Revolutionizing Payments: A Deep Dive into Payments Modernization – Part 1

Payment modernization refers to the systematic overhaul and improvement of existing payment systems, processes, and infrastructure to meet the evolving needs and expectations of businesses and consumers. It involves the adoption of new technologies, standards, and regulatory frameworks to enhance the efficiency, speed, security, and convenience of payment transactions. Payment modernization represents a strategic realignment that unlocks new potential for growth, innovation, and competitive advantage.

Market Insights

The rapidly evolving payments market is experiencing significant modernization fueled by increasing customer expectations, efficiency targets, and regulatory requirements, amidst a competitive landscape. The convergence of real-time payments and ISO 20022 mandates, coupled with the demand for efficient cross-border payments and flexible payment options such as Account-to-Account (A2A) transfers, digital wallets, Buy-Now-Pay-Later (BNPL) services and open banking data insights, are driving the acceleration of payment modernization.

Global payments revenue is poised to reach $3.5 Trillion by 2028 and approximately $800 Billion is earmarked solely for payment modernization between 2024 and 2028 across banks, financial institutions, central infrastructure, PSPs and Fintechs.

Benefits of Payment Modernization

Payment modernization empowers customers by delivering improved products and services at speed to market. This includes:

• Faster payment processing and improved liquidity management, along with convenient payment methods, greater transparency, richer data insights, personalized experiences, and tools to make informed financial decisions.
• Streamlining operations and reducing costs with lesser manual interventions and higher levels of straight-through-processing.
• Promoting collaboration across the payment ecosystem, driving greater efficiency through interoperability and standardization brought about by modernization.
• Providing enhanced technological solutions capable of managing higher payment volumes, improved performance, and demonstrating resilience to disruptions. Cloud-first API-driven payment solutions help in enabling seamless connectivity and automation.
• Introducing advanced risk and security controls for improved fraud prevention and detection. By offering customers with more secure payment options, it fosters greater customer trust in the system.

Overall, payment modernization empowers businesses to adapt to rapidly evolving consumer demands and regulatory requirements, positioning them for sustainable growth in an increasingly digital economy.

Obstacles to payment modernization

If the benefits of payment modernization are substantial, the challenges that must be overcome to achieve it are equally significant. Organizations continue to grapple with compatibility issues and high maintenance costs due to reliance on multiple vendors with outdated solutions. Legacy platform limitations, particularly those associated with tightly coupled monolithic architectures, hinder the adoption of new technologies, inhibit innovation, and delay time-to-market. Most of the legacy systems are batch-based and lack readiness for real-time ecosystem.

Furthermore, lack of support for data-rich ISO 20022 protocols hampers interoperability. The absence of a consistent financial services experience across payment rails and channels results in fragmented user experience within the payment ecosystem. Also, banks are often compelled to prioritize strict payment regulations over innovation and payment modernization. Other impediments to payment modernization include economic downturns underscored by high level of inflation and the risk of recession, as well as challenges related to lack of innovation culture and skill-gaps to keep pace with the rapidly evolving technology landscape.  

As we delve into the various realms of payment modernization, the second part of our exploration will focus on how organizations can circumvent the afore mentioned challenges to harness the benefits of payment modernization, and how RS DigitalEdge™, an innovative multi-rail digital overlay service solution for digital transformation, can help achieve these objectives.

Stay tuned for further updates on this topic.

References:

• Payments-modernization-white-paper - EY
• Payment Modernization: What is the future of Payments - KPMG
• Payment Modernization: The Big Survey 2023 - Volante and Finextra Research
• Payments modernization as a catalyst for growth - KPMG
• Top 10 Fintech & Payments Trends 2024-JUNIPER RESEARCH