As senior executives in financial institutions (FIs), it is crucial to recognize the significance of strategic investments in payment technologies in order to maintain competitiveness, drive profitable revenue growth and improve customer retention. To address the pressing needs of the FI’s payments strategy, we have identified five key technology investment priorities:
Artificial Intelligence (AI) and Machine Learning (ML)
Investing in AI and ML technologies empowers FIs to detect and prevent fraud, identify and mitigate suspect payment transactions in real time. According to a report by McKinsey & Company, AI and ML can help reduce fraud losses by up to 20%[^1^]. By applying AI-powered algorithms, FIs can create more tailored, focused and accurate customer experiences. This includes personalized payment recommendations and risk assessment. ML models can also enhance fraud detection and prevention while optimizing the payment process for both the FI and the customer.
Open Banking & Application Programming Interfaces (APIs)
FIs should embrace open banking initiatives, meet regulatory requirements and establish standardized and secure APIs to enable seamless integration with trusted third-party providers. This integration enhances customers’ ability to access new payment services and financial management tools. Research conducted by Capgemini shows that embracing open APIs can result in a 20% increase in customer satisfaction and a 15% increase in revenue growth[^2^]. Collaborating with fintech start-ups and established payment providers can further expand the FI’s value and capabilities for customers.
Shifting from legacy on-premise infrastructure to cloud infrastructure is essential for FIs to improve scalability, agility and reduce payment processing costs. According to a study by Deloitte, cloud adoption in financial services can result in cost savings of up to 30%[^3^]. FIs must prioritize robust security measures and regulatory compliance when implementing cloud solutions to address evolving data privacy concerns. Leveraging cloud capabilities enables real-time payment processing and data analytics, facilitating the adoption of advanced payment services.
Connected Devices and Internet of Things (IoT)
FIs should embrace payment technologies compatible with connected devices to offer secure and convenient transaction mediums for customers. Establishing partnerships and integrations with IoT device manufacturers and their ecosystem partners can facilitate the integration of payment capabilities within devices. Research and development efforts should focus on IoT contactless payments for cars, smart homes and wearable devices. Prototyping and validation are crucial steps in this pursuit.
Distributed Ledger Technology (DLT) and Blockchain
DLT and blockchain have the potential to revolutionize cross-border payments, ensuring security, transparency and efficiency by reducing intermediaries, settlement time and costs. Collaboration and participation with industry groups to drive standardization and interoperability are vital. According to a report by Accenture, adopting blockchain-based payment systems can reduce infrastructure costs by 30%[^4^]. FIs should consider developing in-house solutions or partnering with providers to enable tokenized assets, smart contracts and decentralized finance applications within the payments ecosystem.
To effectively prioritize technology investments, FIs must evaluate their own business priorities, competitive market conditions, regulatory changes and customer needs. Implementation and monitoring of emerging payment technologies should consider evolving regulatory requirements and implications while aligning with industry trends. This holistic approach will guide the investment strategy and facilitate necessary adjustments over time.
About the Author:
Kevin Ashworth is a Delivery Executive with 25+ years of leadership experience in software development and consulting firms from start-up to enterprise scale. His passion is helping guide clients and colleagues to the right business solutions to grow revenue, reduce costs and minimize compliance risks. Kevin’s experience in financial services spans payments, lending, retail & commercial banking and fraud risk management.
[^1^] McKinsey & Company, “Fraud detection and prevention in a digital world” (2018)
[^2^] Capgemini, “Open APIs: A peek into the future of banking” (2017)
[^3^] Deloitte, “Cloud adoption in financial services” (2019)
[^4^] Accenture, “Driving Unprecedented Efficiency in Global Payments
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