Three focus areas for European banks when transforming payments processing

With 2023 emerging as the year of choice for banks when it comes to adopting new strategies and technologies to take control of their payments processing capabilities, many now find themselves at a crucial inflection point. By bringing together leaders from across the European banking and payments industry, EBAday provides a unique forum to explore emerging challenges and opportunities. In this blog, Liam Jeffs, Sales Director at Icon, identifies the key trends that are defining payments in Europe and beyond.

1. Instant payments are now increasingly front and centre

Momentum for instant payments adoption continues to build throughout Europe as regulation, industry initiatives and changing consumer attitudes dovetail to drive scale and volumes, forcing banks to finally start much-delayed payments transformation programmes.

For example, the regulation proposed in October 2022 will make SEPA instant payments available to all citizens with a bank account in the EU/EEA and at a cost no higher than traditional SEPA credit transfers. Additionally, price equivalence and mandating a ‘no-added cost’ option for payments initiated as ‘bulk’, will drive migration from traditional Single Credit Transfers (SCT). Similarly, the rejuvenated European Payment Initiative (EPI) marks a renewed effort to bring instant payments to in-store purchases, alongside increased interest in Request to Pay (RtP) solutions.

This means that banks will be supporting a higher volume of real-time transactions than they’ve ever managed before, applying significant pressure to their infrastructure.

For those that have not yet invested in SEPA Instant, the urgency and need for a solution is clear. But many with existing instant solutions will find them unable to cope with the projected volume, meaning a new approach is required (and not the application of sticking plasters to legacy infrastructures). Often this is coupled with a need to migrate legacy SCT / SDD applications to more modern, low-cost solutions.

By investing in the right architecture and payments technology that can support agility and flexibility, banks are in a stronger position to create value-added services via instant payments that deliver a wide range of benefits – from an improved customer experience to having extremely cost-effective payments processes in place.

2. ISO 20022 migration remains a key piece in the overall payments puzzle

We recently noted how banks are using the global deployment of ISO 20022 to consolidate the processing of payments into a single order management layer and routing to the relevant execution engine – such as instant or bulk payments, for example.

But as adoption builds, it’s imperative to avoid the very-same market fragmentation that ISO 20022 intends to resolve. By taking a more agnostic approach that ensures their payments processing infrastructure is agile and flexible enough to process all the ISO 20022 ‘dialects’, banks can fully realise increased efficiency, improved interoperability, and the business-value that richer payments data can create.

3. Banks are looking to double-down on innovation

Finding points of difference in a saturated market will always be a conundrum for the top-tier financial leaders, and there is a clear push for innovation across banking operations to unlock customer value.

For example, many European banks are identifying a growing need to increase the capability and flexibility of their order management systems. In doing so, they can provide a greater level of client customisation and personalisation, as dedicated settings can be integrated into the payment value chain. And for banks themselves, an intuitive order management system also helps free up resources, enabling workforces to focus on initiatives that deliver tangible added value.

More broadly, this push for innovation is driving a technological ‘arms-race’ as banks look to harness the potential of emerging solutions and fast track deployments. While technologies such as AI can create competitive advantage for first movers, they also promise new regulatory considerations. Those who can anticipate and get out ahead of compliance requirements stand to benefit.

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Given the pace, breadth and scale of innovation and change across the industry, the time is now for financial leaders to make swift and informed decisions about their future banking systems.

This requires banks to carefully consider their place within the broader value chain. To retain control amid a landscape of increasing costs and tightening margins, banks must have a clear understanding of their strategic priorities and current capabilities in order to focus efforts and resources accordingly. Indeed, the various discussions on the commercial implications of outsourcing models such as Payments Processing as a Business (PPaaB) demonstrate a growing recognition of the need to run payments as a business instead of a cost centre.

More broadly, an approach to transformation that combines technology solutions, strategy and services will enable banks to simplify their payments processing capabilities so they can provide seamless customer user experiences, reduce costs and realise true competitive advantage.

For more information about how Icon can help transform your payments infrastructure, book a call today by filling in this short form or emailing info@iconsolutions.com