By Ian Johnson, SVP, Managing Director Europe, at Marqeta
The COVID-19 pandemic kick-started a huge shift in consumer behaviour, forever changing how people pay for goods and interact with their bank. According to Capgemini’s World Payments report, 38 percent of people started using a new payment provider during the lockdown.
This led to a surge in contactless payments, with nine-in-ten card transactions now contactless. The UK’s proposed £100 limit for contactless card payments will no doubt be welcomed by many more, offering consumers less friction on larger transactions. And with 84 percent of UK adults owning a smartphone, any increase in the contactless limit will also drive more people towards digital wallets offering more security when making a payment.
For banks, these trends are creating the perfect storm. They need to be able to innovate at pace and launch new payments experiences quickly to keep up with customer expectations. But while many banks already offer digital services, recent research from Marqeta highlighted key challenges, with 85 percent of senior banking executives believe they must overhaul banking infrastructure if they are to deliver the new types of payment experiences made essential by the pandemic.
Payments becoming a technology arms race
In the wake of COVID-19 it has become more important than ever to innovate. Today, this means meeting consumers where they are – the digital world. But banks often face barriers to innovation. In the same research, 84 percent of banking executives said that legacy infrastructure is restricting them, making it almost impossible to innovate. It also makes developing new services more costly, risky and time-consuming – particularly in areas like payments.
As a result, launching new services or even adding new features to existing programmes becomes much harder. Adding a feature that, for example, uses real-time data to offer discounts and loyalty rewards, or a service offering financial management tools and spending controls, can be a very long process. It could take up to three months to add new features to legacy platforms, as can expansion of services into a new territory. By that time, banks could have missed their perfect market moment to launch a new digital wallet or a modern debit card programme. With 94 percent of executives believing that payments have become a “technology arms race,” it is clear that banks, regardless of their digital maturity, need to boost their ability and deliver the payments experiences users are demanding.
Acknowledgment is the first step
Banks are aware of the need to modernise and it is interesting to see them recognise legacy infrastructure as a problem, something they might not have acknowledged too long ago. However, modernisation is no easy task. Today’s banking infrastructure is incredibly complex. The average financial service offering on the market today could consist of up to 2,000 applications and systems. Lately, we have seen more desire from banks to build new payments and banking services from scratch, to start the process of replacing that legacy technology. One method becoming increasingly popular is building their own ‘Greenfield Bank’.
This involves the creation of a fresh-faced digital bank, built on modern core banking and payment platforms – instead of taking on the risk of full migration or hollowing out certain services. These Greenfield Banks typically have the look and feel of a challenger bank or fintech, but ultimately they are underpinned and supported by a multimillion-pound bank. For example, Goldman Sachs’ digital bank, Marcus.
This approach enables banks to develop and launch services to market much faster. Instead of spending time trying to modernise systems picking apart and migrating a complex web of legacy technologies, banks can build their own agile infrastructure from scratch, upon which they can create new payments experiences. This allows banks to keep pace in a payment’s technology arms race and become more agile in responding to changes in consumer behaviour.
Modern platforms have a vital role to play
Banks can clearly see the way people pay has drastically altered following the global pandemic, and they recognise the need to double down on digital to create new payments technologies. To put themselves in the best possible position to seize this opportunity, banks need to embrace more agile systems built for the digital era. This means taking advantage of modern core banking and payment platforms to help quickly launch new payments experiences with extensive control, flexibility, and customisation.
Not only will modern core banking and payment platforms help banks stay ahead of the curve today, but they put banks in the best possible position to innovate moving forward. For the banks who can seize this opportunity and meet the increasing demand for digital services, they have a rare chance to gain a competitive advantage over rivals by offering greater choice and flexibility to customers.