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From government initiatives to the global pandemic, the demands for modernization have accelerated rapidly in 2021. Financial institutions (FIs) around the world are faced with the challenge of quickly meeting these immediate demands while also preparing for the future. There are pressing questions for FIs to answer surrounding payments modernization – for both high- and low-value payments.
Why should FIs want to modernize?
At this point, it’s not so much a want as it is a necessity. First, the migration to ISO 20022 will impact almost all high-value schemes in the near future. In 2022, Canada, Europe, the U.K. and a host of other countries will implement ISO 20022. The U.S. will follow in 2023. This will have a major impact on high- and low-value payments; with modernization to ISO 20022, banks have the ability to have one payment cross various rails, for example high-value payments move between high-value and low-value, and between high-value and alternative payment schemes (i.e., Visa B2B).
Real-time payment rails, in some places a result of country-level mandates, are another driver of modernization, and are experiencing massive growth globally. India, Malaysia and the new PIX scheme in Brazil (among others) are booming, while in the U.S., TCH-RTP and Zelle are growing quite nicely and FedNow is currently in development.
Furthermore, it is not only about meeting the regulatory changes of sending ISO 20022 and new schemes, but also using the data within the ISO 20022 messaging standard for new business cases. ISO 20022 allows more data to be passed than with legacy formats, thus enabling entirely new use cases. One example is remittance information, which allows for systematic reconciliation, or Request to Pay (RtP — though it goes by other names) where billing details are added into the payload.
Lastly, new industry initiatives and alternative payment rails, many driven by APIs, are also increasing innovation and modernization opportunities. FIs must modernize to not only meet mandates and regulations, but also to create competitive differentiators within their markets.
What are the top challenges to modernization?
The main challenge for established FIs is that they have many legacy engines, in some cases built up over decades. These engines may have many features, but are often siloed, and in some cases carry features that are no longer used. Or in some cases, it is not known whether they are used. This older technology is difficult to modernize in a timely, cost-effective manner — especially in today’s 24/7 world where there’s no time for downtime.
What are the key steps to accomplishing modernization?
FIs must make the move to modern payment hubs. They must look towards those hubs that are proven and used in a variety of ways. This will help ensure they have the flexibility to conform to both business and technical requirements.
Additionally, FIs need to retire their siloed engines and middleware and consolidate what they need with a central hub solution. This will both reduce the total cost of ownership and free up IT and operations resources to focus on new initiatives and developing revenue-driving capabilities.
Lastly, FIs should consider Software as a Service (SaaS) in the cloud. Whether private, public or a hybrid deployment model, the cloud offers a host of benefits, including the ability to rapidly scale and innovate.
How can FIs ensure a smooth modernization?
Working with expert partners is essential, not just for expertise on current initiatives, but for a long-term strategic view beyond initial implementations. Between new technologies, regulations, consumer expectations and real-time schemes, FIs should not risk the future of their organizations on unproven partners and solutions. Winning new customers and developing new revenue streams will increasingly rely on being one step ahead in today’s highly dynamic payments world. That ultimately depends on having the right software, expertise and experience backing your modernization efforts.
For deeper insights into the main drivers of successful payments modernization, watch our on-demand webinar: Accelerate Payments Modernization for High and Low Value
ACI Low Value Real-Time Payments 
Adam Needel has worked in real-time payments at ACI for nearly twenty years, across varied roles including solution architecture, software product management, and now in solution leadership. His expertise spans both high and low value real-time payments, including instant/immediate payments, cross-border, ACH and SEPA. By leveraging his extensive and broad experience both in the field and building software, Adam helps customers drive success with real-time payments.
