Shaping the future of payments: Navigating the evolving landscape

As the industry undergoes rapid transformation, financial institutions must modernise their systems, embrace open ecosystems, and prepare for emerging technologies to remain thrive, according to experts.

Gone are the days of slow, siloed processes. This evolution is fuelled by the increasing speed and volume of data, the adoption of new standards, and the rise of powerful technologies like generative AI and cloud computing. Financial institutions must prioritise customer-centricity, embrace open ecosystems, and unlock the power of data and innovation to stay ahead of the curve.

This urgency for transformation was the central theme explored by Cognizant and Google Cloud at a recent roundtable hosted by CIONet. The event brought together payments experts from leading financial services institutions to delve into these critical topics.

Speed and security

The world of payments is undergoing a revolution. Customers now expect near-instantaneous transactions, and a new breed of FinTech companies are disrupting the traditional landscape with open ecosystems and agile technologies. While this presents exciting opportunities, established financial institutions face a challenge: how to modernise their core systems and processes to keep pace with this rapid transformation.

This requires overcoming the hurdles of siloed processes and outdated infrastructure that plague many legacy systems. Modern payment platforms that streamline processes and deliver real-time experiences are essential.

One crucial step is embracing the cloud. The industry is rapidly transitioning towards cloud-based platforms and API-driven solutions, with many regions embracing real-time payments.

This cloud-based agility also facilitates the adoption of new standards like ISO 20022, which is crucial for smooth and fast transactions. The discussion also highlighted how standardisation is essential. ISO 20022 is emerging as the common language for the payments industry, enabling seamless communication. While adoption is rapid, challenges remain. Some view ISO 20022 as overly complex for domestic transactions, and countries are adopting it at different paces. Additionally, variations in the standard and incomplete implementations can lead to data issues.

It's clear the future lies in complete adoption of ISO 20022 and real-time payments. Banks are building modern payment hubs with end-to-end monitoring powered by AI and automation.

Looking ahead: Key trends shaping the future

During the discussion, we considered the key trends that are driving this rapid transformation:

1. Data Surge and Standardisation: Industry initiatives for faster payments and the adoption of ISO 20022 are leading to a significant increase in data volume and speed within the system. This emphasis on standardisation ensures smooth communication between all players. Banks, recognising this potential, are developing clear use cases to leverage this data richness. For example, they aim to streamline internal processes for faster loan approvals and fraud detection, while also creating personalised financial products based on customer spending habits.
2. AI and Cloud Powering Innovation: Generative AI and cloud technology are now central to payment companies' strategies, enabling faster processing, better security, and the development of innovative payment solutions.
3. Customer-Centricity Takes Centre Stage: Customer-centricity is becoming the gold standard. Experts during the event discussed the key to success lies in embedded finance and achieving what we might call "invisible payments". The goal is to create seamless, frictionless payment experiences that build trust and confidence. Successful payments should be invisible to the user, happening efficiently and securely behind the scenes.

This shift requires building future-proof infrastructures. This involves leveraging APIs for greater agility and efficiency, proactively engaging with regulators to navigate the evolving regulatory landscape and fostering partnerships and open collaboration to drive innovation and create value from technology.

Experts agree that payment providers must modernise and simplify their processes to keep pace. The focus should shift from simply processing transactions to offering value-added services and experimenting with new forms of value creation. By embracing these trends and prioritising customer experience, payment companies can ensure a secure and efficient future for financial transactions.

Value generation through collaboration and innovation

The industry is poised for significant advancements by leveraging payment data insights and collaborative partnerships. From harnessing ISO 20022 purpose codes to driving personalised offers and tackling the complexities of cross-border transactions using blockchain-powered solutions, the potential for innovation is vast.

The spotlight will be on emerging trends such as programmable payments and their potential to revolutionise financial transactions. As the payments landscape evolves, financial institutions must adapt their strategies, including preparing for the rise of new stores of value such as cryptocurrencies, central bank digital currencies (CBDCs), and non-fungible tokens (NFTs).

Horizon scanning

The future of payments is evolving beyond transactions, and financial institutions must embrace a multifaceted approach to innovation that pairs efficiency and customer experience. Financial institutions can forge a path that ensures their relevance in the changing payments landscape by establishing strong foundational capabilities.