Which Is the Right Approach for Payments – Modernization Vs. Digital Transformation?

The terms modernization and digital transformation are often used interchangeably. After all, both involve the transformation of legacy systems.

However, there’s a difference between both the terms. And payment providers need to know it because what they choose would define their future business strategies. So, let’s first understand the difference between both of them.

Digital modernization involves upgrading the existing technologies and IT infrastructure to meet the changing demands of the market and customers. There would be no significant changes in the existing processes. The objective is only to optimize the existing processes, improve efficiency, and decrease costs.

Digital transformation, on the other hand, involves a complete re-imagination of the business. This would involve not just upgrading but a complete overhaul of processes, workflows, technologies, and skills. Emerging technologies such as artificial intelligence and blockchain will become a mainstay. The objective is to become completely future-ready, so even the core ideology of the business could change.

 While the distinction is clear, it’s never an easy task to choose between modernization and digital transformation. There are various factors involved in selecting the right approach.

Let’s look at how to make that right decision.

Modernization vs. Digital Transformation – How to choose the right approach for payments?

Before deciding on the approach, let’s understand what comes under modernization and digital transformation.

1. Payment Modernization: Last year’s pandemic has clearly shown that contactless and digital payment options will be the future of payments. Payment service providers understand it too. According to a survey, 77% of institutions cited customer’s need for real-time payments as the main reason for modernizing the systems. However, they also realize that becoming fully digital would require a considerable amount of investment. That’s why many payment providers prefer to take incremental steps towards digitalization. Payment modernization would involve upgrading the existing systems, adopting new platforms, and developing feature-rich cross-platform apps. The legacy systems are slowly phased out, and the workload is moved to the cloud. Several processes are also automated to offer a better customer experience.

• Payment Digital Transformation: According to an Accenture report, 66.6 billion transactions amounting to $270.7 billion will move from cash to cards and digital payments in the next two years. As millennials and Gen Z become the main spenders, digital options such as e-wallets, wearable payment devices, UPI, and peer-to-peer transactions will become the preferred payment options. Even India’s RBI regulations have simplified digitalization and open banking systems. Hence, digital transformation can no longer remain an option. Payment providers need to prioritize it. Digital transformation is akin to re-building the systems and processes with new policies and values that are aligned with the current times. It essentially means that everything – from business processes, workflows, marketing channels, and applications needs to be reverse-engineered and re-built to stay ahead of the competition and generate new revenue options.

How To Choose the Right Approach?

Both approaches aim at improving the payment operations and increasing the ROI. The difference lies in the extent of changes.

To choose between modernization and transformation, providers need to ask themselves two critical questions.

1. What do their customers need? Are they looking for a completely new way of engaging with the providers, or do they want a faster and better quality service?
2. The second question is whether a complete revamp is the best solution for the business or can it be done incrementally?

If the current business need is to solve a problem such as optimizing slow processes like customer onboarding, then modernization could be the right way to go. However, transformation would be the right solution if the objective is to go completely contactless or branchless.

Although both approaches require the C-suite’s approval, the digital transformation would need more budget and expertise to complete the project successfully. Digital transformation requires a new skillset, so the C-suite should be prepared to hire people with new skills and train the existing staff in using the latest tools. If the C-suite has the resources and budget to make their business future-proof, they could consider investing in digital transformation.

The ultimate goal is to ensure that the product offerings are customer-centric and improves the customer’s experience.

How Verinite can help Payment Providers Take the Right Step

Transitioning to the new system, process, or completely changing the system is not an overnight exercise. It needs careful planning and implementation.

At Verinite, we help payment providers with both digital transformation and modernization.

 We combine our expertise, domain knowledge, technology prowess, and proven methodologies to build future-ready applications that will help the payment providers to meet their strategic goals.

To know more, contact us.