Increasingly, businesses understand a wider variety of use cases for instant payment, which has resulted in year-over-year increases in demand for access to better payment technology and real-time capabilities from their financial institutions (FIs).

Demand continues to increase among businesses. However, some, but not nearly enough, FIs are offering instant payment capabilities in the U.S. Even in Europe, where regulations have accelerated FIs’ real-time offerings, many banks are not effectively positioning the value proposition or use cases for instant payments.

Due to the high cost, risk, and long time it takes to develop a new instant payments solution in-house, an increasing number of FIs realize they need vendor partners to continue modernization efforts while also taking action to educate clients on potential use cases and invest in the infrastructure and value-added services that enable and expand the return on investment for offering real-time capabilities. FIs should consider a few of the following when preparing to integrate instant payment capabilities for commercial clients.

Use Cases

Businesses are increasingly recognizing a broader set of use cases for instant payments. In the U.S. and Europe, businesses began using instant payments with limited use cases, such as past-due or emergency payments, but this is quickly changing.

Now, businesses are recognizing the importance of instant payments to improving customer/recipient satisfaction, cash flow management utilizing “just-in-time” payments, online transactions such as immediate returns, payroll improvements, and beneficial use cases within any business that deal in a high volume of low-value payments. Many businesses are also excited at the prospect of having request-for-payment capabilities.

Businesses are already finding use cases across organizational size and industry vertical, but more proven use cases that benefit an organization and its customers are likely to come. As use cases continue to expand, so too will the demand for instant payment capabilities. FIs need to help meet business demand by offering instant payments and through education to help elaborate and expand existing use cases, or they risk losing relationships and opportunities to competitor FIs or fintechs.

Modernization Hurdles

Implementing instant payments poses some inconveniences for FIs and their business clients. With both U.S.- and European-based businesses, 47% consider operational or process change the biggest hurdle to adjusting payment methods or processes.

For FIs and their business clients, implementing instant payments entails technical, integration, and workflow changes, underlined by costs and resource allocation. An added hurdle for FIs is that they are tasked with overcoming these challenges internally while also assisting clients with a similar set of hurdles. FIs considering integrating instant payments need to align resources and priorities to prepare for challenges associated with integrating existing infrastructure with newer payment technologies.

Payments-as-a-Service (PaaS)

PaaS can accelerate an FI’s launch and expansion of instant payments. FIs grappling with allocation of cost, IT resources, and time to market should consider a PaaS solution.

Enabling a PaaS solution requires a core infrastructure that is cloud-native, which enables the PaaS solution to function as a payments layer within the existing technology stack. When an FI goes with a PaaS solution, it can expedite time to market with instant payment offerings as well as other ancillary services with lower cost to the FI, ultimately gaining the availability and scalability of a real-time offering with lower cost of ownership while maintaining security considerations.

PaaS brings greater agility to offering instant payments for implementation and for preparing for an increasingly competitive market and complicated payments technology going forward.

Final Thoughts

Businesses are clear that instant payments are important. Moreover, our research also shows that 42% of businesses are willing to leave their existing financial services provider to another one or even a Fintech payments service provider in order to gain access to instant payments. If FIs don’t want to miss the instant payment opportunity, they need an effective strategy to modernize existing payment products for instant payments and data sharing while simultaneously preparing for ongoing technological advances and shifting regulations.

As the migration to ISO 20022 formats continues, and as business demands evolve to include more advanced payment capabilities, finding the right vendor partner to enable pinpoint allocation of resources for best-in-class products has never been more critical.

PaaS solutions can be the right choice for many FIs, and especially credit unions and community banks in the U.S., seeking to expedite integration of a robust payment offering that includes a 24/7/365 instant payments solution while also maintaining industry best practices in fraud prevention and anti-money laundering controls.

For more information on instant payments, PaaS solutions, and vendor partnerships, reach out to Erika Baumann at ebaumann@datos-insights.com.

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Commercial clients increasingly demand market-leading payments solutions and products and are willing to switch or even bypass FIs by engaging directly with fintech startups to attain them. All of this has meant greater competition and FIs needing to seek go-to-market solutions they can bring to clients as quickly as possible. Legacy underlying infrastructure is one of the biggest hurdles in accomplishing this goal.

Aite-Novarica Group and Finastra have partnered to survey over 100 leading global banks to determine the key forces impacting payments modernization efforts. The six trends outlined below provide a high-level overview of the challenges FIs are encountering, technical innovations most critical to disruptions in payments infrastructures, and solutions for maintaining competitiveness in a demanding market. 

Disintermediation

FIs are increasingly concerned about corporate clients seeking payment products and services with third parties, which ultimately means disintermediating banks for critical business processes. An alarming percentage of payments have already moved to fintech firms. Almost half of banks report that they believe that 10% or more of their payments volume has already moved to a fintech provider. A primary driver of this trend is that corporate end users need more robust services, but banks are having trouble updating legacy systems to accommodate new technologies and capabilities. Corporate clients are demanding more from FIs are choosing providers that better suit their needs when their FI cannot.

Client Demands  

Half of banks believe that their lack of robust services is preventing acquisition of new clients.
40% of banks report technical challenges integrating with legacy systems to be a major obstacle in introducing new products and services. Additionally, half of banks say that system scalability is lacking. Meanwhile, corporate clients continue to become more demanding in terms of wanting payment choices, automated processes, and data messaging capabilities. Increased client demands coupled with technical challenges associated with legacy systems pose a significant challenge for FIs.

Real-Time  

The demand for real-time capabilities continues to grow, and most banks project volumes to increase beyond current levels. Yet, legacy infrastructure continues to plague modernization efforts: 57% of banks report it is extremely or very challenging to enable real-time payments through legacy systems. Many banks have had difficulty navigating the technical innovation required for real-time processing and settlement or have had difficulty securing the investments required to make real-time payments possible.

Investing in New Technology  

A majority of banks expect their significant investments in payment modernization to stay the same over the next several years. In many cases, banks are increasing these critical investments since the modernization journey is a complex, multi-year process with no finite end. Modernization must be broken into smaller parts to be successful, requiring prolonged and consistent investment through the entire process. With the demand for better payment capabilities continuing to increase, many FIs recognize the urgency to invest in payments technology. Those banks that are not investing will fall behind.

Cloud Technology  

Unlike several years ago, cloud technology has become normalized and is top of mind for most banks, with 91% of banks already completing a transition of payments processing to the cloud or reporting plans to do so. Much of this comes down to Payments-as-a-Service (PaaS) offerings that focus on moving away from owning to consuming the payments processing software and the underlining IT technology on which it is running. Many banks see PaaS offerings and other cloud-based payments solutions as a means to more efficient and cost-effective payments modernization.

Partnerships  

And finally, given the stakes, required investment, and time, there are significant risks associated with modernizing payments products and solutions. Cost hurdles and technical complexities, among other challenges, can hinder modernization efforts, furthering risk of disintermediation or losing clients to other FIs. Payment solutions vendors can provide experience and the technical expertise necessary to streamline the process and ensure continued investment. By adopting vendors’ recommended best practice workflows and business rules, FIs can significantly improve their operational efficiency and reduce complexities. As a result, vendor partnerships play a critical role in the payments modernization landscape.

To find out more, download the full report Payments Modernization and Technology: Priorities, Challenges, and Partnerships.

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Banks and businesses have undergone significant changes since the last time we were able to hold this event in person. As a response to the COVID-19 pandemic and new technologies, businesses have automated and simplified payment processes. Many new vendors have also entered the market and are increasingly partnering with businesses to meet clients’ needs in payment systems and cash management.

The landscape is shifting, and financial institutions are under pressure to meet new demands with value-add cash management, payment, and open banking services through APIs. Staying on top of the rapidly changing financial sector is a challenge for even the most successful banks.

Attending Aite-Novarica Group’s Innovation in Cash Management & Payments forum will provide a welcome overview of the changes already underway and will help participants prepare for transformations just around the corner. Interactive panels will discuss some of the following key topics:

• Transformations in Payments. Legacy payment types are quickly becoming outdated. New payment types are rapidly transforming the payments landscape, along with new technology that has led to automation across banks of all sizes. User experience is at the forefront of new payment types, especially removing pain points from end users’ payment integrations. Join representatives from Synovus, Bottomline Technologies, and TD Bank to discuss recent trends in payments, use cases, and disintermediation of banks.
• The Middle Market Customer. Hear from speakers from PNC, Webster Bank, and Intellect Global Transaction Banking (iGTB) on meeting the new needs of the middle market customer. While large corporate clients are often less dependent on their banks, middle market customers often rely on a strong partnership with their financial institution. For banks, meeting the evolving needs of middle market customers translates to important revenue streams and provides ideal customers for various products and services. Learn from Aite-Novarica Group analysts, guest speakers, and industry colleagues about leveraging technology to attract and retain middle market customers.  
• New Financial Technologies. It’s a challenge to keep up with the seemingly endless stream of new technologies impacting the financial sector, and even more challenging to separate critical advances in technology that are here to stay versus overly hyped products that are supposedly going to revolutionize the industry. Enjoy this interactive panel with analysts, peers, and guest speakers from Texas Security Bank and Mastercard on the latest in tech, including cryptocurrency and NFTs, Web 3.0, quantum computing, DeFi, AI and machine learning, along with strategies banks can employ to prepare for future technologies.  
• APIs, Open Banking, and Virtual Accounts. The use of APIs and data sharing between businesses, financial institutions, and vendors has rapidly accelerated the trend toward open banking. Virtual accounts have recently become an important component of an open banking ecosystem, whereby multibank virtual account management solutions mirror account information across financial institutions. With representatives from Fifth Third Bank, Bank of America, and Dragonfly Financial Technologies, join this panel to learn more about recent trends in open banking, APIs, and administering virtual accounts between banking channels.
• Onboarding. Most financial institutions have struggled to improve the customer experience of onboarding, both within treasury and credit processes. Beyond dissatisfied clients, problems with onboarding can lead to critical missed business and revenue opportunities. Aite-Novarica Group and guest speakers from Comerica, Able, and BOK Financial will discuss existing strategies to improve the onboarding experience for customers.  

Beyond engaging with some of the leading topics in commercial banking and payments, senior executives in banking and financial services attending this forum can expect to learn from industry experts and colleagues across the financial sector, enjoy networking opportunities, and discuss cutting-edge technologies through sponsor showcases. We look forward to seeing you in October.

To learn more about the Fifth Annual Innovation in Cash Management & Payments Forum, please reach out to us at events@datos-insights.com or ebaumann@datos-insights.com.

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It is difficult for businesses to depend on one source for financial services and capabilities; many are open to partnering directly with fintechs. FIs are are also expanding their partnerships to bring solutions to market more quickly and enhance current capabilities. This dynamic is creating blurred lines across the ecosystem and a market ripe for innovation and disruption.

With this push toward innovation and technological advancement in mind, Aite-Novarica Group sees several key trends on the horizon for the commercial banking and payments industry in 2022. A few of these are:

• Fintech firms are likely to disintermediate banks. Customers are becoming more comfortable with the idea of looking outside of their banks to get top capabilities. FIs hoping to offset this trend should invest in innovation and look to partner with fintech companies.
• Cryptocurrency’s popularity is increasing. With growing interest in cryptocurrency around the globe, banks are likely to use it as a tool for branching out into the trade and supply chain finance business. Commercial customers are seeking guidance in this area from their banking partners.
• Environmental, social, and governance (ESG) cannot be ignored. Banks of all sizes need to pay attention to ESG. While it’s a key topic in 2022, the industry has not yet generated best practices for it. Commercial lending and AI’s traceability will most likely emerge as near-term areas of interest.
• APIs are more important than ever. Commercial banks are prioritizing direct engagement with corporate clients by developing APIs for B2B operations. APIs help banks strategically allow corporate clients to program their own experience and create value for their own customers.

Other areas like M&A activity, regulatory changes, and connected banks will also be affecting this space in 2022. To learn more about the key trends Aite-Novarica Group has our eyes on for the commercial banking and payments market this year, register for our upcoming webinar Top 10 Trends in Commercial Banking & Payments, 2022: Blurring Lines Across the Ecosystem.

Not able to make it? Download the full report covering all ten trends or reach out to me at ebaumann@datos-insights.com.

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