How U.S. banks and financial institutions can address top priorities and concerns

The last few years have dramatically transformed how U.S. banks and financial institutions process payments. The changes come in response to customer demands for superior onboarding and service experiences, hyper-personalized products, and competitive pricing and offers.

Real-time payment capabilities are in particularly high demand. Yet only 5% of financial leaders say they are confident that their organization can handle real-time payments today, and only 20% feel optimistic about their ability to do so within two years.

This is a crucial moment for leaders of banks and financial services institutions, who are tasked with anticipating the needs and preferences of their customers while managing risk in an increasingly volatile environment.

Kyndryl surveyed 105 IT and business leaders from U.S. banks and financial institutions to learn how they are evolving their payments landscape. The results suggest that the future of payments hinges on:

• Regulatory compliance and security
• The modernization of core infrastructure and applications, and
• The strategic use of generative AI

78% of financial leaders say regulatory compliance is the most critical action area to enable payment modernization.

Regulations establish a standardized cybersecurity and data protection framework, which fosters trust and confidence in digital transactions, and helps mitigate the potential for financial losses and disruptions.

Fraud and third-party risk management are also noted as top barriers to achieving a modern payment ecosystem. The complexity and sophistication of modern fraud techniques, along with the stringent requirements of AML and other such compliances, create substantial challenges.

Bad actors aren’t just going after the bank itself; they’re also looking for ways to exploit critical third-party providers of services. Banks’ and financial institutions’ growing dependence on these external entities comes with increased scrutiny from regulatory bodies and a strategic imperative for safeguarding an organization’s reputation and operational integrity.

Keys to success: Banks and financial institutions need to take a holistic view in addressing these challenges through modern technology. Employing secure API integrations, blockchain technology and enhanced biometric verification helps to ensure a secure, compliant and reliable payment transformation, ultimately turning risk management into a strategic advantage.

Organizations can approach this transition in a structured way by creating a roadmap for modernization, keeping in mind the interdependencies among core and newly implemented technologies.

Another key element of maintaining compliance and reducing fraud is prioritizing high-quality protocols such as ISO 20022, a global bank-to-bank messaging standard. ISO 20022 is slated to become the standard across U.S. financial services in July 2025 and required for cross-border payments via SWIFT starting in November 2025.

Payments are changing quickly, driven by new customer demands and technologies like real-time payments, blockchain and digital wallets. That means banks and financial institutions must stay fully informed about financial technology and closely monitor changes in how customers make transactions rather than pursuing simple upgrades to their systems.

One of the main challenges is limited capabilities of core systems. Many back-end systems cannot adapt to modern payment demands, forcing workarounds that create bottlenecks in transaction processing, increase risk exposure and pump up costs over time.

Banks are prioritizing investing in direct, peer-to-peer payment options such as Zelle, Venmo, CashApp and Pay by Bank to give their customers a fast and easy way to pay. But most struggle with the back- and middle-office application interfaces required to connect to these third-party systems.

Keys to success: Financial institutions must prioritize infrastructure and applications modernization to enable growth while reducing compliance risk. Doing so allows for greater flexibility to accommodate the growing volume of digital transactions and shifting customer preferences.

Successful strategies include adopting a phased approach, implementing a microservices architecture and leveraging cloud computing to enhance scalability and security.

Key components of the strategy involve integrating emerging technologies like blockchain and sophisticated AI deployments, and implementing hyper-personalized CX/UX. None of these are turnkey motions, but the investments can unlock real-time transaction processing, advanced security features and increased application interface flexibility.

Financial services leaders identify fraud prevention (74%) and customer support (63%) as top use cases for AI. AI can analyze data in real time to identify fraudulent transactions and synthetic identities, improving security and customer satisfaction. This emerging technology can also detect threats and help organizations recover quickly from cyberattacks.

However, only 15% of financial leaders are confident their infrastructure can fully take advantage of AI. And fewer than 1 in 4 are currently moving to production with AI to support payments. 

Security and privacy, data governance and regulatory concerns are all considered barriers to using AI to support payment goals. IT decision-makers are more concerned than business leaders.

Keys to success: Business leaders’ lack of confidence in their organization’s ability to leverage AI highlights the pressing nature of the need to invest in robust AI infrastructure. (We found similar concerns in our more-detailed report on AI readiness.) Outdated systems limit the ability to use AI, so there may be a need to modernize infrastructure, applications and data connectivity to realize AI’s actual benefits.

GenAI adoption is a multi-step process. Step one is to develop an AI strategy that addresses risk, mainly focusing on data privacy, regulatory requirements, audit and compliance. Step two is to prioritize specific use cases that provide immediate benefits, such as customer service, customer onboarding and fraud detection. Step three is using a phased deployment of AI across the organization.

Go deeper on payments modernization

• The evolution of core banking platforms: How we got here. What's next?
  
• Current perspectives on the evolution of payments
  
• 4 disruptive tech trends that will define the future of banking
  
• Predictions 2025: Banking
  
• Synthetic identity fraud: Understanding and combatting the fastest-growing financial crime