The digital payment industry is undergoing a rapid transformation, driven by changing customer expectations, regulatory developments and technological innovations. Banks, as the traditional players in this space, face many challenges and opportunities to adapt to the new reality and remain competitive. In this article, we will explore some of the key trends that are shaping the future of payments and how banks can leverage new technologies to enhance their offerings and customer experience.
ISO 20022: A new standard for payments data
One of the major regulatory initiatives that is impacting the payment industry is the adoption of ISO 20022, a new standard for payments messaging that aims to harmonize and enrich the data exchanged between different payment systems and participants. The standard, which came into effect in March 2023, will enable the end-to-end processing of payments across domains and geographies that currently use vastly different standards and information formats.
Although banks are not mandated to adopt the standard until November 2025, migrating early provides access to richer, more structured data sets sooner, which will help banks automate processes, increase efficiencies and enhance straight-through processing. Beyond regulatory requirements, banks should welcome this improved access to quality data.
It gives them the power to understand the purpose of a payment, the original source, and who the beneficiary is to provide better payment reconciliations for greater accuracy and operational efficiency, including for combatting fraud. It also brings a better understanding of customer behavior, meaning institutions can build better services and tailor different products to meet customers’ needs.
Instant payments: A new norm for speed and convenience
Another trend that is reshaping the payment landscape is the rise of instant payments, which are electronic transfers that are executed in real time or near real time. Instant payments offer several benefits for customers and businesses, such as convenience, speed, transparency, security and cost-efficiency. They also enable new use cases and business models, such as peer-to-peer payments, e-commerce payments, bill payments, cross-border remittances and micropayments.
Around the world, some 30 different countries are enabling instant payments making this an important area of growth within the commercial banking space. Yet legacy systems can still be an obstacle to rolling out such services. With digital transformation reshaping how financial services are delivered and consumed, it is imperative to overcome legacy issues and to have robust regulations and frameworks in place that protect consumers, promote trust, and foster innovation.
Overlay services: A new way to add value and differentiation
A third trend that is emerging in the payment industry is the development of overlay services, which are value-added features or functionalities that are built on top of existing payment infrastructures or platforms. Overlay services can enhance the customer experience and satisfaction by providing additional benefits or convenience, such as loyalty programs, cashback offers, discounts, rewards, coupons, personal finance management tools, budgeting tools, financial literacy tools, etc.
Overlay services can also help banks differentiate themselves from their competitors and create new revenue streams by offering customized solutions or cross-selling opportunities. For example, banks can leverage their data insights to offer personalized recommendations or advice to their customers based on their spending patterns or preferences. They can also partner with third-party providers or fintechs to offer complementary services or products that cater to specific customer segments or needs.
The future of payments: A customer-centric approach
The payment industry is undergoing a significant transformation that offers both challenges and opportunities for banks. To succeed in this dynamic environment, banks need to adopt a customer-centric approach that focuses on delivering value-added solutions that meet or exceed customer expectations. By leveraging new technologies such as ISO 20022, instant payments and overlay services, banks can enhance their offerings and customer experience while maintaining their competitive edge.
