Payments platform transformation emerges as a top priority for banks

For traditional financial institutions facing disruption by fintech, COVID-19 may have been just what the doctor ordered. That’s the surprising takeaway from a recent panel hosted by Capgemini, a global technology consultancy addressing payments platform transformation and other issues.

Banks have long been aware of the need to modernize legacy payments platform architecture. But it seems that it took the overnight transition to work-at-home environments to make these initiatives a high priority. 

Mark Buitenhek, head of transaction services, commercial banking at ING, said the Dutch multinational was initially consumed by the need to ensure business continuity and employee and customer safety. But once that goal was accomplished, “we immediately started to focus on payments, which is one of the critical processes of a bank.”

Before COVID-19, corporate treasurers were already adopting digital payments to mitigate the shortcomings of business-to-business (B2B) payments. As Capgemini’s “World Payments Report 2020” recounts: “B2B payments have inherently suffered process inefficiencies in cash and liquidity management, which — without manual intervention — have led to significant errors, fraud, and slow transaction processing.”

The report identified four digital payment focus areas for the corporate treasurers who consume B2B banking services: API-based payments, instant payments, virtual card payments, and mobile payments/digital wallets.

With API-based payments, corporate clients can request payment services from financial institutions in a streamlined and automated way. In a poll of 75 banks, Capgemini found that 65% of bank executives said they accepted transaction requests.

But a Capgemini poll of corporate stakeholders cited by the report revealed that they expected their financial institutions to do more. Sixty percent wanted enhanced treasury and corporate connectivity solutions, and 30% wanted their banks to collaborate with third parties or fintechs for extended service offerings.

For banks, the modernization of payments platforms cannot be delayed without putting customer relationships at risk. In interviews with Capgemini, 68% of bank executives said the biggest threat they faced if they did not execute a payments transformation plan was the loss of existing clients and prospects.

“A significant share of discretionary spend should be on payments platform transformation,” Shirish Wadivkar, global head, correspondent banking products at Standard Chartered, a multinational banking and financial services company headquartered in London told the authors of the Capgemini report. “There are clear benefits of getting our platforms future-ready, even if the return on investment time frames may get elongated in the current economic environment. If we do not invest in becoming future-ready, there may be no impact on near-term revenues; but we will run the risk of not being able to access new, fast-growing, and material revenue pools from payments in the future.”

While modernization is a perpetual challenge, there are signs that COVID-19 is helping overcome internal inertia.

“There’s a huge number of big initiatives here that were done very quickly,” ING’s Buitenhek told Brian Caplen, editor of The Banker, during the Capgemini panel. Among them, he cited contactless solutions that were requested by ING’s supermarket clients. “It is remarkable how fast this actually went. 

“It’s clear that COVID-19 is speeding up the already-planned roadmaps, specifically for digitalization.”