Payments modernisation is no longer a luxury for financial institutions. Dramatic shifts in consumer appetite, complete overhauls of financial regulation and a need to prioritise resilience, all propelled forward due to the digitisation of the financial world, mean that banks have little choice but to rethink their systems to operate in this brave new world.

European banks have a particularly challenging task ahead of them. Not only has the region paved the way with open banking and API enablement initiatives, but its progress toward real-time and cross-border payments makes modernisation of legacy systems ever more complex. The European Payments Council’s (EPC) SEPA rulebook changes for 2023 present an especially difficult hurdle for banks to manage in the coming 12 months, as banks of all sizes prepare themselves for the migration to the ISO 20022 standard. Payments-as-a-Service (PaaS) and its global adoption has evolved dramatically, and as activity in the PaaS space continues to surge it is important to consider what is driving uptake.

A recent survey by Finextra and Volante found that 67% of FIs are looking for new payments modernisation products within the next 12 months. The survey also found that the greatest pain-point listed by 79% of the global banks surveyed, was the challenge of accessing real time payments and real time liquidity.

The cost of maintaining and upgrading these systems is also very prohibitive, and 75% of respondents raised the issue of cost of payment-processing as a key driver. These factors are causing a fundamental shift with regard to payment modernisation demand in the marketplace, with the follow-on effect of greater PaaS adoption globally.

While these are happening, banks have to worry about handling their existing legacy systems. Legacy infrastructures are inflexible and cannot handle the volumes that banks need to handle in today’s payment environment. McKinsey research shows that the average age of IT applications at universal banks is 14 years, significantly older than the average age of applications at digital banks which is just three years.

These factors present the perfect storm for bank modernisation to take off.

This Finextra report, produced in association with Volante Technologies, explores the current European banking landscape to consider how banks in the region are approaching their modernisation journeys with respect to industry trends and rule changes. It will also consider how European banks are progressing compared to other regions, and suggest four key factors which will assist them in designing and implementing their payments modernisation journey.

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