The global surge in attempts to modernise the payments industry over the last few years is commendable and definitely well overdue.
The need to modernise quickly has been brought into sharper focus as coronavirus (COVID-19) has tested every financial institution’s ability to switch to near 100% digital delivery at a moment’s notice. For some, their foresight and willingness to embrace new cloud technologies meant their core payment infrastructures were ready and did not have to adapt to cope with the changes in behaviour brought on by COVID-19.
For others it was a wake-up call, that if there was ever a time for banks to get moving with their digital transformation programmes and the modernisation of their legacy infrastructures, it is now.
The only technology model for future payments ecosystems.
Being able to rapidly deploy the most feature-rich, fresh, innovative front-end customer facing applications, whilst managing to provide stellar transaction processing and availability times has made the traditional banks sit up and listen. The likes of Revolut, Ziglu, Dzing, Curve, Tide have really gone for it, and why not. Uncomplicated by legacy technology, these new challengers are winning with the shiny stuff.
So, if you are a bank with a legacy platform, what’s to be done?
Bolting superficial new services onto legacy infrastructure is a recipe for disaster. Many headline grabbing stories of financial institutions with IT issues, cyber-attacks, frequent downtime and frozen apps swept the internet during 2019 and early 2020. In a bid to ‘out do’ the challengers, banks went on a spending spree, creating their own challenger brands with mixed success. Bó and Loot were launched, burnt a lot of cash, and then ultimately failed… why?
Despite some seriously nice-looking front-end payment apps, what has changed in the middle and back-office to ensure they met the needs of today’s ‘always on’ consumer or business? Is the conveyor belt of regulatory change fast enough or fit for purpose to enable this democratisation of payments? For some banks, they are putting a Ferrari body kit on a trusty old Volvo but expecting supercar performance. At the end of the day the engine that powers it all needs to be up to the job.
Any chief technology officer (CTO), in any financial institution big or small, will tell you that the challenges in payment processing are the same. Whether your card is coated in metal or hot pink diamante, a payment is a payment and people want them fast, really fast. The key is the payments architecture – what’s going on under the hood. The back-end payment processing plant needed is a huge problem in a fast paced, 24×7, real-time hyper-connected environment.
The traditional agency bank model of batching payments and receiving transaction reporting in hours or days is no longer fit for purpose in the changed world. But it is still mainstream in many big banks – and the shiny new app just has to wait because it’s relying on the legacy technology. And what about the cost of maintaining that legacy stack? Data centres, infrastructure and in-house software are expensive to buy and maintain.
In the past 10 years, ‘the cloud’ has tentatively made inroads. But the last 18 months has seen an explosion in more and more critical services being migrated to specialist cloud providers among banks and fintechs. The UK heavyweight consultancies all rate cloud native technology as one of the biggest trends in payments in 2020. Gartner notes that “cloud computing is firmly established as the new normal for enterprise IT,” whilst Report Linker believes “the global cloud computing market is expected to reach $623.3 billion by 2023”.
Why is cloud-native adoption changing the game?
The need to scale and take advantage of new technology while controlling and reducing costs is imperative in the new “instant” world. People and businesses want to be paid instantly, they want to track their payments and get instant notifications.
Transforming critical payments infrastructure from a fragmented, on-premise environment to a cloud-native, agile, modular component-based model is how the payments industry is meeting the demands of the new normal. Cloud adopters are not putting a Ferrari kit on old metal, they are getting Ferrari performance without the price-tag.
The very nature of cloud enables instant scalability and deployment of new propositions quickly and efficiently without disruption to existing services. Adopting a modular, component-based approach enables reusability and testability of future investments. Updates are daily, and no longer just one release every six months. As a result, it is future-proofed and always compliant to scheme rules changes – which makes total sense in a fast-moving environment.
A cloud-native, API-based Payments-as-a-Service (PaaS) model delivers a faster, a more cost effective, complete, end-to-end payments journey, fully managed in the cloud. All payment schemes can be accessed through the same API so the core integration happens only once, and on a modular basis to meet current or future demand.
What’s more there is:
- No hardware
- No software
- No maintenance
- No downtime
- No unhappy customers
Many UK and European banks are already underway with their large digital transformation investment programmes, working in collaboration with fintechs like Form3 to re-platform their payments architecture for a fraction of the cost of building their own. And the solution is the same regardless of their size.
The time is now to take advantage of a standardised, highly performant and scalable cloud-based payments infrastructure that is flexible and adaptable to the changing payments landscape.
By Ryan Jackson, head of UK high growth at Form3
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