The European banking payment landscape is changing fast with digital wallets predicted to account for one in three online transactions by 2023 and cash transactions continue to decrease with the Nordic countries leading the way. While end-users are changing their payment pattern towards digital solutions, the competitive landscape is also transforming. The traditional banks are challenged by non-bank financial institutions (NBFIs), fintechs, Big Tech players and digital start-up banks.

In response to these challenges, banks are now optimizing their business models to improve margins, and at the same time drive innovation and improve customer service.

A new survey by Tietoevry Banking, among senior decision-makers in more than 65 European banks, reveals that almost half of participants (51.5%) are looking to move at least part of their card operations to Software as a Service (SaaS) in the next two years. Looking out over a three-to-five-year time frame, a further 21.2% of respondents say they will be outsourcing some card operations, meaning that almost three-quarters (72.7%) of those answering say they intend to outsource.

The report also shows that banks will drive innovation and change through SaaS models either partly or the whole payment services value chain in order to achieve greater operational efficiency, better platform functionality and flexibility and expand the capacity to reduce their cost. While banks recognise the benefits of SaaS, their key concern is their ability to set and manage Service Level Agreements (SLAs) with outsourcing providers, as well as their organisation’s capability to adapt its internal processes for outsourcing.

Other findings from Tietoevry’s report include:

• Some 60% of banks surveyed currently outsource part of their processing requirement, with almost 50% outsourcing fraud management and slightly lower proportions opting to outsource parts of their card issuing and merchant management functions.
• When it comes to outsourcing infrastructure, 42,6% of respondents intend to opt for a multi-tenant solution to meet their Software as a Service (SaaS) outsourcing needs over the next year. Single-tenant solutions are the next most popular option at 23,8%.

“These results underline the need for banks to work with trusted, knowledgeable partners with a proven track records as they develop their approaches to outsourcing and migrate more of their card and payments businesses to outsourced service providers. Looking out over the next decade, we expect on-prem, public and private cloud hosting for outsourced payments services to coexist, though we also anticipate public cloud hosting will develop more specialised solutions for the banking and payments markets,” comments Valdis Janovs, Head of Instant and Retail Payment Services at Tietoevry Banking on the findings of this survey.

“We expect Software as a Service (SaaS) arrangements to prevail in the longer term. Banks have a good working knowledge of the risks involved in certain parts of the outsourcing process: however, they are still understandably conservative and our study shows the need for banks to develop confidence, knowledge and good working practices when it comes to outsourcing,” Toms A Jansons, Senior Strategic Product Manager at Tietoevry Banking, adds.

The survey was conducted in collaboration with Payments Cards and Mobile in May and June 2022. Payments Cards and Mobile surveyed more than 65 senior leaders from European banks.