Payment Modernization Strategies for Mid-Sized Banks: Preparing for 2025 and Beyond
While it is still not clear if Amazon is building a nextgen bank, there is mounting evidence that the company is building ammunition on every facet — payments, lending, insurance and checking accounts. Amazon's recent fintech partnership with Affirm, the BNPL firm has also raised eyebrows. Affirm will be embedded as a payment method in Amazon Pay's digital wallet.
Amazon's principal objective is to make buying/selling easier for customers and merchants. In striving to achieve this, the company is finding ways to make payment options on its platform more lucrative for merchants. Recently, in the UK, it severed ties with Visa Credit card, due to increasing interchange fees following Brexit. The company has used this to reinforce its stance on passing interchange fee savings to merchants and making buying and selling easier.
In fact, our October monthly newsletter spoke about the rise of A2A payments in the e-com space and the opportunity it ushers for banks. With the democratization of Open Banking and the mushrooming of other options like Buy Now, Pay Later, there is increasing pressure on card networks.
What does this mean for banks?
Eventually there would be options to Pay By Bank — which would use Open Banking to transfer money directly to a merchant from the customer's bank account, thus cutting out the need for cards entirely. A2A payments operate on new payment rails like instant payments as opposed to the traditional card rails.
Banks' payment modernization strategy should be agile enough to enable e-com payments using A2A payment rails. Payment hubs on cloud-native platforms, that have the ability to route the payment A2A through different payment networks depending on their urgency, while also ensuring cost-effectiveness through straight through processing seem to be under consideration for many FIs in preparation for open banking.
Visa and Mastercard's procrastination to increase the interchange fees in the US, following the pandemic, will give some more time to Amazon to decide on the next course of action and banks to embark on payment modernization!
