It has never been more important for financial institutions to embrace the newest technology and evolve to better serve modern consumers and businesses. Digital payments rule the roost as consumers opt for easier ways to pay in an online world. The ability to support the changing payments landscape is table stakes to survive in a highly competitive market.
This consumer shift can be easily traced to the advent of smartphones and contactless payments, which have made it easier than ever for consumers to buy online with a single click. Then came the COVID-19 pandemic, which accelerated adoption even among demographics that are usually less tech-savvy, such as Gen X and older.
Crucially, this shift is penetrating all markets. Not only are people digitally buying clothes or tickets, but now everyday purchases are regularly taking place online.
McKinsey reported that global food and household categories saw their online customer base grow by 30% during the pandemic, while 78% of Americans used some form of digital payment in 2020. No matter what they’re buying, consumers want to pay online.
With everyday spending shifting to digital payments, modernization has become a must-have. A swath of new FinTech firms has launched digital-first platforms that cater to this demand, leaving legacy institutions in their wake. To keep up, it is imperative to modernize.
Why A Modern Capability Stack Is Needed
Perhaps surprisingly, the companies that invested early and built up significant technological assets may not be in the best position today, as they might struggle with accrued technical debt. A recent report by Accenture found that the cost of maintaining legacy technology was impeding the ability to invest in new tools for as many as 65% of bank executives. This limitation makes it even more critical that executives select the right areas to target for modernization.
There’s a lot at stake: Transactions worth $48 trillion are forecast to shift from cash to digital payments by 2030. The businesses that will benefit from this change are the ones that will embrace technology as a core capability, not as a series of silos. This means revolutionizing the FI’s technology infrastructure and focusing on solutions that adapt and grow alongside the company, rather than just patching existing problems.
If the FI is innovating purely in response to new regulations, which is true for 75% of the executives surveyed by Accenture, it may struggle to create a cohesive long-term plan. While complying with regulations is critical for payments success, experts recommend building a customer-centric mission that will drive tech investment across departments. A piecemeal approach risks creating technical deficits between teams, so companies should be mindful about how they can scale new technology — even if they have to introduce it in stages.
Understanding Today’s Tech Basics
The first stage of modernization is for payments platforms to make sure that they are up to speed on today’s standard technology practices. Omnichannel engagement is a must, combining a company’s brick-and-mortar activity with their online channels, to form a comprehensive customer picture. Consumers expect businesses to recognize them on every channel, which means FIs must enable data-sharing across platforms to deliver this value.
APIs are also now a popular tool at any digital company, due to their ability to integrate third-party services within a platform. Payments companies can use APIs to share data with their partners in real-time, creating a much more complete understanding of their customers. Complex data analytics are also a new mainstay, as they improve the quality and speed of important services like credit underwriting and loan approval, while also strengthening opportunities for cross-selling.
If an FI has a clear understanding of these solutions, they will be able to deliver customers the level of fast, personalized service that they have come to expect. Next, they should turn their attention to revolutionizing their stack with artificial intelligence (AI), so that they can go above and beyond.
Becoming AI-Forward to Deliver Value
AI is creating significant value for the financial platforms that know how to utilize it and have invested in the capability. This is because artificial intelligence can take data and generate real-time insights and recommendations, which is critical in today’s fast-paced landscape. With a system that immediately responds to changes in customer behavior, FIs can quickly adapt and thrive without the need for constant strategy overhauls. In short, AI enables companies to make the most of the data and insights they’re already gathering.
The need for AI is clear: Accenture’s recent survey found that 75% of banking executives describe accelerating payments modernization as “urgent.” Yet capitalizing on it is less straightforward. AI should be holistically incorporated throughout the company’s infrastructure, so it is important to be strategic. If done right, it will be able to deliver customized products and highly personalized services, at scale and in near real-time.
Individual technology requirements will vary for each platform, but all will benefit from a detailed strategy around how AI will support each area of the business. Once a company has secured its goals, it’s important to develop a practical roadmap to achieve them that keeps all teams connected and on track. Successful FIs will be the ones that can combine innovation teams with the engineering talent to implement that vision; otherwise, they risk delays and disconnects.
Lastly, FIs should ensure that whatever transformations they undertake, they should not interfere with the quality of service they provide to their customers in the meantime. Guaranteeing the uptime of the platform and all its digital services is paramount in order not to alienate the very customers that they’re trying to please. The ultimate focus should always revolve around delivering value to the end customer.
