As digital-first banks and neobanks take the lead in the global payments space, traditional financial institutions are looking to evolve. To keep up with the rapid pace of the industry, banks need to be in a constant stage of evolution. How can legacy banks
modernise, and what tools are available to support them in their digital transformation journeys?
Software-as-a-Service (SaaS) platforms offer a comprehensive solution. SaaS platforms can assist legacy banks in restructuring their operations and integrate new, innovative payments cases into their product suite. SaaS infrastructure can support both new
and existing customers, and allow banks to scale with the same agility as their competitors, while streamlining the onboarding process, using APIs and cloud technology.
McKinsey reports that banks use 75% of APIs for internal purposes, 20% externally for partners and suppliers, and 5% externally
to generate revenue, and financial institutions are expected to increase their usage APIs in the coming years.
Speaking to an expert on the matter, Venkat Srinivasan, sales and go-to-market lead at Thales, discussed the potential of modernisation using SaaS models, and what the future of payments will look like.
Where are banks seeing challenges to their legacy systems?
Srinivasan highlights that legacy systems are not meeting the consumer demand for instant, seamless, and secure payments. Tech-savvy consumers are seeking digital-first experiences that allow complete control over their day-to-day banking – such the ability
to freeze and unfreeze cards at the touch of a button, and receive real-time notifications on payments transactions daily to track their spending.
“Modern day banking users expect their banking experience to be on their mobile phones. They want things to happen instantly, whether it means account opening, issuing cards, or making seamless payments; they don't expect clunky user experience. They don't
expect complicated systems that will slow down their entire banking experience, and this includes payments,” he explains. “Thanks to the fintechs and neobanks that we see today, our consumers understand what a fantastic banking experience can be from day one.
Unfortunately, larger banks, haven’t modernised their journey yet.”
Srinivasan outlines three key challenges that banks are facing when it comes to payments modernisation:
- Complex legacy infrastructure: Due to cost and resourcing issues, clunky legacy systems are difficult to maintain and integrate with new technologies.
- Competition: High-speed fintechs and neobanks are swooping in and attracting younger customers; what users were using as a secondary account a few years ago has now been promoted to primary account.
- Compliance complexity: keeping up with evolving standards and ensuring new payments products meet those requirements is a struggle for monolithic legacy systems.
What are the benefits to the SaaS model?
SaaS leverages cloud technology to provide real-time solutions for banks. According to
research, over 72% of IT executives seek cloud strategy for their products and services.
There are numerous benefits to implementing SaaS into the modernisation process, as Srinivasan details:
- Time-sensitivity: By avoiding the rip-and-replace solution, multi-year projects are not needed major development efforts; banks are able to scale incrementally rather than in big, risky, expensive overhauls.
- Speed to market: SaaS models provides flexibility, scalability, and agility for banks to scale, and introduce new consumer-friendly and intuitive payments products to keep up with digital-first competitors.
- Cost-effective: SaaS providers offer a cost model in advance and provide a big picture perspective of building a project to avoid unnecessary spending.
- Compliance: SaaS systems can ensure compliance with automatic updates to keep up with shifting regulatory guidelines.
- Operational efficiency: Third-party vendors can reduce the burden on internal teams by managing processes on the back-end.
- Security: Encryption in SaaS models can enforce security protocols to prevent fraud and protect sensitive data.
Through a SaaS supplier or partner, financial institutions can augment fully modular API or modular SDK services for areas to enable payments for end users without completely stopping the transaction process, to keep things in operation.
He highlights that good third-party vendors will have a deep understanding of banks’ pain points and the trends shaping customer journeys: “They should already understand what a consumer would want and where the industry is going, and ensure that products
and services are available at a bank's disposal.”
What does the future hold for emerging payments technology?
Srinivasan details that consumer payments apps and international banks are using mobile wallets in more non-traditional formats. For example, consumers are able to use their digital wallets on their mobile devices to make in-store payments, contactless payments,
without using Apple or Google Pay, but the contactless capability through their bank’s wallet applications.
He cites the issuance of virtual cards, Click to Pay , dynamic CVV, and tokenisation as new forms of innovation in payments that are facilitated by SaaS. Highlighting the developments in authentication, Srinivasan states that passkeys are seeing new capabilities
through the use of cryptographic key pairs thar eliminate the need to traditional passwords, improving even more frictionless online checkout and reducing fraud with authenticated users.
Srinivasan concludes: “We're seeing a shift in how banks and consumer payment companies are looking at offering their mobile wallet experiences for the customers, for everyday payments, both in-store and online. We're seeing it happening faster than then
we can even realise.”