How should US banks approach payment modernisation

US· 4min November 1, 2022

Payments modernisation in the US is not a new phenomenon, but in today’s environment the nature of this exercise has shifted. Below is an excerpt from our recent webinar we hosted discussing this topic in detail.

The path to modernisation

Around the world, efforts to modernise payments are well underway. Asia Pacific, for example, has seen large scale modernisation efforts as the region’s banks adapt to ISO 20022, while Europe has been embracing real-time payments for some time.

In the US, meanwhile, payments modernisation has arguably been underway since the 1970s. But whereas this was previously a slow and incremental process of adjustment, the pace of change has now shifted, with banks aiming for a more wholesale transformation.

“At some point in the last few years – and you can point to RTP rolling out from TCH in 2017, and everything that’s going on in the FedNow environment – the mindset has shifted from slowly modernising our stack at the banks to a more holistic change,” says Mark Ranta, Senior Manager, Payment Technology Transformation at EY.

There are a number of reasons for this shift. For one thing, it has become all too clear that legacy platforms are fragmented, with a high cost of ownership. As Manish Baheti, Head of Payments for Consumer & Small Business at Santander explains, “Legacy payment architecture is often constrained by its inability to be scalable and responsive to changing client requirements.”

With new payment channels emerging and being adopted across the industry, there is a growing expectation that banks will integrate these channels quickly and seamlessly. Other factors driving the focus on payments modernisation include:


Cloud technology. Five years ago, discussions about putting mission-critical systems such as payment systems on the cloud were seen as off-limits. Today, however, this is increasingly seen as a necessary step in payments modernisation.


Competition with non-banks. For traditional financial institutions, the need to compete with non-banks has been a major catalyst for change. As such, it is clear that banks need to invest in overhauling their legacy infrastructures.


Impact of the pandemic. The pandemic was an important catalyst for sharpening the industry’s focus on moving to a digital-first mindset and driving payment transformation.


Changing client expectations. Clients have become increasingly sophisticated and expect to access bank services whenever and however they want, with a consistent experience across channels. They also expect all activities to be seamless, including fraud mitigation, authentication and exception management processes.

“The moment banks started to compete with non-banks, we needed to go into a different weight class... when we were all competing with each other, it was OK to carry the extra weight, but non-bank competition has been a huge catalyst for banks to remove legacy infrastructure.”


Getting started

Knowing where to start on a payment modernisation journey isn’t always straightforward. For one thing, building everything from scratch end-to-end is unlikely to be the best approach.

As Kunal Kochhar, GTS Head of Product Development Global Payments at Bank of America, advises, “Build what you can at home, and leverage the solutions out there that are available to you. The future is all about ecosystems, and you don’t want a situation where you’re undertaking too many things on your own in a payment modernisation effort.”

The importance of partnerships is only like to grow, with an ever-greater focus on strong ecosystems that comprise customers, financial institutions, regulators, fintechs and other partners. Also key are the technologies that will enable new integrations and end-to-end customer journeys, such as APIs, event-based architecture and microservices.

While knowing the goal of any modernisation exercise is critical, it’s also important to pinpoint which activities and goals are not going to be included in the project. “For example, we understood that we were not doing a system upgrade, or trading something out like-for-like,” says Bridgit (Bateman) Chayt, SVP Head of Commercial Payments & Treasury, Fifth Third Bank. “We were taking an opportunity to reinvent how we work, in addition to the technology that supports that work.”

Equally, the best approach will be different for every firm, and will be defined by factors such as the bank’s footprint, clientele and goals. As such, it’s important to focus on the developments that will be most of interest to the firm’s specific client base.

On another note, it’s important to recognise that adopting a new technology may not be the best solution in every situation. Different firms are at different points in their journeys – and in some cases, smaller or medium sized banks may find it is more important to fix existing inefficiencies, rather than moving to the cloud or adopting a faster queue solution. Once a more efficient architecture has been achieved, firms will then be better placed to adopt a cloud infrastructure that can enable them to scale up faster.

Journey of transformation

For any leader of an organisation steeped in payments, it’s a time of great opportunity and great complexity. The US payment landscape is rapidly evolving, and payment modernisation is a journey that requires careful planning and execution. With the move to ISO20022 and the upcoming next stage in faster payments with FedNow, the speed of change can be dizzying, but the rewards are considerable. By staying ahead of the curve, leaders can ensure that their organisations are well-positioned to take advantage of the latest payment innovations.

Access our full on-demand webinar: US Payments: The Modernisation Journey where we heard from a host of experts on what modernisation means for them and the approaches they take. These speakers include:


Bridgit (Bateman) Chayt, SVP Head of Commercial Payments & Treasury Management, FIFTH THIRD BANK


Manish Baheti, Head of Payments for Consumer & Small Business, SANTANDER US


Kunal Kochhar, GTS Head of Product Development Global Payments, BANK OF AMERICA


Mark Ranta, Senior Manager, Payment Technology Transformation, ERNST & YOUNG


David Scola, General Manager - US, FORM3

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