A study conducted by Tietoevry in collaboration with Finextra Research found that 87% of banks rely at least in part on other banks in order to implement their service offerings. This reflects a growing trend towards partnership and collaboration in the financial industry.

The sample consisted of 150 European Financial Services and Payments professionals, equally representing 5 regions – the UK & Ireland, Central, Benelux, & other Western Europe, the Nordics, Eastern Europe, and Southern Europe.

An industry that is notoriously guarded in revealing cooperations with other financial institutions, the report highlights the rarely-spoken trend of outsourcing to external partners to enable payments processing to offload the service and streamline costs and operational resources. 

Other findings from the report include that 95% of surveyed banks outsource subcomponents of payments processing, including back-office operations (61%), customer service (57%), KYC processes (35%), and fraud management (28%).

The growing move towards outsourcing aspects of payments processing demonstrates that many banks are pursuing an operating model that allows them to free up capacity and redirect their resources towards services that differentiate them from competitors. The survey indicates that this changing business model is driven by factors such as low-interest rates and increasing regulations, while allowing banks to reduce costs and increase scalability. 

“The changing business model of payments is the single most important factor for banks to change their operating model. The availability of standardized payment services, such as Payment as a Service, is gaining traction and is increasingly being considered by banks. We already see this model successfully implemented in use cases in the UK and the Nordics.” - Jarkko Turunen, Head of Payment Products and Services Tietoevry Banking

However this trend is expected to subside with the growth of concern over KYC considerations and PSD3 requirements – larger banks will be increasingly hesitant to insource payments for other financial institutions.

“Whilst larger banks historically have insourced other banks payment processing, the increased regulatory requirements for KYC is changing the landscape where those banks are scaling down their payment services. That leaves smaller banks with the need either to significantly invest in their own payment infrastructure or seek new types of partnerships.” - Anders Olofsson, Head of PaaS at Tietoevry Banking

Payments in banking have evolved into a commodity with modular and composable aspects. While large modernization projects are unlikely to be implemented for a variety of business reasons, the most effective way to develop payments offerings is through using modular systems on the market. In addition to reducing strain on capacity internally, this can also lead to additional benefits to banks.

“The trend around the world is to move away from batch-oriented processing into real-time payments for international and domestic banking. As adoption of these real-time payment capabilities increases, we will see a more agile bank who can harvest benefits of new products and services.” – Anders Olofsson, Head of PaaS at Tietoevry Banking