When it comes to the digital economy, the United States has been a holdout. Still, there was $895.7 billion worth of U.S. digital transactions in 2020. As most are aware by now, the pandemic accelerated that growth. Still, many institutions find themselves unsure of how to approach the fraught transition out of their legacy infrastructure. For the last few decades, they’ve relied on core processors capable of handling vast amounts of information at once. What they can’t do is process individual transactions, one at a time. They also rely on regular downtime to function properly. Another potential risk to maintaining legacy systems is missing out on the flexibility of the now-popular cloud solutions. AWS boasts a 31% average cost saving on infrastructure, as well as a 69% reduction in unplanned downtime.
This is not to say cloud migration is a painless process. The banking core is the beating heart of a financial institution, and making any alteration is weighed carefully. The good news is once the transformation is complete, the inherent risks in altering a bank’s systems are cut significantly. Cloud computing allows banks to iterate on their systems and sandbox potential changes as well as keep redundant systems in place. The actual hardware that hosts these systems could be spread out over the country, drastically reducing catastrophic risk. Such services allow a bank to make a safe and steady migration from core banking to cloud computing, providing a unified service in the meantime, so no customer loses service.
Migrating away from an on-premises, batch-based core is a necessity for payments transformation, but other steps can ensure an organization’s success. One such example is going live with the RTP® Network. Real-time payment services are most financial institutions’ best shot at competing with the likes of Venmo and Paypal. We’re edging closer to a world in which payment services allow users to send money from one account to any other account. An “A2A payment” like this would allow users to pay their mortgage directly from a mobile wallet, for example. A student living with roommates could get everyone’s share of utilities and transfer that money to the utility provider in the same app without moving it between accounts manually.
Another consideration, perhaps the most crucial to the success of any transformative effort, is the cultural factor. How are the human beings that work at your company going to adjust to the new normal? It’s estimated that 7 in 10 digital transformation schemes ultimately fail. This is not for lack of financial investment, tech access, or even good system design. What it often comes down to is an assumption that employees will effortlessly adapt to the new normal. However, the post-transformation payments industry has different practices across the board. Great care must be taken to demonstrate that these new practices are not necessarily more difficult or more complex, just different. If you are partnering with a trustworthy software provider, then the well-designed systems provided should sell themselves. Your employees will see the benefits of digital transformation in the time and effort these new systems save.
While other industries in the U.S. have already benefited greatly from the transformation into a digital economy, the spotlight is on payments. Financial institutions are coming to grips with the new rules of competition, one of which is the role of fintech as both competitor and collaborator. If the progressions of digital payments in other countries are any indication, fintech and challenger banks could easily run away with the lion’s share of payments traffic in the coming decade. To ensure their place in the industry of tomorrow, small and mid-sized financial institutions need to compete with the solutions offered by their competitors.
Read more about Payments Transformation in Digital Transformation: More Than Technology and More Important Than Ever.
Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.
