Two-thirds of banks believe their payments infrastructure will need significant upgrade in the next three years, while almost three-quarters of APAC banks fully expect to replace or renew their payments systems in the same timeframe according to a new report produced by Ovum, a market-leading research and consulting firm. The report “Making the Business Case for Payments – Lessons from the field”, released by Temenos (SIX: TEMN), the banking software company, highlights that banks that delay or defer the required investments risk falling behind the rest of the market.
David Bannister, Principal Analyst, Ovum said: “We see a step change: Payments are no longer confined to the back-office domain and are now considered a central part of a bank’s digital strategy and a differentiator due to close customer proximity. To meet the growing challenges, banks must avoid a quick fix to regulatory issues and instead must think long term and build holistic, flexible investment cases that address a range of business priorities. Making a case for investment in modernized payments systems to address the challenges of the real-time Open Banking involves answering more complex questions.”
The Ovum report Making the Business Case for Payments is based on in depth interviews and surveys with experienced payments leaders. Among the report’s highlights:
· Banks must build holistic, flexible investment cases that address a range of business priorities. while allowing them to pivot to any swift changes in their environment.
· Customer impact is now key to a modern payments transformation investment case. Banks are recognizing the need to improve customer service, and the essential role that new payment services can play here – almost 90% of bank executives interviewed say that it is more challenging to win and retain new client business than it was a year ago.
· Building real-time capabilities and adaptability for future innovation is becoming increasingly important. New architectures need to leverage APIs and micro-services to deliver a foundation for future product and service innovation.
Leigh Mahoney, Head of Wholesale Digital at ANZ, highlights in the report: “Delivering payments capability as a series of services will provide new channel opportunities and help power open banking and wholesale initiatives. Micro-services will allow the creation of new ‘curated’ services and have the potential to create new products currently not in existence.”
Shrey Rastogi, Payments Strategist at Temenos, said: “This report echoes what we are hearing from our Payment Hub and Instant Payment clients; the customer is king. Digital is the new norm, and capabilities such as open APIs and instant payments – in under 5 seconds – are no longer differentiators, they are now expected. A truly real-time payments hub, beyond just real-time processing, means that banks can support this customer requirement now. However, the payments market will evolve further, and banks need an infrastructure to adapt accordingly. One that gives them the control needed to ensure maximum efficiency. But before selecting the right infrastructure, a compelling business case must be defined.
To support banks, Temenos has developed an ROI model for payment transformation. The model provides a holistic framework to capture and quantify all the benefits arising from transforming their payment landscape while factoring in software, implementation and maintenance costs.”
The model uses the discounted cash flow (DCF) technique to calculate financial impact (expected ROI, NPV and payback period) over the chosen time-period across three mutually exclusive benefit dimensions, namely:
1. Payment system modernization benefits
2. Operating model benefits and revenue uplifts
3. Customer experience and service improvements
According to the Ovum report, the Temenos ROI Model for Payment Transformation aligns to the challenges highlighted in the report. It is based on Temenos’ experience of working with banks internationally, and looks to increase speed of decision making at banks by providing them with a flexible approach to build and test their payment transformation business cases while tailoring to their specific requirements and future ambitions. What stood out for us was that the model can help different stakeholder groups to quickly visualize and articulate their transformation journey.