For banks, change is no longer something they can simply let happen. They need to make it happen.

This marks a significant shift from the past decade, where the demands of complying with major regulatory initiatives – such as the migration to ISO 20022 in combination with support for instant and cross-border payment schemes – prompted action above all else. This is unsurprising, as you really don’t want to mess with regulators and miss imposed deadlines.

But as a defining regulatory era starts to wind down, things stand to be much different. Without the next deadline looming to provide direction, suddenly the road ahead feels more uncertain.

This is a good time for banks to step back, take a hard look at the current state of their payments ecosystem, and ask themselves some honest questions. Have regulatory requirements been addressed as part of a strategic approach to transforming the infrastructure to realise long-term business value and competitive differentiation? Or have they been barely met by short-term fixes, workarounds, gaffer tape and hope?

For most banks, it is likely more the latter than they would care to admit. And this has huge implications as they look towards meeting the demands of the future.  

Are Banks Truly Ready For ISO 20022?

ISO 20022 migration, which has largely dominated the change agenda over recent years, is a perfect illustration. After years of work and investment, banks should now, in theory, boast a modern payments ecosystem capable of high-performance, real-time ISO 20022 processing. Yet the reality is that many still possess fragmented and complex estates that rely on various individual processing engines for different payment types, with an ISO 20022 mapper used around the edges to support low real-time volumes. This means that, despite huge investments, banks may find themselves unprepared as ISO 20022 volumes start to ramp up.

Now comes the big problem – which extends far beyond ISO 20022. Using the regulatory agenda as a pretext for securing more budget to pay down the existing technical debt and patch a solution is no longer the failsafe option it once was. Instead, addressing the challenges now relies on the much harder work of building a compelling and viable business case for change.

Consolidation: Spend Less Money. Make More Money. Don’t Go To Jail

Happily, there is a way to finally break free of the constraints of outdated, legacy infrastructure: consolidation. In fact, any bank in the business of processing payments should now be looking to work towards a single, consolidated infrastructure capable of supporting any payment, anytime, anywhere. 

The business case for consolidation is clear, as it is foundational to the three key pillars of any transformation strategy. Banks spend less money by using standardised and open technologies to realise scale economies and lower the cost per transaction. They make more money as it is far easier to bring new products to market quickly or deliver value-added services. Finally, and with resiliency and compliance in the spotlight amid high-profile outages and geopolitical manoeuvring, they avoid jail through increased performance and transparency.

A Smarter Approach To Consolidation

The key question then becomes how to consolidate. 20 years ago, ‘consolidation’ meant a big bang, a years-long transition programme to a black-box payments hub costing hundreds of millions and leaving banks entirely reliant on a single vendor. Unsurprisingly, all these projects failed at Tier 1 banks. Yet the significant challenges of building entirely in-house have also been laid bare in recent times by well-documented project overruns, never realised benefits and blown budgets.

Today, we are seeing a new approach. To stay in control of their costs, build and risk, banks are increasingly turning to leverage flexible payment development framework solutions that allow them to sustainably move towards a consolidated payments processing infrastructure.

Success here demands a clear strategy outlining why transformation is needed, what ‘good looks like’ in terms of the target state, and finally how to actually get there. Guided by this blueprint, banks can then leverage a feature-rich development framework to reimagine the payments processing value chain – moving away from a horizontal end-to-end approach for single payment types and towards decoupled, vertical, bespoke, service-aligned flows.

This progressive, gradual approach to transformation helps to realise immediate benefits that compound over time as more flows migrate over, while enabling banks to meet the requirements of new payments types, clearing and settlement methods, markets and use-cases as they emerge.

Lead Payments Forward

Looking more broadly, consolidation represents a chance to finally end the cycle of short-termism and reactivity that has for so long inhibited and disincentivised meaningful, strategic change and contributed to huge technical debt. For the first time in decades – perhaps ever – banks have an unmissable opportunity to take control, transform on their own terms and truly lead payments forward. But can they recognise and seize the moment amongst all the noise and hype?

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