The recent Banking Barometer, conducted by the Swiss Bankers Association (SBA),suggests that banks in Switzerland are facing major challenges: rising regulatory costs, negative interest rates, shrinking margins, increasing customer demands and last but not least, digitalisation. It’s no surprise then that competition is becoming fiercer and bank consolidation remains probable. Nevertheless, the Barometer goes on to say that the banks already addressing these challenges are the ones most likely to succeed.

It’s a similar story playing out throughout the financial services industry. Catering to new developments is disruptive, often adding technical complexity and cost when changes require modifications to incumbent legacy systems. When you factor in the fact that a recent research report by McKinsey and Company indicates that legacy IT is the highest impediment to digitising for banks (85%), it’s clear that financial institutions have quite a challenge on their hands.

Agility to drive innovation
As change is driven by governments, industry and customers, non-banks are a driving force behind stepping up the pace of innovation. So despite the challenges that change brings, traditional financial institutions need to find agile ways to keep pace and compete. This shifting landscape creates a tremendous opportunity for the banking industry to innovate – whether in their own right or by partnering with third parties.

So what is the most efficient and effective way to successfully bridge the crevasse between the past and future?  And how can banks leverage the strengths of fintech innovators or established technology providers to support continual innovation?

Rationalise, modernise, simplify
The latest in payment aggregation technology provides banks and financial institutions with a solution that simplifies the payment infrastructure, helping to easily embrace new services and scale with both market dynamics and customer demand.

As an outsourced, cloud-based service, payment aggregators bridge the technology divide by streamlining the way in which new and existing channels are accessed, as well as how interfaces, protocols and messages are managed. Furthermore, aggregation technology automatically transforms the data to and from various applications from a single access point. The centralised control is a boon for the back office because it removes operational complexity, which improves productivity and limits the need for highly skilled and expensive resources. It also provides a unified view of activity across a multitude of networks, which increases and extends visibility. Such innovative connectivity solutions are pivotal in giving banks the time and flexibility they need to adapt to change, embrace new payment methods and remain competitive – simply by bridging any technology gaps that emerge.

Furthermore, instead of being weighed down by impending regulations, such as SIC4, SWIFT CSP, PSD2 and Open Banking, cloud-based aggregation technology acts as an enabler by more easily absorbing new legislation, rules and regulations as they unfold. Interestingly, 100 percent of McKinsey research respondents, regardless of geography, state that digitization is an important lever to cope with regulatory burden. With such strong support for technology to do the job, there’s little argument that adopting automation would help insulate against these continuous changes.

In terms of security, there’s an escalating need to be conscious of — and reduce — any potential risk, particularly in such a fast-paced environment fuelled by market changes and innovation. The obligation to safeguard institutions’ and customers’ payment data is at an all-time high. Aggregation technology addresses these risks with supplementary capabilities such as improved security, resilience and reconciliation.

Paving the way
Whilst aggregation technology softens the journey from an earlier legacy era to a fast-paced digital one, banks have a responsibility to play a formative rather than reactive role in this transformation so that they can be well positioned to capture any new opportunity and turn it to their advantage. Aggregation offers banks and financial institutions an uncomplicated way to bring new solutions to market more quickly and cost effectively, supporting their business objectives of maintaining customer trust, winning new business and increasing shareholder value.

Posted by Daniel Bardini

As Managing Director of Financial Messaging for Bottomline Technologies, Daniel offers extensive experience in the finance industry developing and implementing business payment strategies.