Payment priorities, what’s driving change in 2021?

The move from analogue to digital, already accelerated by Covid-19, will continue apace in 2021. The key factors driving this include: cultural change, growing regulation, cloud uptake and an increased appetite for innovation. Let’s consider the impact of each of these on payments and the priorities for banks in the year ahead as they seek to build ever closer relationships with corporate customers in the face of growing competition.

Culture
Remote working has driven an increased appetite among corporates for digital tools, assets and devices, and is driving cultural change both inside banking and in the relationship between banks and corporates. Moving forward, corporates will expect manual processes to be replaced with digital methods that are quicker, cheaper and incur less friction. CFOs will want to make instant payments and have certainty that funds have been received. They won’t be forgiving of banks that don’t allow them to execute payments and view balance updates with the same speed as consumers. Cultural expectations have changed. Banks must respond accordingly. 

Regulation
Regulatory change is firmly on the agenda for 2021 particularly in the UK, EU, Middle East and Asia. There’s a growing focus on combatting fraud and driving change through real time payments. In Europe the Retail Payments Strategy introduced in 2020 aims to drive innovation in payment systems and calls for the roll-out of instant payments by the end of 2021. Banks across the US will also need to start preparing for the roll out of the FedNow instant payment service due in 2023 or 2024.

Nearly everywhere in the world real-time payments exist or are coming soon. This will drive down costs for customers and also force a change in banks’ business models. You can’t build real-time payments on old analogue systems. Real-time demands new platforms and technology that allow banks to leverage the value of data, APIs and Open Banking, and to deliver greater insight to customers.

Also high up on the regulatory agenda is ISO 20022. The new message standard will allow more payment information to be shared than ever before. It will allow corporates to work with their own customers to ensure the added information and insight is put to work right across the supply chain.

Banks need to decide whether to evolve their systems to exploit the full value of ISO 20022 or whether just to do the bare minimum to comply. Those that don’t embrace it will need to consider the long-term impact on their corporate customers, if indeed any stick around.

Move to the cloud
Only a year ago, payments in the cloud was a tough sell and some countries where sceptical. There was ongoing debate about how comfortable people, regulators and banks felt about putting everything in the cloud and not being able to touch it. Fast forward to today and that mindset has completely changed. Some countries are still mandating any move to cloud has to conform to their standards and security principles, but frankly these issues are going away because the benefits outweigh the concerns.

Cloud handles all the non-functional requirements of banking: high availability, global reach, scalability and extensibility. With this all taken care of, cloud creates a perfect opportunity for banks to take a digital leap forward.

The move to the cloud also allows vendors to ensure that the software they make available is ‘evergreen’. This means ensuring all key mandates and regulatory changes across all regions are updated and kept current. Again, this is a huge benefit for the banks and one I expect them to exploit in the year ahead.

Open innovation
Being able to open up your platform to allow third parties to enhance your offering – using building blocks that make it easier to talk to and integrate with other parts of the banks, third parties and customers will underpin everything going forward.

Platformification makes it easy, for example, to use third-party FX, KYC or other services through APIs and standardised integration. This is the digital journey that takes us from analogue point systems that can’t be changed, to an extremely agile place where you can pull in expertise and services from fintechs, other platforms, customers, or the entirety of the supply chain. A new open innovation mindset is set to completely change the way banks work and how they work with customers.

In short, the key focus for banks in 2021 has to be on changing business models and how this underpins transformation from analogue to digital banking. If you thought that payments was changing fast already, hold on to your hats in 2021….