What is Payments System Modernization?
While front-end systems may have improved in leaps and bounds in recent years, in many cases, back-end processing of transactions is still bound by legacy systems and many financial institutions are investigating or undergoing payments system modernization.
As documented in our previous blog, Legacy Systems – are they doing banks justice? The multitude of issues with these systems is becoming prohibitive and banks can no longer afford to ignore these issues. In addition, if banks are to remain competitive and drive transaction volumes, payments system modernisation is a must.
So what is involved in modernization?
The first step in modernisation of a Payment System involves the implementation of a new interbank (and other participant) clearing and settlement system based on international open and interoperable standards such as ISO20022. Below are some benefits to be considered when pursuing modernisation:
Payment system modernisation can facilitate regulatory compliance due to the fact that modern ISO 20022 messages are able to carry sufficient information related to the payment which allows the payment processor to carry out the following types of tasks required by regulators/payment associations and central banks:
- Balance of Payment Reporting
- Anti-money Laundering Reporting and validation
- Compliance with FATF requirements.
- Debtor and creditor details
Improved security and efficiency of payments
Reduction in the amount of cash in circulation, thereby reducing cost of CIT and security required around handling of cash.
Since most of the repetitive tasks are now automated, modernization provides faster processing that can easily be tracked and audited. This automation means that a far greater volume of transactions can be processed in a given period of time, and that value flows from one account to another much faster.
Standardisation offers a host of benefits, not least of which is interoperability between institutions via a standard business language (ISO 20022), enabling participation and lowering the barriers to entry. All standards are open and published making clear business communication between participants simple.
Improved customer experience
Financial institution clients/users are becoming increasingly dependent on fast access to value and are expecting same from their banking and finance institutions.
As behavior can be monitored, it becomes easier to understand demands and therefore improve on service offering.
Modernization reduces costs in the long run, which can ultimately be passed on to the consumer.
New payments systems are emerging as a result of market demands, Fin-Tech’s and standardisation of payment enabling technology, providing a host of benefits and as well as being a mechanism to future-proof the payments industry.