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The Evolution of Retail Payments in the US

November 8, 2021


Real Time Payments in USA

Retail payments continue to evolve, with the pandemic spurring the shift more drastically. Here’s a look at what companies can do to modernize payments so they can weather these changes.

Financial institutions (FIs) have been at a crossroads for a while now — should they stick with legacy systems until discontinuity forces them into something new or upgrade to cloud infrastructure that enables more flexibility, agility, and scalability? FIs that choose to remain in the past may find that they are viewed as funding sources alone while more agile players step in to become customer-facing retail payments leaders. It’s a compelling case for evolutions, but it’s also one that may go unheeded.

Retail Payments In Flux

Accenture notes that almost 15% of payments revenue will be at risk within the next five years, thanks to pricing compressions, card displacement by real-time payments, and added competition from digital disruptors and non-banks. It’s clear that transformational change is needed, and Accenture posits these five “bets” will be the drivers of this change:

  1. The need to reinvent revenue: FIs should analyze which services can deliver new value and therefore, serve as new direct and indirect revenue sources.
  2. Upgrade legacy tech: FIs may opt to replace legacy systems but can also look to digital decoupling and DevOps to create an agile tech foundation that facilitates rapid innovation.
  3. Partner with FinTechs: In the quickly evolving marketplace that thrives on innovation, FIs are well-served to collaborate with FinTechs, else they lose out on the ability to deliver a streamlined customer experience.
  4. Productize data: Organizations leverage Big Data to glean insights, but the future of data is as a product itself. Transaction information can be spun into new products.
  5. Foster and protect trust: Retail payments rely upon consumer trust. That trust is maintained via secure protocols that keep sensitive data safe.

These are urgent directives for those that want to weather the retail payments shift that will occur. The ability to deliver next-level customer experiences relies on FIs investing in these changes and those that don’t could end up in a utility position focused on back-end transactional services. Arguably, the best investment financial institutions and other payments companies can make is in upgrading core legacy systems, from which all other capabilities will flow.

Digital Transformation Fosters Innovation

Everyone can agree that an FIs future existence is contingent upon its ability to innovate, deliver an exceptional customer experience—and do it all fast. The digital transformation of payments options goes beyond offering paperless options and into the realm of friction reduction, heightened security, real-time payments, and seamless collaboration across systems and partners. This requires a secure, low-latency, fast exchange of data across locations.

Cloud infrastructure can do all this and more. With roughly 2.4 billion consumers that currently access digital banking services — offering the right infrastructure will be key to thriving in this space. Consumers want digital banking that anticipates their needs in real-time and that can deliver a seamless, personalized experience. A flexible infrastructure is necessary to accomplish any of those things.

The payments-as-a-service model is quickly becoming a preferred delivery model as it presents an agile framework, new avenues to revenue, and an easier path than building in-house software. The on-demand auto-scaling element and shorter time to market make it appealing for those facing time and budget crunches.

This route also provides a single point of entry for all services within the ecosystem, including processing capability across digital touchpoints, fraud detection, omnichannel banking, compliance, reconciliation, and more. FIs gain the flexibility to flip needed services on and off, reducing the time and resources needed to manage multiple systems. Pre-integrated applications can reduce integration and compliance costs — and result in faster time to market.

As open banking pushes more FIs into the API-driven marketplace, they will gain the ability to deliver an optimal customer experience by connecting consumers to personalized partner products and services. Tapping into collaborative partnerships and API marketplaces enables FIs to continue offering core services while enhancing and expanding capabilities.

Payments-as-a-Service Can Accelerate Digital Transformation

Payments-as-a-Service also enables FIs to adopt an incremental approach to modernization that doesn’t require a total jettison of legacy technology. We know that the core systems are monolithic, complex, and often loaded with bolted-on solutions that make them difficult, time-consuming, and expensive to replace in their entirety. With payments-as-a-service, FIs can integrate seamlessly with existing technology stacks.

This type of digital transformation will not only help FIs address the urgent needs resulting from the pandemic but also prepare for the modernization necessary for tomorrow. Shifting to a payments-as-a-service platform can future-proof growth, mitigate risk, and improve the ability to innovate.

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