Banks spend hundreds of millions of dollars on upgrading their payments, but often their investments do not pay off.

Frank Media reports that Accenture has interviewed top managers from banks around the world and defined the key problems and solutions for those.

The need to modernize the payment system is more relevant than ever for traditional banks. Over the next decade, a total of 2.7 trillion transactions amounting to USD 48 trillion are expected to be conducted via and alternative payment instruments rather than cash.

In some regions, such as Western Europe, the changes will be gradual as the electronic payments market is largely mature. In other regions, such as Southeast Asia and Latin America, the transition to electronic payments could be more dramatic.

Accenture has surveyed 120 heads of payment departments across banks in Europe, North America, Asia, Brazil and the UAE to assess how prepared banks are for changing the operating environment. The company has also learned the top managers’ opinions on best strategies and approaches to capitalizing on modernization of payments.

The study confirms that many banks have invested in multi-year payment modernization programs. However, the survey has also shown that investments are often driven not by customer needs, but by external requirements - that is, changes in regulation. This approach results in a low return on investment. In-depth interviews with top managers of leading banks show that the best results come when banks view payment modernization as a strategic business initiative.

Most surveyed banks recognize the importance of investing in payments modernization, and 7 out of 10 respondents agree that transformation of payments business is a key element of their broader digital transformation agenda. North American banks pay the most attention to modernization (88% of respondents), while European ones are less interested. Accenture analysts believe this is due to the degree of market development. In Europe, the infrastructure is developed better, so there is less growth potential for payment revenues.

However, only a small number of banks have benefited significantly from their payment modernization programs. Only 13% of those surveyed have reported that their bank has increased income from payments over the past 3 years by more than 6 times compared to the market average. Bankers’ expectations are also pessimistic: in the next 3 years, only 16% of respondents expect their annual revenue growth to exceed market growth by 5%.

The problem is a fragmented approach and mismanagement. Although 51% of banks are modernizing payment technologies, only 35% of all respondents are making changes to their operating model in parallel with technological changes. At that, the investments, which often amount to hundreds of millions or even billions of dollars, do not pay off, and targeted technological changes only exacerbate rather than eliminate the inefficiency and complexity of the payment architecture of the banks.

Accenture suggests dividing the modernization of payments into 4 sections:

Make a plane. An effective payment modernization plan, designed for the entire bank, will drive payment revenue growth. When developing a plan, banks need to not only consider costs and regulatory compliance, but also think about ways to generate income from new services and products. The approach to management is also important: having a team that can develop a strategy for modernizing payments is one of the ways to facilitate communication between employees and achieve goals.

Give enough time. Successful banks have a flexible budgeting approach that ensures adequate funding for the program but does not allow spending to spiral out of control. Banks also look at payback period of up to 10 years to make sure they are making the right bets over the long term.

Coordinate changes in the operating model. Accenture’s survey shows that banks experience problems with corporate governance and the costs of transformation exceed the revenues from its results. Eliminating the flaws in the bank’s operating model is key to increasing the payback period.

Modernize the architecture. Many banks still operate with an architecture that is unsuitable for constant change and interaction. The problem worsens in case of international banks, where each country can develop its own payment architecture and approach. Leaders are striving to rethink their payment architecture and replace outdated systems with more flexible, modern platforms.

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