The COVID-19 pandemic hastened the pace of digitalization of the global payments sector, heralding the era of payments modernisation sooner than anticipated.

To assess the key payments modernisation priorities of banks worldwide, the fourth edition of The Big Survey, an annual research report, has been produced by Finextra, in collaboration with Volante Technologies.

The annual report which surveyed 350 senior bankers across the globe, “Offers a unique vantage point on the ever-evolving landscape of payments modernisation,” observed Deepak Gupta, EVP Product, Engineering & Services at Volante Technologies.

Conducted in early 2024, this survey builds upon the findings of the previous three years payments modernisation research reports. Offering a forward-looking perspective, this report analyses how the priorities of banks and their customers have evolved over time, emphasising areas where the trend towards digitization, real-time payments, and cross-border payments are speeding up.

Payments modernisation on the horizon

According to the survey report, “When it comes to modernisation, most respondents plan to implement imminently, with the majority (44%) planning to replace one or more systems within the next six months and 11% of respondents stating they are either in the middle of a project or have recently completed a project.”

The results indicate minimal deviation across regions and institutional sizes. Modernisation plans are on the agenda for 66% of North American banks within the next six months to a year, compared to 76% of European banks. Only Southern Europe and the Nordics indicate a slightly extended payments modernisation implementation period, targeting one year instead of six months. 

Increasing budgets for payments modernisation initiatives

The survey report highlights that the year 2023 had been marked by global financial constraints, driven by inflationary pressures and a downturn in the global technology sector impacting the financial industry.

“Considering these circumstances, 64% of respondents still indicate that their budgets will increase over the next 12 months, and 34% state their budgets will stay the same. While we have seen larger increases in in 2023 (with 72% indicating increased budgets and 26% indicating stagnant budgets), it is encouraging to see that globally, the drive toward modernisation continue to increase even in the face of macroeconomic uncertainty – across all regions and institutional sizes”, the report noted.

 

Source: Payments Modernisation: The Big Survey 2024

The Big Survey 2024 report reveals that budget allowances for payments modernisation varies among banks. Forty-five percent of banks plan to invest between US$100,000 and $1 million towards payment modernisation, while 32% are prepared to allocate between $1 million and $5 million. Additionally, 7% of banks intend to spend over $5 million. These findings demonstrate budget constraints, with the majority of banks allocating less than $1 million to modernising payments.

When examining the results by institutional size, some interesting trends emerge. Surprisingly, 22% of Tier 4 banks plan to invest over $5 million in payments modernisation, in contrast to just 13% of Tier 1 banks and a mere 2% and 4% for Tier 2 and Tier 3 banks, respectively. This aligns with the survey’s observations on speed to market, where Tier 4 banks once again show fewer constraints than larger banks, enabling them to more readily direct funds towards modernisation efforts.

 

Source: Payments Modernisation: The Big Survey 2024

Analyzing regional budget allocations reveals that North American banks have a greater year-on-year allowance for payments modernisation, with 72% planning to invest over $500,000, while only 51% of European banks intend to make such investments.

“Breaking this down further into European regions, it’s the UK that stands out with half of banks planning to spend more than $1 million. As budgets across the UK tend to be higher with London being the fintech capital of the world, this does not come as a surprise – yet what does come as a surprise is the relatively low budget allocations across Benelux and the Nordics”, the survey report explains.

Banks in the Benelux (the economic union of Belgium, the Netherlands, and Luxembourg) and Nordic regions have arguably made significant progress in payments modernisation compared to their Southern European counterparts. This advancement likely explains “Why they are, on average, allocating less new spend towards modernisation”, the survey report further adds.

Top three customer pain points driving payments modernisation

Based on the survey report, the three major pain points influencing payments modernisation spending and allocation plans, both from a client and market perspective are efficiency and speed of cross-border payments, followed by the cost of payment processing, and access to real-time or intraday liquidity.

The top three customer pain points have remained unchanged over the last four years. However, a subtle shift has occurred in recent years: the growing urgency for faster and more efficient cross-border payments. Year after year, from 2021 to 2024, banks globally have increasingly felt the impact of cross-border payments.

 

Source: Payments Modernisation: The Big Survey 2024

Moreover, the survey report mentions “It’s clear that what the customer wants is speed – speed of cross-border payments as well as speed to market of new products. Cost is the second priority, yet we have seen in earlier results that there is a lack of investment into new partnerships, technology and products, which is detrimental to the progress of cheap payments processing. Our 2024 results show that banks may be stuck between a rock and a hard place – wanting processing to be cheaper yet unwilling to allocate higher spend to make it more efficient.”

Real-time or intraday liquidity access has been a persistent challenge for banks for the past few years, with 17% of respondents citing it as a primary customer pain point in 2024. Looking ahead, the widespread adoption of instant payments is poised to mitigate this issue, as per the research report.  

When assessing how different regions view customer pain points, a notable divergence or exception is observed, particularly in the Nordics. While efficiency and speed of cross-border payments rank among the top three concerns in other regions, they rank lowest in the Nordics, where more than half of the respondents place them among their least prioritised pain points.

With global losses from fraud scams and bank fraud schemes totaling $485.6 billion in 2023, as outlined in Nasdaq and Verafin’s 2024 Global Financial Crime Report, it’s unsurprising that banks worldwide see “Limiting risk as their primary factor driving payments innovation”, as noted in The Big Survey 2024 report.

 

Source: Payments Modernisation: The Big Survey 2024

The survey report goes onto say that “Limiting system risk is essential to combat the potential cost of fraud, scalability challenges or payment system outages.”

“Once the system risk is addressed, banks increasingly focus their investment prioritisations on improving the customer experience. Improvement and diversification of value-added services, keeping up with competition and meeting increased client demand for new products and services rank in the top four”, the survey report further pointed out.

Conclusion

The findings from the fourth edition of The Big Survey indicate that despite ongoing financial constraints, the resolve by banks to modernise payments remains steadfast.

“Banks are becoming more flexible and increasingly relying on partnerships to enhance their capabilities. The journey towards faster, more efficient payment systems requires collaboration and innovation. As we look forward, it is imperative that banks remain confident and proactive, ensuring they are not left behind by regulatory developments or market shifts”, advises Gupta.

While the importance of speed in payment processing and market adaptation cannot be emphasised enough, the survey report recommends that by making “Strategic investments and robust partnerships, banks will navigate these challenges and emerge stronger in the ever-evolving financial landscape.”