Maximising the value of your payments function

Payments is a huge opportunity that’s often overlooked and for traditional banks, it represents a golden opportunity ripe for the taking. Payments has emerged as a thriving market, with projected growth from $2.85 trillion in 2024 to an anticipated $4.78 trillion by 2029.¹

Even though payments are a crucial touchpoint with customers, they’re not traditionally viewed as a significant value driver. This lack of focus means that most of banks’ work around payments has been driven by legal, control and regulatory compliance rather than competitive differentiation. And after years of underinvestment, payments functions remain heavily reliant on manual processes and legacy infrastructure.

To seize the untapped potential in payments, banks must address three key challenges:

1. How do you strategically position your payments function to deliver cutting-edge commercial value?
2. How do you tackle the rising cost-to-serve efficiently without compromising service quality?
3. How do you meet evolving customer expectations and enhance your payments value proposition while managing in a real-time world?

We believe the answer to these challenges lies in enterprise value creation. It’s a bold approach that focuses on achieving sustainable efficiencies to free up capacity and funding, transforming payments from a utility into a truly commercial revenue stream. It targets growth in areas that make a real difference to customer outcomes and experiences.

Focusing on four areas can deliver enterprise value-driven transformation sustainable efficiencies, increased liquidity and market relevance.

Enhance liquidity management

Effective liquidity management is a powerful tool for reducing buffer and collateral costs while enabling better commercial decisions. With the right tools and analysis, banks can understand the interconnected risks impacting payments, analyse patterns to accurately forecast cash, detect early warning of issues, and reward the business and clients for optimised payment timings.

What’s more, banks can extend their capabilities via partnerships. For example, alliances with other banks, Fintechs and payment service providers can streamline cross-border payments and reduce transaction, liquidity and collateral costs, foster innovation and help accelerate transformation. 

Consider the end-to-end value stream

Heavy reliance on manual processes means that as payments volumes have increased, so too has the cost-to-serve. Payments functions often struggle under substantial workloads and banks need to find ways to foster efficiency without compromising the effectiveness of their payment services.

By approaching payments as an end-to-end value stream, banks can go beyond process optimisation to shape holistic strategies that eliminate silos and enhance operational efficiency. As this transformation unfolds, payments functions should rethink their skills, roles and organisational structures to gear up for future success. Beyond this, they must cultivate a culture that embraces and maximises the potential of technology to drive meaningful, sustainable change.

Optimise resource allocation

Exploring offshore processing isn’t just about cutting costs. It's a strategic move to optimise resource allocation, by enabling specialised staff to concentrate on value-add activities while offshore services deliver repeatable tasks. Strategic decision-making is key, because banks must carefully choose the right activities to offshore while maintaining control over the process. 

Striking the right balance between cost efficiency and strategic oversight is vital to ensure that offshoring boosts operational efficiency without compromising quality and control. Done well, offshoring can dramatically improve productivity, while driving long-term cost efficiencies. 

Onshore should bring together diverse teams and foster cross-functional collaboration to optimise hand-offs and eliminate bottlenecks. This approach creates a more agile and responsive organisational structure, enabling smaller, more effective teams working seamlessly across the entire payments value chain to protect the business and keep customers happy.

Harness the power of AI and automation

Banks face tough competition, particularly from rising Fintech’s, which are often backed by external funding. Because Fintech’s are unencumbered by the complex legacy environments found at established banks, they’re able to integrate cutting-edge payment solutions into their operational ecosystems swiftly and seamlessly. Traditional banks must adapt to this competitive landscape and strategically position themselves as leaders in technology adoption to stay relevant and resilient. 

New technologies provide immense potential to automate routine tasks and reduce human intervention in payments, delivering massive efficiency gains. Beyond that, the emergence of generative AI (Gen AI) enables payments leaders to deploy advanced predictive solutions to identify patterns and react more quickly to events, determine specific changes in client payment flows, and utilise dynamic limit management and AI-driven playbook recommendations to drive commercial decisions and manage financial stability.

Realising cost savings, more effective use of liquidity and driving operational benefits will release significant capacity to drive sustainable value creation across the payments function.  Over the coming weeks, we’ll delve into more detail on the other areas required to drive long-term value from payments: evolving legacy operating models and building tomorrow’s leadership skills.

If you’d like to discover more about how Baringa can reimagine your payment's function and create sustainable value for your enterprise, please get in touch.

1 Mordor Intelligence, Payments Market Size, 2023, available at: https://www.mordorintelligence.com/industry-reports/global-payments-market/market-size