Digital payments are in high demand as the pandemic pushes consumers away from cash. To accommodate the increase in digital payments, many FIs are turning to the cloud.
Legacy systems are a drag — literally. About 55% of legacy financial institutions (FIs) say their core systems lack maturity. What’s more, an average of 15% of an FI’s annual operating costs can be attributed to maintaining core banking systems that are outmoded. These expensive technology upgrades may soon be replaced via migration to the cloud and other emerging technologies.
The COVID-19 pandemic has illustrated the need for FIs to invest in faster banking tools and enhanced digital payment options. As a result, we are seeing an increasing number of partnerships with banks and third-party cloud technology providers with the end goal of enhancing online platforms. As FIs shift away from a reliance on outdated infrastructure and toward a flexible, agile, more cost-effective cloud, they will enjoy a greater ability to keep up with competitors and support the evolving digital payments that customers have come to expect.
Many FIs currently have complex and monolithic technology stacks that are slow, inefficient, and hard to change. This, at a time where neobanks and other new players flood an increasingly competitive market, makes for a major pain point.
Legacy systems inhibit performance in several ways that FIs simply can’t afford as customer preferences and behaviors become increasingly sophisticated. McKinsey highlights four key areas where FIs are suffering due to monolithic core systems:
Cost.Technical debt attached to legacy systems is responsible for a large portion of IT spend. This is a major problem in an industry where return on equity (ROE) is already low and where the investments in these systems do not yield the efficiencies necessary to keep up with the times.
Time to market. In the highly competitive banking and payments ecosystem, launching products quickly is essential to stand out and survive. Unfortunately, monolithic core systems with complex interdependencies that require subject matter experts to make manual changes only inhibit time to market.
Personalization. In 2020, customers demand personalization; however, many FIs are operating on core systems that are divided by product. This makes it a time- and resource-intensive endeavor to combine data to personalize the customer experience.
Ecosystems. With the introduction of PSD2 and the drive toward open banking, FIs and fintechs are relying on partnerships to future-proof product and service offerings. Complex, static architectures that are not built for connectivity inhibit third-party partnerships — and innovation.
As the pandemic drives people online in droves, many organizations are finding out the limitations and vulnerabilities of their systems in real-time. The cloud changes the game by freeing up FIs from the burdens of managing IT infrastructure and instead allowing them to focus on core competencies, including the creation and delivery of customer-centric, high-quality payments products and services. A single, PCI- compliant, cloud-based payment system directly and positively impacts the customer experience by seamlessly enabling easy to use interfaces and reducing human error.
Cloud is inherently scalable and flexible, enabling greater real-time insights and the ability to leverage economies of scale. In short, it boosts efficiency, saves time, and reduces costs. Cloud enables FIs to process higher transaction volumes while quickly approving and posting payments and transactions. It facilitates faster payments and also provides FIs with the bandwidth to quickly and accurately test innovative new products. The result is a more responsive and proactive FI that can seamlessly cater to customers’ needs in real-time.
Ecommerce continues on a trajectory of tremendous growth, with reports showing a 129% year-over-year (YoY) growth in ecommerce orders in the US and Canada as of April 21. There has also been a 146% increase in total online retail orders. Payments are adapting and many are turning to the cloud to build and host applications quickly to accommodate the increased demand.
The result is the ability to provide customers with more payment methods, including mobile apps, QR codes, and mobile wallets. These payments can be seamlessly facilitated by integrating EFTPOS (electronic funds transfer at point of sale) systems to other services through the cloud. This delivers ease of use, convenience, and security to consumers who are also navigating the new, pandemic-driven payments landscape.
The cloud enables accessibility, which is key as more people operate remotely. The ability to manage operations across the globe and access data and the network will improve payments operations and security.
Digital payments are here to stay and will only increase in popularity with time. Leveraging the cloud to facilitate faster, more convenient, and more secure digital payments will be a core strategy for forward-looking FIs who understand the importance of quickly adapting to evolving customer expectations.