Payment Modernization is How Your Digital Transformation Starts

May 25, 2023

two people discussing bank partnerships

It’s hard to believe, but some of the world’s most sophisticated companies still haven’t modernized their payment systems. Without doing so, they can’t focus on their end users, or continuously protect and grow revenue streams. Payment modernization is essential for companies not just to thrive in the 21st century, but to survive. The accepted truths about modernizing payment is that it might not MAKE you money, but not doing it will surely LOSE you money. And for many companies, though they might not GAIN customers, they will surely LOSE them.

Payment modernization encompasses the whole of the financial services ecosystem: banks, fintechs, governments, corporations, merchants, and customers. Any time anything is bought, sold, and paid for. Anytime monies need to travel, to individuals, companies, or governments, domestically or cross border. If systems of payment aren’t modernized and digitized, if data is not collected and analyzed, if insights aren’t achieved, if backroom labor is not made easier, if populations remain underserved, the entire ecosystem collapses.

Remember digital transformation? Remember how hard it was/is for companies to make that leap, to even understand what it meant. It was all encompassing, difficult to describe and no one knew how to begin something they didn’t understand. Worse, it was started haphazardly, not integrated, and there was a lot of software sold that should never have been bought and forget about compliance.

And all along, the one area of business that needed this transformation the most was in payment, and it was the one area people understood best, and where all efforts at digital transformation should have begun. The time is now.

Payment modernization is the first place it should start, and it all starts here:

  1. Upgrade payment systems. Replace outdated payment systems with a more advanced one.
  2. Implement new payment technologies. Contactless payment, mobile payment, digital wallets, blockchain, distributed ledger tech. They’re all in the mix.
  3. Standardize payment formats. Improve efficiencies and reduce errors.
  4. Enhance fraud protection and security. Multi-factor authentication, biometric authentication, tokenization are all in the mix.
  5. Improve payment data. Implement better data management practices.
  6. Enhance cross border payment. Make them faster, more secure, more transparent.

Simple? Ahhh.,no. But at least it’s focused because it involves something businesses and governments understand and care deeply about: money.

For the foreseeable future, we are in a world of tighter money. Efficiencies must increase with the goal of increased productivity, larger margins, greater reach, and increased profitability. Solutions are evolving and being created as you read this, with the still untapped possibilities of AI looming large. This might be the first time in memory that the exuberance is not irrational. But payment modernization must also promise security. Modern payment procedures must inspire trust. Increased security of payment is where the technology shines. Modern payment systems can offer enhanced security that can help protect against fraud and cyber-attacks. This constant advancement in security technology reduces the risk of financial losses for businesses and customers. Can any modern business afford to be without that?

Innovation drives innovation.

Payment modernization can also drive innovation in the financial sector. This can lead to the development of new products, based on better customer insight, and elevating the CFO to a position that isn’t just being ON the business, but IN the business.

We are rapidly heading to a cash free society. We know that on the street as even Valets are accepting credit card, Zelle and Venmo payment. Payment wants to be in real-time. Businesses want to get paid as fast as they bill.

Cloud computing is an entirely different approach to managing payment, providing more flexibility, efficiency and scalability while potentially also providing equal levels of resiliency. The use of cloud technology to run payment will no longer be the exception. It’s a practical solution, and practical solutions have a tendency to become the rule.

Not the first time you’ve heard about real-time.

Real-time payment is central in payment modernization. Policymakers recognize them as being integral to driving innovation and growth. Those developing real-time payment systems should consider these five points:

  • Everyone must be able to connect to the infrastructure.
  • Payment systems must enable more market players to participate.
  • Cross-border interoperability should be a key consideration.
  • While real-time payment is growing, traditional bulk/batch payment will continue to play a significant complementary role.
  • Banks can improve offerings for business customers.

You know the why. What’s the how?

Payment modernization is essential to every aspect of business and finance today. And because the journey to get there is difficult, intelligent strategies are needed to commence the journey. Determining the best path forward starts with an analysis of the terrain.

Consider how your financial institution can incorporate real-time services into your payment strategy and understand your customer journey in the value chain. Modern companies understand that “data is dollars,’ and they seek systems that can move money and information simultaneously. The end goal for legacy companies is to be as agile as the fintechs and it’s not a bad idea to partner with one to lead the way to payment modernization.

Let’s expand on these ideas beyond the focus of real time payment. To understand how to start the journey to payment modernization, it all starts with….

The Customer Journey – Customer journeys are never two or three or one hundred the same. Even if they are in the same verticals, they might not have the same needs. By mapping your customer’s journey, your finance organizations can determine how to best digitize the value chain and plan on the future via on predictive behaviors. Current and emerging technologies can engage customers upstream and downstream from point of payment and begin to leverage all related data. Then, using capabilities such as artificial intelligence and machine learning, a financial institution can help interpret the data to make intelligent decisions. Now CFO’s can help lead the company, not just manage payment.

Turn Data into Information – ISO 20022 should have led financial institutions to adopt better technology, however, it was mostly treated as a compliance requirement with all the requisite resentments that leads to. But what it is, is a radical evolution of the payment’s environment. Financial institutions who understood that ISO 20022 was only part of the framework have created information-centric financial ecosystems that rapidly adapt to customer demands, seamlessly interacting with their devices and understanding every interaction necessary for them to complete their business.

Implementing New Systems – “In the time of tight money, you want me to spend more on more software systems?” Here’s where the world stands now: You are no longer faced with either the decision to implement standardized, large-scale, cost-effective platforms or highly customized but costly solutions. We are now in the age where you can have your technological cake and eat it too. Financial institutions can have both standardization and customization. Nonlinear scaling, cost-effective configuration, microservices and cloud computing provide the means and agility to deliver customized – and affordable – solutions.

The Long and Winding Road to Value – Technology doesn’t rest; customer’s demands and expectations are always a moving target. Taking a short-term approach to payment modernization, including upgrading systems simply to comply with a new standard messaging format or changing regulations, will lead to missed opportunities. The thinking, to last into the next decade, has to be more holistic than that. So, ask yourself, “Is the underlying technology robust and flexible to adapt to the changing customer and regulatory needs?” Know that obsolescence in this category isn’t planned, it’s an ambush. Always ask that the tech enable your organization to gather and use data to create more value for customers.

The Power of One – To meet regulatory needs of today and tomorrow, invest a in a single, robust, and secure platform that is responsive to change. A robust platform will allow financial institutions to leverage payment-rich information leading to customization of products and services.

This area is changing at mindboggling speed. Cash is no longer king. Data is. And the world is evolving, lurching into both a known and unknown future. The speedy and secure moving of monies, and all the business building, customer serving information those movements bring with it, demand a reboot and rethink on payment modernization. But the time to act is now.

Howard Davidson is the CMO at AlmondFinTech

Almond FinTech is a B2B technology company making financial services affordable and accessible to people around the world, regardless of income. Through our multi- blockchain cross-border transfer protocol, we remove financial barriers and deliver transfer and credit scoring tools that empower everyone, everywhere.