At this very moment, the global financial marketplace is in the process of reshaping itself to reflect the diverse and evolving needs of modern society. Whether it’s connecting to emergent real-time payment rails or migrating to the ISO 20022 messaging standard, or meeting the growing demand from businesses and consumers for greater payments optionality across a variety of platforms and services, banks and financial institutions are faced with increasingly complex and compounding transformation initiatives.
Most importantly, the fast-moving, highly dynamic, and unpredictable nature of today’s market means that banks can no longer seek out isolated solutions to address each individual pain point, and neither can most afford the time and costs associated with replacing their entire underlying infrastructure. Instead, banks must focus on becoming increasingly adaptable to the movements of the market and its participants, while remaining competitive and driving growth through intelligent, agile payments solutions such as embedded preprocessing with “smart routing” capabilities.
Put simply, embedded preprocessing allows banks to unify various payment types and messages into one consolidated system, and without needing to replace their existing infrastructure. Coupled with smart routing capabilities, banks can not only easily adopt emergent messaging standards like ISO 20022, but also intelligently route individual payments using the best available method at the time of the transaction, or based on their clients’ stated needs or preferences. Whether clients are looking for the fastest or least costly payment option, smart routing allows banks to adapt to their requirements accordingly.
For U.S. institutions, for example, this might mean efficiently and cost-effectively routing payments to the Federal Reserve’s FedNow system, which is officially set to launch this July. With more payments rails and complexity, smart routing provides an attractive solution for banks and their business clients looking to tap into the latest payments innovations, while also increasing the speed of transactions and/or minimizing associated fees.
In the EU, the need for smart routing solutions is perhaps even more urgent, as financial institutions must prepare to comply with a proposed mandate by the European Commission (EC) surrounding instant payments. Under the new rule, banks will be required to offer instant payments in euros, and to do so 24/7 and at no additional cost to the customer. Once in effect, banks will have only six months to begin accepting instant payments, and only one year to achieve sending capabilities, making the efficiency and adaptability of smart routing not only attractive, but virtually essential for those who haven’t gone the route of early adoption.
However, establishing an accelerated path to modernization isn’t only important for banks looking to implement FedNow or comply with the EC’s mandate, and in fact should be viewed as a shared imperative across the entire global financial services sector. This is because even in the absence of new regulations and real-time payment rails, banks still need to contend with increased competition from thriving fintech providers, many of which are currently more prepared to meet the rising demand among consumers for modernized payments solutions and value-added services.
Overall, smart routing is an increasingly critical tool that can help banks quickly bring their capabilities into alignment with the evolving demands of the global market, as well as provide the kind of technological agility needed to identify the best available payment option for clients amidst an increasingly diverse and complex payments landscape.
To learn more about how Volante’s own embedded preprocessing and smart routing can benefit your own payments modernization journey, download our recent white paper here.