Payments fintech players: The threat is real

In today’s landscape, financial institutions need to modernise their payments capabilities if they are to remain competitive in an increasingly crowded market.

The threat is real. Almost half of banks believe that 10% or more of their payments volume has already moved to fintech providers, according to a recent report by Aite-Novarica in collaboration with Finastra.

The survey, which polled the views of 108 global bank payments and product executives across North America, Europe and Asia-Pacific, also found that 19% of respondents said over 20% of their payments volume had moved to competitors – and for a small minority of banks, the figure was as high as 30%.

Soaring expectations

The shift towards fintech providers is not unexpected. Modern customers expect a more seamless payments experience than ever before, with both consumers and business end users increasingly seeking to send and receive payments in real-time.

As the report illustrates, today’s commercial clients are seeking instant payments for a range of use cases. While emergency or just-in-time payments were cited as a significant use case for commercial clients by 49% of respondents, this is no longer seen as the most prevalent use case. On the contrary, banks reported that clients were more focused on using real-time payments to improve operational efficiencies (62%), or use value-added or overlay services (56%).

There’s no doubt that real-time payments are important for today’s commercial clients. But for banks, implementing instant payment solutions can be fraught with difficulties: 57% of respondents said that adapting their legacy infrastructure to support it is extremely or very challenging. Other obstacles included vendor and internal costs, as well as difficulties creating a business case.

Addressing the competitive threat

Offering a better, smoother user experience for customers, it is no surprise that fintechs are disrupting the payments industry and attracting payments business away from incumbent providers. In order to remain competitive, it’s clear that banks need to overcome the challenges of implementing real-time solutions and more agile technical architectures.

This means meeting customers’ expectations of instant payments and a smooth user experience, while launching new products to market quickly. In order to do this, FIs need to leverage nimble technologies such as microservices and the cloud, which can level the playing field between large and small banks by making robust capabilities more accessible. In particular, increasing number of banks turn to Payments-as-a-Service (PaaS) solutions to modernise their offerings and launch new services faster at a lower cost of ownership.

Many are already taking steps to adopt these technologies. According to the Aite-Novarica report, 40% of the banks surveyed had either already moved their payments processing to the cloud, or were in the process of doing so. Fifty-one percent were currently reviewing proposals or planning a move to the cloud – and only 9% had rejected such a move entirely.

In addition, to remain relevant in this evolving landscape, leading financial institutions are also embracing open payments solutions and ecosystem platforms. By doing so they can simplify their collaboration with fintechs and partners in order to accelerate payment services innovation, adopt new technologies, improve operational efficiencies, and modernize at lower cost and risk than ever before.

The bottom line: payments is still seen as a major growth and revenue generating area, but FIs need to modernise quickly if they are to avoid continuing losing ground to fintech competitors. Fortunately, many are already taking action – and by harnessing cloud and open Payments as a Service offerings, banks of all sizes can modernise their payments in an efficient and cost-effective way.

Find out how Finastra can help future-proof your payments infrastructure here.

Read this Aite-Novarica survey report to learn more about key drivers impacting investment in payments modernization in 2023.