Future-Ready Payments Solutions: Competitive & Reusable

Over fifty years ago, when the original payment pioneers built electronic funds transfer (EFT) platforms to enable card services, they had a single use in mind. Reliable and secure card payments were achieved, but the architecture was so closely bound to card transactions that it is now becoming incompatible with today’s colourful payment universe.

With a raft of new and emerging payment schemes – largely built around digital ecosystems with a variety of tokens, security schemes, and different payment networks to integrate with – legacy payment infrastructures that use proprietary technology and single payment types are struggling to function effectively.

As mobile and contactless payments, Quick Response (QR) codes, digital currencies, Request to Pay (R2P), Real-Time Payments (RTP), Buy-Now-Pay-Later (BNPL) and peer-to-peer (P2P) payment applications take off, banks are forced to build separate in-house silos, in order to process these new payment types.

Given a plethora of dedicated systems are already in place to process cash, cheque and card payments, management of these silos and ‘add-ons’ is becoming a complex undertaking.

The profitability of supporting multiple payment schemes is being eroded by the considerable costs that come with developing, operating and maintaining multiple silos. Sitting on different technology platforms, they provide little opportunity for integration and commonality across different payment methods.

What’s more, as the resources associated with legacy platforms become scarce and more expensive to source, these costs will continue to rise as the platforms are customised to handle new features and schemes.

Smaller banks typically tackle this challenge by outsourcing services to processors. While this may work in the short-term, it can stifle differentiation in the market, and create a barrier to innovation – as well as become expensive, despite the potential revenues.

Forward-looking banks, on the other hand, are deploying modern payments platforms that are comprised of a set of re-useable services. These have the capacity to not only consolidate numerous payment schemes onto a single platform, but they can also future-proof businesses by facilitating easy adoption of new payment types. This is done by re-using existing service components and reducing the amount of new development required to support new business ventures.

Built with a cloud-native, micro-service architecture, API connectivity, and development resources, these platforms enable banks to offer modern payment systems; reduce their time to market; circumvent dependence on multiple vendors; rationalise operational costs; and even achieve a more centralised view of authentication, authorisation, exposure, and risk.

Cloud-native, micro-service platforms have the added benefit of leveraging a comprehensive set of low-cost tooling, which supports the development and operation of the platform. It also can enable the incorporation of proven open-source modules, to speed up time to market and support scale, security, and advanced operational capabilities.

As the payments race heats up – and banks wrestle with the emergence of new digital currencies, payment instruments, funding methods and payment types– those with the most agile, secure, and reusable platform will be rewarded with a strong competitive edge and improved margins from being able to control when, how deeply and how long to take part in any new payments venture.The payments landscape has evolved considerably in recent years, and customers are increasingly demanding the newest innovations from their bank. This rapidly shifting environment presents a material challenge for financial institutions. How should they transition from their current, legacy payment infrastructure, to one that enables modern, flexible and real-time, payment schemes?

A common strategy for large financial institutions has been to either heavily customise an existing platform that wasn’t properly architected for the new purpose, or build a series of in-house silos, or digital ‘payment islands’, to process these new schemes.

While this strategy may work in the short-term, the approach does not make it easy for an organisation to offer new payment solutions at speed, and it increases operational costs in the long-term.

Today, countless new payments opportunities continue to emerge, and many banks find themselves grappling with the question of how they can be best offered under their dated and fractured infrastructure.

While initially cautious to embrace cloud computing and the API revolution, financial players’ attitude toward this transformational technology is beginning to soften.

For some banks, it hails the endgame of payments transformation.

Three factors underscore banks’ increasing adoption of reusable, cloud-native payments solutions:

• First is the need for infrastructure renovation. Customer and business’ demands for immediate payments – alongside the competition from fintechs that are more easily able to meet them – means banks need architectures built around quickly deployable services.
• Second is the need to assume an agile stance to support emerging mobile and digital payment types, and brace for the constantly shifting world of commerce and compliance.
• Third is the need for financial institutions to deliver disruptive payments systems – such as P2P, BNPL, and so on – at speed.

It may be imprudent to view this upheaval of legacy systems as a purely IT-related preoccupation. At its core, the payments renaissance is a business opportunity.

Financial organisations can no longer hope to transform their technology stack triennially – changes on the horizon must be provisioned for today, in order to retain market share. Time and time again, transitioning to a modern payments platform – supporting scalability, flexibility, and automation – seems to be technology’s best answer yet to the challenge.

This new paradigm -in which firms are turning their back on punchy, in-house payments processing silos – is where the road starts to fork.

For banks, choosing the right path will be the difference between growing or losing valuable revenue.

(Excerpts from a impact study conducted by Finextra Research)