Navigating the evolving future of payments (part one)

The payments industry is experiencing a significant shift, moving towards a world where money can be moved instantaneously, 24/7/365, and with full transparency. Developments, including new real-time payments systems, the emergence of innovative overlay services, and the modernisation of legacy rails, are making domestic and cross-border transactions faster, as well as more frictionless, efficient, transparent, and cost-effective.

While the future of payments is clear, there is no single roadmap for banks to follow. With an array of new industry initiatives and emerging technologies – real-time payments, SWIFT gpi, SWIFT’s Transaction Manager, artificial intelligence (AI), blockchain, and digital currencies to name a few – banks need to keep pace with the changes and invest in a comprehensive suite of payment solutions. Only by doing so can they ensure they are well-positioned to cater to their clients’ evolving needs – both now and in the future – and support their clients’ digital journeys.

Modernising legacy rails

Across the payments industry, digital improvements are being implemented to enhance legacy rails, new capabilities are unlocking instant payments and industry initiatives are driving greater efficiencies and transparency in cross-border transactions. 

Real-time payment capabilities are being developed worldwide, with over 50 countries now live with their domestic systems – a move being driven by the demands of today’s fast-paced digital lifestyles. These new capabilities are enabling payments to be cleared and settled with improved flexibility and convenience, helping to facilitate a 24/7/365 economy that is free of cut-off times and business-hour restrictions, while also supporting the growth of faster payments.

Alongside the development of new, real-time payment systems, one of transaction banking’s most powerful developments in recent years is SWIFT gpi, which addresses many of the inefficiencies that previously hindered cross-border payments. By accelerating processing and increasing transparency – including visibility over a transaction’s lifecycle – SWIFT gpi helps clients save time and resources. For instance, by reporting delays as they happen, SWIFT gpi can lower enquiry costs by up to 50%. The benefits of SWIFT gpi are also expanding, with new capabilities in the pre- and post-payment processing stages – such as the gpi Case Resolution service (gCASE) and the gpi Stop and Recall (gSRP) service – driving efficiencies and moving further towards the future of payments.

Elsewhere, SWIFT is working with some of the world’s leading banks, including BNY Mellon, to develop a new platform that will help tackle remaining frictions in the cross-border payments space. The platform – known as the SWIFT Transaction Manager – will facilitate account-to-account transfers with enhanced transparency, predictability and security. Crucially, by enabling all parties in a payment chain to manage the end-to-end life cycle of a transaction – as opposed to the traditional message-based system, in which each party involved in a transition acts somewhat independently of the last – the Transaction Manager will reduce duplicate processes, streamline execution and help to facilitate the seamless migration to the new ISO 20022 messaging standard.

Emerging technologies

As well as enhancing legacy processes, the financial services industry needs to be alert to new technologies that will support their clients’ evolving needs. As digital solutions emerge, banks need to re-evaluate their offerings and identify new opportunities to maintain a competitive edge. To do this, banks are increasingly using AI and blockchain. 

AI applications are vital to the future of banking. They can be taught to use data to detect patterns and trends, gather insights and subsequently make recommendations concerning required actions. AI is becoming increasingly common in fraud monitoring, compliance and simple customer inquiries. Applying AI to more complex activities, including liquidity management and payment channel optimisation, is also being explored by banks – though many of these features remain several years away. 

Blockchain – a term often used interchangeably with distributed ledger technology (DLT) – is also continuing to be explored due to its ability to transparently record and store transaction details on a shared network. This removes the need for multiple copies of the same information to be stored in separate silos, significantly reducing the reconciliation processes. While the potential of blockchain –– to enhance payments is undeniable, its full advantages have not yet been unlocked.

On the horizon

Another development increasingly coming to the fore – and that has the potential to revolutionise not only payments themselves but their entire business model – is digital currencies. These could deliver benefits in three key areas: cross-currency FX swaps, securities settlement and, if the model proves successful, even cross-border payments (this topic will be explored in greater depth in part two of this article: ‘Navigating the evolving future of payments (Part Two)’). 

Amid these incoming developments, banks need to adapt quickly. To keep pace, many banks are looking to outsource digital solutions to trusted partners that already have the technology. Yet, as they do, it remains paramount that they can cater to the full breadth of their clients’ needs – finding the right balance between leveraging new capabilities and continuing to support traditional services. 

This is an exciting time for payments. With new technologies emerging and legacy systems being modernised, the payments industry has well and truly entered an era of digitalisation. With it, the opportunity for banks to provide improved, digital services to clients – with greater levels of security, ease, and efficiency – has arrived.

Digital currencies and how they could shape the future of payments and settlement will be explored in part two.

To find out more, read BNY Mellon’s new two-part whitepaper Innovation in Payments

The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.

About Michael Bellacosa

Michael Bellacosa has worked in payments for over 20 years. He leads the product management, product development, and strategic planning functions for BNY Mellon Treasury Services, driving the development of new and innovative solutions to meet the evolving needs of clients. 

About BNY Mellon

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment and wealth management and investment services in 35 countries.