New report: Real-time payments and fraud mitigation continue to define global banking agenda

It was Aite-Datos commercial banking analyst Gilles Ubaghs who said recently: “Changing customer demands across all bank offerings are not slowing down, and there is a risk banks are not moving fast enough to keep pace. Progress is moving positively – but banks have no time to rest on their laurels.”

I couldn’t agree more. And to lend even more credibility to Ubaghs’ observation about the current state of banking, we have new research that illustrates the changes he mentions in those customer demands as well as changes in the roadmap necessary to meet them. I’m referring here to Bottomline’s new report, the third annual “Future of Competitive Advantage in Banking and Payments 2023,” which surveyed more than 500 banking executives across the globe. Among other findings, the research contained in the report shows that legacy infrastructure and fraud mitigation continue to be the most formidable obstacles between banks and satisfied customers. And as it did last year, access to new real-time payment rails and migrating to cloud computing represent the best routes to overcoming those obstacles. 

By the numbers, legacy systems continue to be the key pain point for 30% of the banks and financial institutions that responded to the survey, which was in the field from May to September 2023.  I believe the answer to solving the limitations of legacy infrastructures lies in the transition from on-premise software to SaaS-based technology and business models, bringing with it the operational efficiency and interoperability between internal systems that represent the hallmarks of banking in the cloud. In an era of increasing industry mandates and busy innovation roadmaps, the cloud’s ability to scale and outsource updates will become ever more critical. Also, operating in the cloud allows banks and financial institutions to control and monitor the flow of financial information within their operating environment. Better, richer insight, improved security, and assured compliance can translate into confidence about how financial messaging data is processed globally. 

In my opinion, migrating to SaaS-based technology should be at the top of the table when it comes to those innovation roadmaps. It’s somewhat concerning that replacing legacy infrastructure fell to number five this year, but it’s understandable when you look at the priorities that came before it: accessing new payment rails (51%), mitigating payment fraud (45%), creating new revenue streams (39%), and improving cross-border payments (37%). This set of priorities reflects the unique times we live in. New payment rails have been the focus of innovations in the United States as both The Clearing House and the Federal Reserve continue to mine use cases for consumer and commercial usage. It will be the focus of the UK’s New Payments Architecture initiative beginning in 2024 and the centerpiece of new regulations from the EU, which should be published before this year is out. And while experts, including Bottomline’s VP for digital banking solutions, Jessica Cheney, have done their best to allay fears about real-time payments fraud, it continues to be a concern among finance leaders, and that’s reflected in these findings as well. 

For me, those are the most important findings, but I encourage you to judge them for yourself. In addition to the ones I’ve already mentioned, here are some other data points in the report that will continue to define competition for commercial customers and consumers: 

Accessible business services (46%) took the top spot when bank executives were asked, “Which services are you prioritising for your corporate customers over the next 12 months?” It was followed closely by the visibility of transactional data (40%) and innovative technology (35%). These findings are fascinating when compared to Bottomline’s 2023 Business Payments Barometer, which asked corporates what they prioritised in their expectations from banks. In the research 38% of respondents said ensuring business services were accessible and transparent took the top spot at 38%. 

An overwhelming percentage of financial decision-makers in companies (69%) expect compliance and regulationto become more important this year compared to 2022, and 88% said it would be “challenging” to remain compliant. Of course, more regulation equals more pressure on product roadmaps and resources. Again, I come back to the importance of migrating to the cloud, where a joint industry solution across multiple banks and Fis benefits from speed-to-market and automatic adherence to new mandates. I should also note concern about this finding from my colleague Frederic Viard, who said: “Technology is set to influence businesses over the next 12 months, and while generally seen as beneficial and a driver of productivity, adopting these innovative solutions can be challenging for companies.  One thing is clear; there remains a lack of understanding and preparation around the upcoming regulations, new payment infrastructures, and systems – all of which are driving digitalisation.” 

ISO 20022 is seen as a fraud defense. Fifty-six per cent of respondents said data generated from the messaging standard would help them improve fraud monitoring and management, followed by 47% who said that data analytics from ISO would enhance compliance with payment standards. 

The Bottom Line: Banks and financial institutions globally are facing unprecedented change, accelerated by the global economy, customer demands to be ‘always-on,’ busy roadmaps, a plethora of regulatory mandates and emerging technology. As a result, institutions need to line up access to alternate payment networks, scope modern technologies, and be prepared for changes in payments alongside geopolitical uncertainty. Those prioritising the need to modernise their payment infrastructures by replacing legacy systems and simplifying connectivity to global payment networks will be better prepared to adapt to these changes.