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Sizing Up Banks’ Payment Investment Plans

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Think FIs are living in the past? A new report from ACI Worldwide, in conjunction with Ovum, finds banks of all types are deep in the hustle of competition and innovation as payments technologies evolve.

So, how do corporate and transaction banks stack up against their retail banking and billing firm peers? According to ACI, the entire payments sphere is interconnected.

“Payments technologies and platforms bind these participants together in a tight ecosystem,” the firm stated in its report, authored by Ovum Principal Analyst of Financial Services Technology David Bannister.

“Merchants and billing organizations interact with corporate and transaction banks in a different part of the value chain than they do with their own customers and retail banks,” the report continued. “However, each have different and changing priorities, as well as common needs and goals.”

More than half of transaction banks said they anticipate their investment in payment systems to increase over the next 18 to 24 months, analysts found — with just 6 percent anticipating a decrease in that investment area.

Even the 40 percent of banks that said their investment in payments technology is likely to plateau is probably due to these players maintaining an already increased level of spending on this front, according to ACI.

While merchants, billing organizations and retail banks all see payments security as a top priority, ACI found that corporate banks identify this area as a way to get a leg-up on their competitors.

As the number two driver behind investing in payments systems, security was cited by 72 percent of survey respondents, just shy of the 73 percent that cited competitive pressures.

More than three-quarters cited improving infrastructure as their main reason for boosting investment, landing this topic in the top spot, particularly for transaction banks.

“This is perhaps unsurprising,” ACI stated of this conclusion, “given their urgent need to modernize aging legacy systems to operate in an increasingly mobile and real-time payments environment.”

 

Real-Time Payments A Bust?

Across the board, these players understand the role of faster payments initiatives throughout the globe as key to their strategy development. The worldwide adoption of the ISO 20022 payments messaging standard, too, was cited as a major facilitator of upgrades and changes in banks’ payments infrastructure and practices, researchers found.

But, according to the report, less than half of all merchants, retail banks and payment receivers said they believe businesses will benefit from the adoption of faster and, eventually, real-time payments.

That doesn’t mean immediate payments aren’t seen as a catalyst for improved business processes. More than half of transaction banks (58 percent) in particular said immediate payments will benefit businesses.

 

Geographical Insight 

ACI found one region of the world in particular that is likely to take the lead on payments technology investments: Asia.

According to the report, respondents in Asia cited the drivers behind their investments in payments technologies more than their non-Asia counterparts. Security remains the top motivator in this market, with 83 percent citing this area.

That compares with Europe, which saw the most players citing competitive pressures as their top driver to invest in payments technologies.

ACI cited new market entrants, like Alipay, as key facilitators of China’s amplified focus on payments technology investment across banks and merchants of all types.

With the web of payments rails and players becoming ever more interconnected throughout the globe, the relationship between merchants, retail and corporate banks, transaction banks and other financial services players will become more complex, regardless of where that player is located.

“The payments industry has always been an ecosystem in which participants have particular roles and relationships with others,” Bannister wrote. “It is now changing rapidly as existing participants continue to invest in technology and adjust to new roles, while new entrants, particularly from the FinTech world, continue to create new business models and threaten to displace incumbents.”

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Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 edition of the FI Innovation Readiness Playbook examines how the innovation playing field is leveling as small FIs implement bolder strategies and larger banks adopt more measured approaches.

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