How payments transformation can help Tier 1 banks to scale

13 December 2022

It’s no secret that the account-to-account payments processing model remains under strain. Despite payment services being ‘mission critical’, many Tier 1 banks continue to see these payment operations as a ‘cost centre’. In fact, 85% of Tier 1 banks view payments processing this way, according to our Celent-commissioned research.

Not only do Tier 1 banks see payments operations as a drain, but they are also hesitant to invest in processing infrastructure: 88% of Tier 1 banks indicate they would only invest in their payment processing infrastructure when they needed to meet compliance requirements or to ensure business continuity. Instead, for these financial institutions, focus remains firmly on security, resilience and operational efficiency before anything else.

And the truth is, when banks are continuously seeing margins squeezed from all angles – making current approaches to their payment processing requirements increasing unsustainable – it’s no surprise that their priorities lie with cost control to begin with. But a clear view on actual costs is sometimes more ‘art’ than ‘science’.

However, for those able to evolve their payment operations – via specialist partners and agile paytech solutions – their scalability ambitions are becoming a reality to run Payments as a Business. This can also be said for 93% of banks who told us that outsourcing their processing services to other organisations is a growing area of their business, but they struggle to make the business case.

By structurally reviewing and fine-tuning their payment strategy, financial institutions have reported high levels of customer satisfaction because they were able to do things swiftly and in a more streamlined way. They’ve been able to free up capacity to pursue other strategic priorities as a result, and their efficiency has improved, costs have been lowered and manually intensive tasks have been reduced exponentially. Plus, it’s opening the door for banks to offer even more value-added services – such as Payments-as-a-Service offerings to other banks – to further bolster their quest for scalability. And, according to our research, 22% of Tier 2 and 3 banks in Europe would also consider consuming payment processing services from another bank.

These are the types of benefits that could provide the catalyst for a much-needed cultural shift throughout banking – which is an industry that has, for decades, been typically hardwired to handle its own payments internally via inefficient, on-premise systems that cost time and money to maintain. Modern-day banks have the opportunity to approach their payment processing in a new and different way. But will they embrace it? And, as an example, will we eventually see that offering payment services is a natural evolution of correspondent/agency banking?

Leveraging partner expertise and freeing up resources for service innovation present new commercial opportunities throughout the entire value chain. And while some banks may be hesitant about transforming their payments services – particularly during huge economic flux – if evolving processes ultimately adds value, what’s to lose for forward-thinking Tier 1 banks who want to continue their growth trajectory?

If you want to enhance your payments processing capabilities, get in touch with our friendly team at Icon Solutions. With our market-leading IPF payments platform and on-hand expertise, we’ve helped some of the world’s leading banks – including BNP Paribas, HSBC and Lloyds Banking Group – to modernise their payment environments and drive revenue. Book a call with us today to find out more.

Anand Vaidya