Digital Transformation Vs. Modernization: Which Is The Right Approach For Payments?

By Author: sifip
Total Articles: 686
Comment this article

Rapid industry changes, fierce competition, and changing customer needs have compelled merchants, financial institutions, and online payment gateway providers to rethink their future systems, processes, and goals. Both modernization and digital transformation are viable options, but which is superior?

The payments ecosystem, which includes merchants, financial institutions (FIs), and payment providers, is becoming increasingly complex. Organizations today face rapidly changing customer demands, regulatory changes, and emerging technology. While these change drivers are mostly positive, they do necessitate organizations keeping up with the changing landscape or risk being left behind.

To capitalize on the opportunities presented by change and disruption, organizations must ensure that they have the infrastructure and processes in place to support current requirements as well as the agility to rapidly adapt to changing demands. IT teams focused on payments have a lot of work to do, from ensuring that payments are secure to supporting real-time payments. Many organizations are turning to modernization or digital transformation ...
... to support new payment systems and processes — and innovation — as the industry adapts to sophisticated customer preferences and stringent regulatory requirements. While the two approaches are related and, in some ways, intertwined, they are also very different.

Payments Modernization
Payments modernization typically takes a bottom-up, left-to-right approach aimed at improving flexibility, lowering costs, speeding up systems, and impacting business results. It entails implementing new technology as well as automating the legacy environment. In the payments industry, this means shifting infrastructure and workloads to the cloud and focusing on agile application development.

Upgrading systems, implementing new platforms, and standardizing and modernizing apps enable organizations to meet current demands while preparing for future changes. Modernization can range from as simple as implementing new software and hardware to automate tasks and processes to as complex as migrating infrastructure to the cloud while retiring legacy systems. Payments modernization also considers security and compliance, ensuring that the organization has a strong approach to both.

According to KPMG, it also entails facilitating strategic readiness to assist stakeholders within the organization in better understanding the impacts of modernization. This can be used as a jumping-off point for larger digital transformation initiatives, as well as a solid foundation for launching those initiatives in the future.

Digital Transformation
The goal of digital transformation is to reimagine (and possibly rebuild) an organization's systems, processes, and customer experiences from the top down, right to left. The key word here is "transformation," which seeks to reverse engineer a business model holistically in order to achieve specific business impacts or business performance goals. This frequently leads to new policies, values, and even revenue streams.

The C-suite typically mandates digital transformation, and while the end goal is to achieve a business impact or respond to competitive threats, the end goal is to keep costs under control. To get there, IT must prioritize a quick and agile approach to supporting the path to the end goal. Digital transformation is chosen by organizations to adapt to new customer behaviors, capitalize on new growth and revenue opportunities, pivot in the face of new regulations and compliance mandates, and respond to disruptive technologies.

Where to Focus
Payments modernization is sweeping the industry as many companies migrate infrastructure to the cloud and upgrade apps that are migrating from the data center to the cloud. Modernization also provides an opportunity for organizations to pare down sometimes massive portfolios of technologies and vendors that have become a drag on infrastructure, impeding change due to an overwhelming number of dependencies.

As the industry evolves in many areas, merchants, financial institutions, best online payment gateway providers, and other industries are leveraging digital transformation initiatives to keep up with the massive shifts taking place. As digital payments gain traction, this is becoming more important than anything else. Customers who prefer the convenience of online payments and banking are gravitating toward fintechs and neobanks that offer the same products and services as incumbents with a digital-first focus.

Choosing the best approach for a company necessitates answering two key questions:
1. What do the clients want and require?
2. How do we pivot or develop a business model to address those needs while also anticipating changes in this changing landscape?

If the organization can prioritize business needs at any cost, digital transformation is most likely the best option.

Finally, digital transformation necessitates that an organization abandon old ideas about ROI in favor of new ideas that enable creative solutions to industry pain points and meeting customer needs. Both modernization and digital transformation necessitate a budget, but the latter will prioritize the solution to the problems at hand over whether or not the project fits neatly into an expected ROI calculation. Both initiatives seek to make payments operations more resilient, agile, and customer-focused. Modernization can help an organization catch up with today's technological, regulatory, and customer demands, whereas digital transformation will overhaul the organization holistically, resulting in a fundamental shift in business results.