As banks continue to grapple with the account-based payments processing model amid seemingly interminable margin pressures, the wider commercial implications of software developer capacity limitations are coming into much sharper focus.

In response, banks are starting to think differently about the payments value chain and re-assess their approaches towards software development. Increasingly, this includes exploring the use of low code tools and platforms for payments processing.

Understanding the impact of software developer limitations

An independent survey conducted by Celent of Tier 1 banks in North America and Europe reveals the full commercial implications of developer constraints for banks. On average, banks reported missing around four opportunities to launch revenue-generating enhancements to their payment processing offering over the past two years, with the opportunity cost estimated to be around 5% of annual payment revenues. With customer demand evolving and competition sharpening, banks cannot afford to leave any revenue on the table, let alone 5%.

The root cause of the challenge for many banks is the preference for in-house builds over buying vendor packages for payments processing software, with 72% believing it to be more effective to develop new solutions in-house. This mainly stems from a need to maintain control and competitive differentiation within a strategically important part of the operation, as well as the perceived limitations of off-the-shelf options (particularly for the very largest banks).

Despite these considerations, the upshot of this approach is that changes can become resource intensive, cumbersome and protracted. And in the face of myriad competing pressures and priorities within banks, it is product enhancement initiatives that are the first to make way in favour of more urgent priorities (such as regulatory compliance, realising operational efficiencies and, often, simply keeping the lights on). These issues are then often compounded by the limitations of outdated, monolithic technology stacks.

Consequently, change is inhibited and improvement projects are frequently cancelled or fail entirely to make it onto roadmaps, with 89% of product teams experiencing at least one of these scenarios in the past two years and 67% reporting developer capacity as a key barrier to innovation.

Given the huge downstream impact on the bottom line, some early adopters are now exploring the use of low code platforms and solutions to accelerate innovation through greater efficiencies, agility and collaboration.

Using low code to accelerate payments innovation

Low code involves the use of standardised, pre-built blocks that can be used to rapidly create new code or make changes to existing software. This enables software development with less dependency on manual coding, increasing developer productivity and enabling non-technical product specialists within the bank to contribute to the development process.

Low code is not a new concept, but it is growing in importance. Where previously it was limited to enterprise applications or workflow improvement projects, several large banks are now extending its use into payment processing to accelerate time-to-market, increase customisation and support modernisation efforts.

This is leading to an emerging consensus that the potential and benefits of low code are both real and realisable. 36% of banks reported that they are already using low code to support software development to some extent in non-card payments. The same proportion again are actively experimenting or exploring their options. Overall, 90% of banks are planning on implementing low code for non-card payments in the immediate future.

Realising the low code opportunity

For large banks that prefer in-house development for payments processing software, it is clear that a low code framework offers a compelling approach to overcome resource limitations and bridge the gap between product and technology groups. This has the potential to mitigate margin challenges as part of a broader reimagining of the payments value chain, helping to move payments from cost to profit centre while maintaining control over everything you are building.

Yet the use of low code has important strategic implications for banks that go beyond technology integration. The inherent complexity of payments means there is no single blueprint for leveraging low code to deliver enhanced, revenue-generating services. Nor should banks expect magic. The real live use cases demonstrate shortened time to market, less risk and cost, but each bank will be required to think differently and assess how the advent of low code influences their entire approach to both software development and procurement.

This demands a clear strategy and an understanding of the underlying architectural requirements. Banks should also consider the capabilities of partners to ensure they can support their low code aims. By doing so, the full transformative potential of low code can be realised.