Exclusive research: Competitive banking report clarifies real-time future

No matter how you look at it, 2023 will be a watershed year in the business payments and banking business. There’s the recession that hasn’t quite arrived and the spikes in goods and services that have showed up in a big way. There are real-time payments, ISO 20022, and the digital transformation needed to adopt them. And there are the continuing issues that need to be tracked closely around cross-border payments and security regulations.

In this landscape, we’ve been in the field since mid-year with a global banking survey that scopes “The Future of Competitive Advantage in Banking & Payments 2022.” All the previously mentioned issues are covered in the survey, selected for their relevance to the future competitive set necessary to attract and retain customers. The biggest departure from last year can be found in real-time payments, which has risen from  40% in 2021 to 55% in 2022 as the top priority for banks and FIs over the next 12 months. Next,  mitigating fraud risk from 38% in 2021 to 53% in 2022.

If we had to pick the top finding from the report, we could stop there. But the report is stacked with important findings that will inform the ability to compete in 2023. Among them:

Digital transformation confidence: Here we find a split between the confident (62%) and the sceptical (20%), with 8% not sure. One will compete; the other categories should be concerned. The confident category needs to advance their competitive capabilities by staying abreast of new payments architecture and security regulations. The sceptical or not sure cohorts are most likely dealing from a standpoint of legacy architecture and will need to accelerate their digital capabilities quickly.

Appetite for cloud migration: Here we find 60% are strong or extremely strong in terms of prioritizing cloud migration 2022 Vs. 75% in 2023. Analysing this number leads to two possible conclusions: either SaaS-based technology is approaching critical mass and banks have already migrated or, they’re more doubtful of its effectiveness compared to last year. We’re going with the first analysis. As Bottomline’s head of SaaS solutions Charles dé Rougé told us: “Using a hosted, standard, secure, SaaS-based platform to connect, control, compete and comply inspires confidence that your capabilities evolve according to market expectations and the demands of your internal strategy regarding appropriate investment, product development, and the generation of new revenue streams. Secondly, you reap the rewards of a constantly evolving platform optimised by best practices and driven by the collaboration and innovation of vendors and market players.”

Obstacles to improving payments infrastructure: As it was last year, legacy systems were the top concern at 27% of respondents. We also saw that 13% of respondents have a lack of IT resources to build more efficient infrastructure. This is proof positive that it’s often too expensive for most institutions to maintain heavy infrastructures on-site. These disadvantages impact the ability to scale on-demand and future-proof systems. The solution: partner with the right supplier to leverage their expertise and bandwidth – whether that is via SaaS, Service Bureau, or a trusted Fintech partner. These options keep your development to a minimum by utilising the right partner who is already audited and compliant.

Embracing the real-time revolution: As stated earlier, by displacing digital transformation at 63% this is the most important finding in this year’s survey. That’s a positive development but the second place priority - payment fraud detection and prevention with 54% - is an unfortunate negative factor that will always exist as long as digital banking does. Improved regulation and best practice solutions such as Confirmation of Payee and Bank Account Verification will help. So will leveraging the benefits of the ISO 20022 messaging standard.

Importance of RegTech: Last year 64% said regulations would be more important than in 2020. That jumped to 74% this year with 48% characterizing “remaining complaint” as very challenging. Regardless of how tough it is banks need to see regulation as a positive market dynamic. As Becky Clements, Head of Industry Engagement, Pay.UK told us: “You can’t have harmonization without standardization”. So, regulation and compliance will continue to drive change. The tools are out there and so banks and FIs need to be better collaborators.”

The upside of ISO 20022: Here’s the predictable response: 53% said better data and data analytics would be the most important feature of ISO as it relates to cash management. But here’s the surprise: 56% said improving fraud monitoring and management tops the chart. Our analysis is that the advantages and use cases of ISO 20022 have not been settled and it’s an issue we look forward to tracking. Data and fraud prevention go hand-in-hand. If the data from ISO can be incorporated properly, operations and treasury will find risk scoring to be more efficient. It’s also less work for the compliance department as better data should lead to more accurate sanction screening.

Cross-border outlook is cloudy: In 2021 24% rated lack of visibility on payments status as the biggest cross-border pain point. That jumped to 35% this year when it actually should have decreased due to initiatives such as SWIFT gpi and ISO 20022 standardisation. This potentially points back to slow adoption levels or delays in ISO readiness. It begs the question: What is it that banks want to see in cross-border payments status? It’s an important question as the increase in revenue from cross-border should follow new fee-based pricing structures and multi-lateral platforms that enable global payments through a single connection. We also think banks want to see an enhanced customer experience with more security and efficiency through tokenization, governance, and rich data.

Read the report in full now. Make sure your financial institution is on track to maximise on the changes impacting the payments ecosystem and accelerate your digital payments transformation strategy today – that is where true competitive advantage can be leveraged. Also, make sure you have your voice heard and start the live comparison survey now.