Breaking down the barriers: Putting payments in the cloud
Paul Curry, Manager of Payment Solution Enablement at Finastra
The days when financial institutions (FIs) insisted on payment solutions on-premises are behind us. The concerns that hindered adoption, such as the need to guarantee service levels and security, are actually more likely to be met by mature cloud providers than the FIs themselves. For example, Microsoft spends over $1Bn on cybersecurity to stay ahead of the curve on potential security threats (far more than an individual FI can). The company ensures compliance with a wide range of international and industry-specific standards (e.g. GDPR, ISO 27001, HIPAA, FedRAMP, SOC 1 and SOC 2 as well as country-specific standards including Australia IRAP and Singapore MTCS). Even thorny issues such as data privacy and residency can be addressed with new hybrid models ensuring that both on-premises and cloud environments work consistently across organizations. Add to this the benefits of:
- On-demand availability of processing power
- Removal of the cost/risk of maintaining complex IT infrastructures of on-premises
- Trouble-free upgrades and guaranteed payment scheme compliance
- Rapid on-boarding
- Subscription-based pricing as opposed to CapEx investment
… and the barriers to adoption are tumbling.
A clear business case exists for both:
- Global FIs: Where hosting a dedicated platform in the cloud will appeal as it provides the high levels of configurability and personalization required by such institutions
- Mid to low Tier FIs: Where a SaaS model with pre-packaged service offerings, a standardized on-boarding playbook and highly competitive price points are best suited.
Even operators of arguably the most mission critical of areas such as payments are yielding to this view. Why not utilize such a model for the essential but commoditized elements of the processing (clearing and settlement) and focus investment on differentiation in the digital experience that FIs can offer their customers? The best way to achieve this is with a clear separation of concerns – Fintechs such as Finastra deliver best of breed payment solutions while established cloud service providers such as Microsoft (with Azure) take care of the hosting – a collaborative approach, which combines the best of both worlds to deliver the strongest overall operating model.
Generally, such moves still need a trigger event and one that is particularly compelling is the global adoption of Immediate Payments. APAC is a notable case in point where both the breadth of new systems and the level of innovation in terms of overlay services (e.g. automated invoice and payment reconciliation) often leads the way. Indeed, APAC is outstripping the West in the adoption of alternative payment methods such as mobile and digital wallets (all of which draw on the services of immediate payment rails) due partly to the fact that card infrastructure and use of traditional payment methods are less entrenched here than in other regions. Moreover, GlobalData cites that 2018 was a tipping point – 51% of transaction value came from alternative payment methods with bank transfers, cash or cheques with cards accounting for 49%. Consider the clear benefits of combining Immediate Payment capability with cloud delivery:
- Immediate payment rails are new to the FI and so a cloud solution can be introduced with minimal impact on business-as-usual activity on other payment rails
- The relative immaturity of the service means that volumes are still unpredictable – why invest in over-sized infrastructure to ensure that peak traffic needs can be met when a cloud service can provide a pay-as-you-grow model and will ensure you meet the required SLAs under variable transaction loads?
- The operational requirements of Immediate Payments are significant – legacy systems will not be able to be adapted to support them and bespoke in-house development will carry high cost and risk. A purpose-built, segregated real-time workflow backed by a cloud architecture that has been specifically designed to meet the requirements of 24/7 availability and end-to-end processing times of seconds solves this challenge
- Supporting applications such as transaction scanning against watch-lists are increasingly available in the cloud. As Immediate Payment use by corporates takes off, transaction values will increase. Checks will also grow in importance, the solutions will need to deliver performance characteristics in line with the real-time processing needs of Immediate Payments, so again cloud hosting makes sense. In addition, cloud providers are launching their own APIs, offering services such as advanced Business Intelligence and AI tools.
As to the future, the increasing adoption of Open Banking, initially in response to regulation such as PSD2 but increasingly market-driven, heralds a move to a world of Platform-as-a-Service, where a collaborative ecosystem of innovation partners including FIs, Fintechs, academic institutions and even individuals can develop, deploy and consume applications in the cloud. Participants can draw upon a vast array of tools and business solutions such as AI, advanced data analytics and NLP, access to market data, PFM capabilities, trade insights and many more. Recent research shows that nearly 40% of FIs are already using or actively investigating platforms with 60% ranking the ability to build and test new applications in an agile way either first or second; this is the cornerstone of innovation and it is underpinned by the growing capabilities of the cloud.