Antiquated payment systems face potential lag in the digital era
In the rapidly evolving digital landscape, banks are embracing third-party payment processors and emerging technologies like machine learning (ML) and artificial intelligence (AI) to modernize their payment platforms. This transformation offers substantial benefits, including cost reduction, scalability, enhanced security, faster settlements, and improved customer experience.
Key benefits of modernizing payment platforms include:
Significant cost savings: Modernisation reduces the total cost of ownership (TCO) by 38-52%, with some banks reporting an 82% reduction in processing costs after replacing legacy infrastructure with modern, cloud-native systems.
Increased operational efficiency and scalability: Payment hubs centralize fragmented workflows into a single intelligent platform, lowering errors and manual interventions while scaling capabilities easily on pay-as-you-grow models. AI automates processes such as dynamic routing, liquidity forecasting, and reconciliation to optimize operations and scalability.
Faster time to market and innovation: Modern platforms with modular design and open APIs enable banks to rapidly launch new payment services, helping them meet evolving market and customer demands faster than legacy systems allow.
Improved compliance and risk management: AI-driven fraud detection, real-time monitoring, and built-in compliance tools (like KYC and AML) enhance security and regulatory adherence while minimizing manual effort.
Enhanced customer experience: Real-time payment capability and 24/7 availability, enabled by modern payment rails and emerging technologies, meet customer expectations for instant, transparent transactions.
Strategic agility and reduced legacy baggage: Replacing outdated infrastructure allows banks to reallocate IT resources from maintenance to innovation, improve data quality, and avoid operational risks linked to legacy fragmentation.
The transformation of payment processing can help banks generate revenue, keep consumers happy, and maintain their credentials top of wallet for merchants. Once banks have a central infrastructure for real-time payments, they can use it to offer valuable products and services that differentiate them from competitors.
Real-time and instant payments are seeing significant investment in the UK, Europe, and the US. A bank's ability to process payments 24/7/365 is crucial in maintaining its reputation, particularly in a digital world. Digital-first firms may be better placed to tap into the benefits of AI, while traditional banks may need to work with technology providers. Banks can lighten the load of transforming legacy payment processing platforms by using third parties like card payment processors or real-time payment processors.
Moreover, the legacy technology used by banks often doesn't work optimally for all payment use cases and consumers. Transforming payments processing can help banks adapt to new propositions involving payments, such as gaming, asset classes, and investments, but using legacy systems can be challenging and costly. Banks can use AI to provide a personalized experience to consumers, suggesting relevant offers. AI can also help banks gain a better understanding of their customers' financial health and customer journeys.
In conclusion, leveraging third-party providers and AI/ML technologies to modernize payment platforms transforms payments from a cost center into a strategic business function—delivering faster settlements, greater transparency, improved compliance, and enabling banks to compete effectively in a rapidly evolving digital landscape.
- Banks can generate additional revenue by using a modernized payment platform, as it allows them to offer a variety of valuable products and services that differentiate them from competitors.
- Traditional banks may find it beneficial to collaborate with technology providers to lighten the load of transforming their outdated legacy payment processing systems, while digital-first firms might have an advantage in fully exploiting AI for payment processing.
