The New Era of Banking and Payments: From Real-Time Payments to Super Apps
Autonomous payments, real-time payments, and super apps aren’t just trendy — they’re transformative. Read our blog to grasp their true potential and how to seamlessly integrate them.
The banking and payments sector is experiencing a great transformation, driven by the rise of autonomous payments, real-time payments, and super apps. These innovations are driving seismic shifts in how banks operate and payments are processed.
Such developments represent a new era for the industry. But why exactly are these developments crucial in today’s world of banking and payments? What is driving the urgent need for such rapid innovation and disruption?
And, most importantly, how do you navigate this transformation and harness it for your organization’s benefit?
To answer these questions for you, I’d like to borrow from one of my favorite authors, Simon Sinek. In his Golden Circle framework, he argues that it’s best to start everything we do by asking “Why?” Because understanding why you need to take action, especially when it comes to transforming your organization in the banking and payments sector, is key.
Transformation shouldn’t be pursued just for the sake of change. It should have a clear purpose and direction.
Unpacking the ‘why’ behind the transformation
Why is business transformation crucial in today’s banking and payments sector?
Because you need to READ your customer. That’s:
- Retain
- Engage
- Attract
- Delight
You must focus on retaining your existing customers first. By securing your foundation with current customers, you can then focus on meaningfully engaging them, attracting new ones, and ultimately delighting them all.
So how do you READ your customers? By developing and delivering distinct, sophisticated solutions tailored to their needs.
Let’s look at how to do that.
The ‘how’ of transformation: leveraging the cloud
Cloud platforms provide the catalyst banks and payment firms need to rapidly innovate and deploy cutting-edge solutions.
With the cloud, you can develop sophisticated offerings that align to customer expectations.
And what do today’s customers expect?
The prevailing culture is one of instant gratification. People now expect immediate, always-on access to their finances. This culture, coupled with evolving standards like ISO 20022 — which streamlines cross-border payments, enhances transparency, and bolsters security — are responsible for shaping today’s banking trends.
Enter the era of autonomous payments, real-time payments, and super apps. These aren’t fleeting fads. Each trend represents tangible opportunities for banks and payment firms to innovate and better serve their customers.
In the following sections, we’ll explore each of these trends in depth: the forces driving adoption, how leveraging these innovations can help banks successfully retain, engage, attract, and delight customers, and how you can start adopting these trends for your own organization.
Autonomous payments
Autonomous payments is a concept born from open payments. In open payments, payment processing functionalities are exposed as APIs to third parties, such as Payment Initiation Processing Service Providers (PISPs). This openness paved the way for seamless and automatic payment processing, or autonomous payments. A prominent example of these autonomous payments is IoT payments, which have gained significant traction in recent years.
The “Internet of Things” (IoT) refers primarily to a network of smart devices. These devices not only communicate amongst themselves but also connect to shared cloud platforms. Beyond data collection and communication, one of their key capabilities is initiating autonomous payment processes, tying them directly into the world of open and autonomous payments.
Now, consider the numbers: In 2021, the market share of IoT payments stood at around 155 billion. Forecasts suggest this could swell to and an astounding 5.4 trillion by 2028.1
Implementing autonomous payments
While the realm of IoT may seem daunting to some, support is readily available. Leading cloud platforms such as Azure, AWS, and GCP come equipped with comprehensive IoT service offerings. Leveraging these platforms, banks and payment firms can achieve:
- IoT device integration: Utilizing these cloud services ensures hassle-free onboarding of IoT devices into the banking and payment infrastructure.
- Pre-configured authorization: To expedite the payment process, devices can be pre-set with ownership and authorization credentials. This built-in mechanism ensures that every transaction initiated is secure from its inception.
- Robust security protocols: In case of transaction anomalies, embedded AI and ML models spring into action, triggering consent workflows to enhance security. Once potential concerns are resolved and transactions are verified, these payment processing requests are sent to a payment gateway, leveraging the ISO 20022 standard, the open standard, and open payments APIs.
The entire IoT payment process facilitates real-time transaction processing.
To better grasp this flow, consider the following visual representation:
The diagram visually illustrates the transaction journey, from a customer initiating it to its culmination at the merchant’s end.
Real-time payments
Real-time payments have rapidly gained traction in approximately 80 countries worldwide. However, North America lags behind in this domain. Why is that the case? From my personal experience working with financial institutions, the primary challenges lie in infrastructure limitations.
Traditional financial infrastructures often prove inadequate for real-time processing.
To process payments in real-time, validations and transactions need to be completed not just in milliseconds, but in mere microseconds. The existing infrastructures struggle with this requirement, primarily due to scalability concerns.
Further complicating matters, existing anti-money laundering (AML) and fraud detection systems are largely geared toward batch processing, but real-time demands a departure from this norm.
Adopting real-time payments
Is real-time processing at a microsecond level feasible?
Yes, the NYSE recently migrated their system from on-premises to one of the public cloud platforms. After their migration, now they can process half a trillion messages a day. So each transaction now takes less than 23-25 microseconds.
So how can banks adopt real-time payments?
Banks don’t need to jump into real-time processing in one giant leap. A phased approach can be more effective and manageable:
- Start small: Begin with small initiatives like self-surveillance fraud prevention. The UK banking sector’s “confirmation of payee” is a prime example of this. Such measures lay the groundwork for more comprehensive changes.
- Leverage cloud offerings: Migrate the core system to a public cloud platform. This not only offers scalability but also provides robust security features right out of the box. There’s no need to reinvent the wheel.
- Integrate without disruption: To ensure a seamless transition, it’s crucial not to disrupt the current operational flow. By introducing a gateway, you can bridge the gap between the legacy system and the new infrastructure. This allows the existing functions to operate as usual, while any new features or systems can be channeled to the enhanced platform equipped for real-time processing.
My confidence in this approach stems from firsthand experience. My team is actively assisting a client in optimizing their trade processing using this very strategy, which stands as a testament to its viability and efficacy.
The following diagram illustrates, at a high level, how we are enabling real-time payments for the client.
Mapping our progress with READ
After exploring autonomous and real-time payments, we’ve made big improvements to the core system. These changes help us retain, attract, and delight our customers, following our READ approach. But to keep customers engaged, we need to do even more.
It’s time to add another solution.
Super apps
Think about it: whenever a new or existing customer comes to our platform, we want to keep them there. That’s when the continuous engagement breaks down. So how do you avoid this? Super apps.
While super apps have become super well-known in the APAC region, they remain relatively untapped in North America. However, their sweeping success in these countries makes a compelling case for their introduction in North America, especially in the banking and payments sector.
The evolution of a super app begins with mastering a single functionality — much like the single responsibility principle in software development.
Do one thing, and do it really well. So take a platform that can scale really well, implement one functionality, and gain customer trust. Once that trust is established, expand the offerings. This trust chain ensures customers keep using the new features without feeling the need to venture outside your ecosystem. That’s the whole idea behind super apps.
Take the journey of WeChat, for instance. It began its life as a messaging platform, perfecting that arena, and then gradually introducing a spectrum of other services like payment processing. By doing so, WeChat not only expanded its functionalities but also broadened its user base and intensified user engagement, making it the quintessential super app.
Building super apps
For banks, payment firms, and other financial institutions aiming to evolve their platform into a super app, you don’t have to jump into creating a super app right away. Instead, it can be a strategic and methodical progression. Here’s a step-by-step strategy to guide this transformative process:
- Scalable platform: Before all else, ensure your platform can handle the expanded functionalities and increased user load that will come its way.
- Master one functionality: Home in on one core functionality. Be it payments, customer service, or even investment guidance, perfect it until it becomes your distinctive offering.
- Third-party integration: The financial landscape is vast, and not every service has to be built from scratch. Collaborate with third-party vendors or fintech firms to integrate varied services.
- Continuous enhancement: To truly evolve your app toward super app status, it’s essential to understand the usage patterns of your users and discern their deepest needs beyond what’s currently offered. Begin by collecting robust data on user behavior and interactions. Harness this data to generate actionable insights, informing strategic decisions about feature enhancements and additions.
The adage “Slow and steady wins the race” rings true here. The journey to a super app need not be hasty. A deliberate and phased approach often yields the best results.
The cloud’s role in building a super app
When contemplating the architecture of a super app, the cloud emerges as a potent ally. Here’s why:
- Scalability and Security: Scalability and security are two mandatory things we need to consider. And these are both inherent features from any major cloud platform.
- Leveraging out-of-the-box cloud services: By tapping into readily available cloud services, you can streamline your app development. For instance, with API management, you can make your core functionalities accessible as APIs. This facilitates third parties to create applications on top of your platform, fostering an API-driven ecosystem.
- Rapid application development with low-code/no-code platforms: Cloud services have democratized app development with low-code/no-code solutions. They empower you to craft new applications within mere minutes to hours, though more complex apps will understandably require more time.
Harness the cloud, and you’ll find that building a super app becomes a more tangible and efficient endeavor.
Conclusion
Navigating the technology advances applicable to banking and payments can feel overwhelming. But with the cloud leading the way, we’re seeing faster and smarter implementations of advancements like autonomous payments, real-time payments, and super apps.
At the heart of it all is our READ principle: retain, engage, attract, and delight. This keeps us focused on what truly matters: our customers. As we keep pace with these changes, always remember that it’s about blending innovation with simplicity and always putting our customers first.
What Relevantz Can Do for You
As a technology partner, Relevantz can help you peel back the What, Why, and How layers of technology solutions to ensure that, together, we will help you READ your customers.
We have a proven track record of helping financial institutions realize their end-to-end digital transformation roadmap by streamlining traditional processes and modernizing legacy systems.
Serving traditional financial institutions as well as fintechs — including global banking institutions, traditional financial institutions, and neo-fintech companies — we provide holistic cross-service model banking solutions that support core banking and other mission-critical applications to the traditional banking sector.
Additionally, we leverage our expertise in the latest technologies such as cloud-native applications, AI, and blockchain to help leading financial institutions and neo-finance startups achieve new revenue streams and operational efficiency.
Want to incrementally modernize your banking services to be able to retain, engage, attract, and delight your customer?