Due to regulatory reform, banks have witnessed an influx of new fintech challengers – looking to compete with them on delivering payments and FX services.
However, by taking advantage of the latest technologies available from third-party software providers, banks can effectively stave off newcomers and retain market share, according to Dhavarajh Frank, general manager – banking and financial services at Eurobase, a leading banking software provider.
“Payments have been one of the most active areas within global banking over the past decade for retail and corporate customers alike,” says Frank. “However, payment rails and charging mechanisms have been disrupted by newcomers, forcing banks to develop their services provision around payments and, at the same time, offer additional value for their customers.”
Changing customer needs
Over the past decade, both retail and corporate customers have become much more discerning in their choice of payment service providers and are looking for services that are low-cost, easy-to-use and available at the point of need.
To accommodate them, banks have sought to drive digital innovations into their payment services, firstly for retail customers, and then for corporates by offering increased security around access and enhancing safety by checking into the identity of beneficiaries of payments.
However, constraints on the capabilities and capacity of banks’ existing legacy infrastructures have proved a major obstacle to achieving fully modernised, digital payment services.
Many banks, for example, have tried to manage the need for more real-time payments data by integrating additional systems and databases to their existing infrastructures, but this approach has fallen short of expectations.
“This is why the greenfield approach taken by the challenger banks has benefited these newcomers,” says Frank. “The greatest challenge for traditional banks is the migration from legacy systems to new technology and infrastructure as these projects can be complex and failures are not uncommon, resulting in outages and reputational damage.”
He points out that banks must respond to the challenges presented by new payment services providers or risk losing valuable payments and FX business.
“New services providers, disruptors and open banking is challenging traditional banks as their payment services, like FX conversion services, can be provided at low-cost at the point of need. Banks that do not meet that challenge will see customers move business elsewhere,” warns Frank, noting that new players such as Wise and Revolut, which started out with low-cost, easy-to-access FX services, have already made successful inroads into payments.
“The demand for these services is huge and customers have appreciated the apparent cost savings achieved on traditional bank charges,” he says.
Reinventing the wheel while its moving
To safeguard their payments business, banks must pursue two main objectives: replace their existing legacy systems and improve the payment services and functionality they offer to retail and corporate customers. In this way, banks can ensure that their provision of payment services remains intact.
Some banks have tried to solve this problem by acquiring a fintech challenger. Others have sought to build their own technology from scratch – although this has been shown to carry risks.
However, one of the best options for banks is to find new partners, both in terms of technology and services, which they can work with to create a more loosely defined infrastructure for payment services. This in turn, will help them to become more agile in the payments sphere, according to Frank.
“Banks like JP Morgan are a standard bearer here and commit huge sums to tech investment annually,” says Frank.
“The key is to target a more agile tech stack both in terms of infrastructure – that is in terms of cloud adoption, enhanced security, devices and networks, as well as applications – whether it is delivered as a Software-as-a-Service (SaaS) or a white-labelled service.”
Here, he points out that banks must change the technology they rely on incrementally and that each new step taken must add to the future agility of the infrastructure. In this way they can remove risks to themselves, while also providing value to their customers.
“Banks should identify the issues their customers face in payments and solve these for them in low-risk ways by partnering with third-party solution providers and using ready purpose-built services,” says Frank.
“Challengers and fintechs embody cultures that do not exist in traditional banks and are, therefore, able to deliver technological change quickly and easily. They do not have the legacy issues nor an existing customer base to protect.
“Big traditional banks have to somehow find a way of changing the wheel whilst it is moving, especially if they want to develop in-house solutions. The big problem is that legacy systems were never designed for change whilst fintechs have ensured they are ready for change at all times.”
Choosing the right partner
Eurobase is an international financial software and services supplier, which can resolve many of these issues by offering banks a low risk proven technology, which is already being used by multiple banks worldwide.
The company’s Siena solution can be easily integrated with banks’ existing infrastructure, including existing risk controls such as AML controls, enabling reduced time to market. Once in use, it reduces bank overheads with improved Straight-Through-Processing (STP) while eliminating the need to rekey data.
In the international payments sphere, it brings banks huge benefits by enabling them to offer corporate clients competitive pricing, while protecting their own FX revenues, which can be hedged with real-time cover. It also accommodates multiple payment types and different languages.
Corporate customers, meanwhile, also experience multiple benefits including the ability to make payments from any location via standardised messaging such as SWIFT or local clearing houses. They are provided with greater control over their own payments data and receive alerts of expected payment settlements before they are due.
Corporates also experience working with a bank that has a better understanding of their behaviour and needs, due to client profiling, as well as a seamless service for integrated and bulk payments, news and charts.
The solution also comes with multi-factor security and full audit trails and brings the added confidence of compliance with Payment Services Directive II (PSD2) requirements.
“International payments are complex because of the need to cross boundaries which can make such payments costly to process and create risks for both the bank and its customers,” says Frank.
“Eurobase solves this by providing easy-to-use functionality that banks can control and offers the added benefit of retaining valuable FX revenue, and therefore maximising customer profitability.”
Credit: Source link
