Key Takeaways from New Aite-Novarica Study on Payments Modernization
In the first edition of this three-part blog series covering Aite-Novarica’s latest white paper, “Effective Preprocessing: The Path to Faster Payments Modernization,” we looked at the impact of payment friction on digital-channel adoption, as well as the reliance of businesses on banks and FI’s to identify and implement new payment solutions. For part two, we’ll highlight how accounting systems can present further modernization hurdles for business customers, and explore the importance of flexible preprocessing to an FI’s ability to offer new value and accelerate customer adoption.
Accounting Systems Inhibit Digital Channel Adoption for Business Customers
One of the biggest hurdles to wider spread payments modernization is the preexistence of complex accounting systems that remain integral to a business’s operation. Put simply, integrating new payments solutions often represents a costly and time-consuming disruption to critical accounting processes.
Moreover, businesses face the challenge of justifying new payments solutions based on the calculation and evaluation of projected ROIs. These calculations can be incredibly complicated and involve factoring in everything from the costs of hiring third-parties and increased software license fees, to the potential revenue creation opportunities associated with a variety of individual payment channel enhancements. Looking at Figure 4 below, we can see what might be taken into account in the hypothetical example of a large corporation calculating the ROI of multiple adoption scenarios:
In essence, the process of integrating and onboarding new payment channels is often considered too daunting and difficult for many businesses to justify from a cost perspective. However, this doesn’t mean that business customers are outright dismissive toward the notion of payments modernization, and in fact 92% of 790 survey respondents agreed that introducing new or different payment methods would be beneficial to their organizations.
Perhaps more than anything, this notable gap between interest and adoption speaks to an opportunity for FI’s to step in and alleviate the burden of integration wherever possible. More specifically, if FI’s can allow business customers to transact on newer payment channels by handling the translation of files into the relevant format, it shifts the ownership of the broader modernization effort away from the customer and eliminates the need to undergo costly accounting system upgrades.
The Need for Preprocessing
When it comes to making and receiving payments, the diverse needs of businesses make it impossible to implement a one-size-fits-all approach to modernization. They need to control how and when payments are made, with decisions being made based on a number of complex factors, including vendor preferences, least cost routing options, and applicable laws and regulations, to name a few.
In short, businesses need the flexibility to accommodate different payment rail use cases, sometimes even as it relates to paying the same vendor for separate invoices. And the most effective way to achieve this is to gain preprocessing capabilities that allow the business to anticipate and execute payments based on the needs of the transaction, and without having to replace entire systems.
This critical flexibility will be most readily accessed by FI’s through the integration of a Payments-as-a-Service (PaaS) model and use of real-time APIs, which can allow for quicker and easier access to robust payment options. By partnering with the right vendor, FI’s can help business customers circumvent the rules and filters of existing payment engines, and in turn leverage the enhanced security of a cloud-based environment and achieve new capabilities such as real-time payments (RTP). Moreover, utilizing a PaaS can give FI’s a much more comprehensive, consolidated view of payment activity to better understand and service their customers.
In the next and final edition of this blog series, we’ll look at the importance of enhancing transaction management and servicing, as well as how banks can offer new payments value through intelligent routing solutions. To explore any of these topics in more depth, download the full white paper.