Financial institutions and FinTech companies continue to explore new approaches to payment modernization, utilizing a variety of technologies to enhance transaction experiences. While cloud migration is often linked to modernization, industry leaders suggest that alternative strategies can be equally effective. Digital wallets, virtual cards, and embedded finance solutions are reshaping the way consumers and businesses interact with payments, influencing the broader financial ecosystem.
Earlier discussions on payment modernization largely centered on cloud migration as the primary method for progress. However, companies have increasingly adopted hybrid models, incorporating APIs, artificial intelligence, and flexible credential systems. Visa’s recent initiatives reflect this shift, as the company integrates modular solutions to address diverse needs while maintaining legacy infrastructure where necessary. These evolving strategies indicate a broader trend in the financial sector, where firms balance innovation with operational stability.
How Are Financial Institutions Approaching Payment Modernization?
Financial institutions and FinTech firms are at different stages of their digital transformation journey. Some organizations have established digital capabilities internally, while others are still defining their strategies. Neil Mumm, Senior Vice President and General Manager of Visa DPS, noted that modernization efforts often focus on improving customer experiences and enhancing operational efficiencies.
“There are two things that we hear from our partners when it comes to their goals. One is to enable better customer experiences — to figure out ways to remove friction for their customers through the modernization journey. The second thing is they want to reduce costs or create more operational efficiencies,” Mumm said.
Many firms hesitate to transition entirely to cloud-native systems, citing cost concerns and potential trade-offs. Instead, hybrid approaches that combine existing infrastructure with new digital capabilities have gained traction.
What Role Does Visa Play in Payment Innovation?
Visa continues to develop solutions that facilitate modernization for its partners. The company provides a platform-based approach that allows financial institutions to integrate various features, such as fraud prevention and dispute management. This modular system enables firms to selectively adopt new technologies without overhauling their entire infrastructure.
“We create the modularity and the flexibility to pick and choose the things that are best suited to what [these partners] want, what they want to take in-house and what they want to work with Visa or with other partners on,” Mumm said.
Visa’s platform also leverages software development kits (SDKs) and application programming interfaces (APIs) to accelerate the deployment of digital payment solutions. Additionally, an advisory service is available for firms seeking customized modernization strategies.
Tokenization has emerged as a significant aspect of payment modernization, improving security and transaction efficiency. Visa reported issuing 12.6 billion tokens in early 2024, representing a notable increase in adoption. Tokenization enhances security by preventing exposure of card details and offers greater flexibility in payment processing.
“With tokenization, we’ve been able to take these payment credentials and embed them into phones and the Internet of Things in ways that have changed the way consumers use cards,” Mumm said.
Visa has also introduced flexible credentials that enable consumers to switch between different funding sources, including credit, debit, and Buy Now, Pay Later (BNPL) options. This feature allows users to set customized usage rules, improving convenience and personalization.
Security remains a priority in payment modernization efforts. Visa recently acquired FeatureSpace to strengthen its fraud prevention capabilities. The integration of artificial intelligence-driven risk assessment tools aims to enhance transaction security and fraud detection for financial institutions.
Financial institutions and FinTechs continue to refine their payment modernization strategies, balancing innovation with cost efficiency. While cloud adoption remains part of the discussion, the growing preference for hybrid models reflects the complexities of digital transformation. Visa’s approach emphasizes adaptability, enabling firms to selectively integrate new technologies while preserving key elements of their existing infrastructure. As security concerns and customer expectations evolve, organizations are likely to explore additional innovations that enhance both operational efficiency and user experience.
