digital payments has put additional pressure on banks, with three-quarters (75 per cent) of surveyed bank executives saying that the pandemic has increased the urgency of their plans to modernise payment systems.

“Covid-19 has accelerated the shift to digital payments at a pace banks could not have predicted,” said Sulabh Agarwal, who leads Accenture’s Payments practice globally, in the report. “The pandemic will permanently change how consumers shop and pay for products as they prioritise convenience above all else. While banks’ investments in new payments systems have focused primarily on meeting compliance deadlines, the way they will drive value moving forward is by embracing the changing consumer dynamic and improving the customer experience.” 

Succeeding in this new operating environment requires banks to become nimble. “Agility has been a word that we’ve bounced around a lot,” says Peter Hazou, Microsoft’s director of business development for the financial services industry. “That’s because banks need to be adaptable for the future, because we don’t know what’s coming. Not least because emerging fintech competitors are all born in the cloud, have less operating costs than banks, and have more flexibility to pursue opportunities as they arise.”

But the recent pandemic and competition from new entrants aren’t the only drivers of modernisation.

“There’s a data story here too,” says Hazou. “In the past, banks haven’t paid much attention to the content of what’s in payments. They only had to think about regulatory requirements – they were not focusing on insights to create value. What we’ve seen with fintechs, however, is that there’s an overwhelming focus on insights and the value created by these insights. Banks have realised this and understand that, if they want to compete, they need to apply artificial intelligence and machine learning to understand and give clients value from data – through cash flow forecasting and assessing counterparty risks, for example.”

Ultimately this means breaking down silos. “Data should not be thought about within the silo of a payments business,” Hazou says. “It’s not about taking data and trying to sell the data for a fee –  as banks have done for a long time with reconciliation services. It’s about the bank thinking more broadly about the data and how it can be used intelligently to better service needs.”

Yet traditional banks appear to be stuck in the past. Reuters predicts that around £3 trillion still passes through legacy COBOL systems every day. “Too many big banks are running legacy systems,” says Hazou. “They’re still mostly on-premises too. They need to modernise to be suitable for today’s and tomorrow’s markets.”

Banks do recognise this, however. Financial service industry leaders know they need to move to new architecture, but traditional waterfall projects have proven too expensive, take too long and don’t necessarily give the desired flexibility that banks need. “New architecture will be key to success,” says Hazou. “That means disaggregating monolithic systems and capabilities and leveraging microservice architecture.”

This is where Microsoft and its vast partner community are perfectly situated to help.

“Microsoft is chosen by many global software providers thanks to its rich and robust cloud offering which is one of the most secure on the market,” says Hazou. “This is perfectly complemented by our data estate which allows banks to create value from the insights that run through their payment systems.”

ACI Worldwide is one such partner. “More of our customers are turning to the cloud to modernise their mission-critical payment systems, driven by the need to operate more efficiently as well as a growing need for speed, agility and innovation in bringing new payment offerings to market,” said Jeremy Wilmot, chief product officer at ACI Worldwide, in a press release. “Cloud modernisation is a top strategic priority at ACI, and we are excited about this expanded alliance with Microsoft – together delivering and operating an unmatched payments platform and ultimately helping our customers grow their business by focusing on differentiation.”

Meanwhile, Finastra’s FusionFabric.cloud open innovation platform, built on the Microsoft Azure cloud, has reportedly ignited the global financial services industry, leading the way in which applications are written, deployed and consumed.

“We want to provide financial institutions with an open platform that allows them to innovate much faster and leverage the vast amounts of data at their disposal for greater insight,” said Eli Rosner, chief product and technology officer at Finastra, in a Microsoft case study. “Now they can engage with their customers, optimise their operations, empower their employees, and transform the products that they deliver to their customers – in a secure and compliant way.”

“We are helping our partners to innovate, and that’s resulted in some quite incredible solutions that are helping banks to innovate too,” says Hazou.

Microsoft’s multi-industry experience has undoubtedly played a role in its success. “We have a lot of innovation going on in retail and across supply chains, for example, where payments are a central feature. We’re helping to create a modern workplace for everyone – and our efforts are paying off.”

And as payments evolve further, Hazou believes Microsoft and its partners will ensure that traditional banks can keep up. “Payments are changing from something you do to something  embedded as a consequence of other activities,” he says. “Payments are also growing up in volume and in value. They are becoming ubiquitous.

“But while the role of the bank is changing, they have got the domain expertise in payments that will continue to make them leaders in this space. By choosing Microsoft and its partners to modernise their payments, they will be able to compete against non-bank competitors coming into this space and retain their traditional franchise.”

Partner perspectives
We asked a selection of Microsoft partners about how they are helping today’s financial services organisations to modernise their payments systems. Below are extracts from their responses, which you can read in full from page 124 of the digital edition of the Autumn 2021 issue of Technology Record.

Laura Daley, North America sales director at Asysco, said: “Asysco helps migrate mainframe systems and applications as low risk and efficiently as possible to cloud-centric, agile and cost-effective infrastructure, enabling underlying data to become immediately available in real time.”

Hans Tesselaar, executive director at Banking Industry Architecture Network (BIAN), said: “Modernising their payments environments will enable banks to simplify payments for their customers, make them easy to use at low cost for merchants, lower the transaction costs and increase their competitive advantage compared with banks that are lagging behind.”

Robert Mancini, head of payments for Americas at Finastra, said: “With the many competing priorities and the speed of change we are all experiencing, banks can’t do it all themselves. They need to be able to leverage the expertise that sits outside their own four walls, and we believe that banks will see the greatest benefits including speed to market, and driving value for their customers.”

Paulo Pinto, lead architect at ITSCREDIT, said: “ITSCREDIT is enhancing digital lending capabilities and models, launching new versions in 2021 for brokers and merchants and expanding the ‘Buy Now Pay Later’ segment.”

Terry Simpson, senior solutions engineer at Nintex, said: “Nintex supports banks with two capabilities to save money and modernise operations.”

Mick McNeil, vice president of business development at Logicalis, said: “One of our global financial services customers recently engaged Logicalis Ireland to implement a cloud-first strategy to support evolving business and customer requirements and combat increasing cybersecurity threats.”  

This article was originally published in the Autumn 2021 issue of Technology Record. To get future issues delivered directly to your inbox, sign up for a free subscription.

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