New Marqeta study shows that while COVID-19 has made payments an even more crucial digital battleground for banks, legacy technology is creating barriers to innovation.
Marqeta, the global modern card issuing platform, released the second part of its European Banking report, based on a survey of 200 European banking executives, about the challenges they are facing when trying to respond to the greater need for payments innovation in the wake of the COVID-19 pandemic. According to the findings, 94% of bank executives say that payments have become a “technology arms race,” enabling them to gain a competitive advantage over rivals by offering greater choice and flexibility to customers. However, 84% of respondents said that legacy infrastructure is restricting them, making it almost impossible for them to innovate, at a time of increased scrutiny and great need.
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“The likes of Uber, Amazon, and Deliveroo, have set the bar when it comes to expectations around payments; having a slick and convenient way to pay has become a fundamental part of the customer experience. In our view, COVID-19 has greatly shifted behaviours and led to a surge in adoption of new payments technologies. This may increase the pressure to innovate at speed and maintain pace with digital innovators, driving a technology arms race. Banks seem to be vying with each other to rapidly develop and launch new payments experiences to stay relevant and gain an advantage over rivals,” comments Ian Johnson, Managing Director Europe at Marqeta.
The study of 200 banking executives showed that the vast majority of respondents (85%) believe overhauling existing payments infrastructure is a must if they are to innovate at pace and deliver the types of new payment experiences made increasingly essential by the current global pandemic. Further to this, over a third (36%) admitted they are frequently delayed when delivering new payments services and features to the market, often due to a reliance on legacy technology:
- The first part of Marqeta’s European Banking Survey found that more than three-quarters of bank executives have changed their future banking strategies, but 60% of respondents say the lack of flexibility and agility of legacy systems creates challenges when it comes to preparing for and implementing those strategies; while a further 55% say reducing the cost of maintaining and managing legacy systems is also a challenge.
- Looking specifically at payments, 85% of respondents find it frustrating that legacy technology prevents them from moving at the speed required when it comes to delivering new payments services, while 22% find it extremely frustrating that they are delayed by legacy payment platform providers when delivering new payments services.
- As a result, bank executives surveyed say they face difficulties launching modern debit card programmes (29%), point-of-sale financing (26%) and digital wallets (24%). Banks surveyed also face problems adding features to existing services, such as: digital wallets (42%), modern business lending programmes (36%), and modern debit card programmes (22%).
“In 2020 it has become more important than ever to innovate. Part of that means meeting consumers where they are – which is increasingly in the digital world. But banks often face multiple barriers to innovation in payments and may be held back by the complex web of legacy systems they find themselves entangled in – a challenge that their digital native competitors, those born of the cloud era, are unencumbered by. This may make it more costly, risky and time-consuming for them to innovate – particularly in areas like payments. If a bank wants to add a feature – for example using real-time data to offer discounts and loyalty rewards, or services that offer more financial management tools and spending controls – then that can be a very long process. In our experience, legacy payment platforms may take three months to add new features or expand into a new territory – by that time, they may have missed the market moment,” explains Johnson.
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Banks face challenges delivering new payments services
When it comes to payments innovation, banks are facing challenges that are hindering their ability to deliver new payments services and features. Key technology challenges indicated in our survey when it comes to payments innovation include: difficulties integrating legacy technologies with modern systems (62%), disjointed and siloed payment platforms that make introducing new features or services inefficient (55%), and a lack of customisation options that involve large up-front costs to introduce new features or services (46%).
Banks also face cultural challenges that hinder their ability innovate, including: constantly having to address new regulations, leaving little time for innovation (66%), being unwilling to take a risk on the unknown and favouring the status quo (58%), and a lack of trust because of poor previous experiences trying something new (44%).
“Banks must break free from the shackles of legacy technology and embrace more agile systems built for the digital era. By harnessing technologies such as modern core banking and payment platforms, banks can innovate at the pace required to deliver new payments experiences to the market,” concludes Johnson.
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