Insight & Analysis

Banks’ payments infrastructure in spotlight as non-cash transactions explode

Published: Jun 2019

Fast evolving payments landscape is creating new, ever more urgent challenges for banks’ ageing payments infrastructure.

As non-cash transactions continue to grow globally, so are the challenges multiplying for banks as they look to keep up with the fast evolving, increasingly complex payments landscape and manage competing priorities in the space.

Indeed, Mikko Rieger, SVP Consumer Management Services at Nets, the payments processor, says banks everywhere are “struggling” to fully address the challenges presented by the explosion in non-cash transactioning and associated, proliferating payments schemes and technologies.

According to CapGemini’s World Payments Report 2018, global non-cash transactions grew at 10.1% to reach 482.6bn during 2015-2016. The report estimates that global non-cash transaction volumes will record a CAGR of 12.7% during 2016–2021. Over that period, developing markets alone are expected to boost the global growth rate of non-cash transaction volumes with a sustained CAGR of 21.6%, while mature markets are expected to grow by a modest 6.7%. Europe, including the Eurozone, is expected to witness a stable growth of 6.5% over the next five years.

Rieger says that against this backdrop, regular credit and debit card payments are proving not as profitable as they once were for banks. Issuers are therefore seeking growth through new revenue streams. Strategies include the issuing of store credit cards, which are proving popular due to the value-added services that retailers can offer consumers: “Loyalty schemes, instalment payback schemes and the ability to pay with new, diverse form factors including mobile devices and wearables are all part of this growing universe.”

At the same time, however, regulation of financial services is becoming more stringent, particularly in Europe, where the Second Payments Services Directive (PSD2) and, in particular, the associated ‘Access to Accounts’ (X2A) mandate, will be enforced from September 2019.

Pain points

“No sooner have banks got to grips with their mobile offering than consumer IoT payment devices are hitting the market. And, thanks to open banking, all of this is taking place in a more globalised and competitive market than ever before. This complexity is creating pain points for banks and their corporate retail customers,” says Rieger.

He adds: “If payment-enabled connected devices like wearables aren’t supported in the issuer’s back-end, the emergence of automated IoT payments systems may well render their retailer offering obsolete. And, if tokenisation isn’t used to secure transactions initiated from mobile devices, then an increasing amount of payment and account data will not be adequately protected. This is especially important – as card fraud losses continue to rise, corporate treasurers will need assurances that issuers can be trusted with their customers’ data.”

While virtual cards and the existing card infrastructure enable all of these services, legacy systems are holding issuers back from responding to changing market conditions fast enough, says Rieger. He points to a 2018 survey by Ovum which found that nearly two-thirds of banks believe their payments infrastructure will need a significant upgrade in the next three years as the back-office domain becomes a key part of their digital strategy.

“That is a massive undertaking, and issuers are understandably wrestling with how to best approach it,” says Rieger. “To streamline the process, and ensure that they achieve a solution that enables them to effectively target corporate treasury customers when developing their payments infrastructure strategy, banks need to address some fundamental questions first. For example, is outsourcing right for the bank or should it keep infrastructure development in-house? If outsourced, should it go with a software-only or full-service provider? How best to decide which provider? The sooner they grapple with such questions the better as time is not really on their side.”

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