Interview with Form3: ‘Democratizing the payments landscape will benefit everyone’
InstaPay Editor Lauren Jones talks with Jolanda Schekermans, Senior Product Manager at Form3 on cloud technology and instant payments.
For those within our readership who are not familiar with Form3, can you tell us a little about what the organisation does?
Form3 is an end to end Payments-As-A-Service provider.
Our cloud-native, real-time payments platform combines cutting edge micro-services technology and APIs to enable regulated financial institutions, banks, fintech, e-commerce gateways and card providers, to access payment schemes and real-time transaction processing through a single API, quickly, simply and cost effective. That way they can focus on what matters, the customer relationship and delivering products and services based on our platform to their end-customer. Our customer base ranges from medium-sized to tier-1 organisations.
We support our customers via a fully managed 24×7 service model. Integration to our platform is done via a single point of access for all different central systems such as FPS, Bacs, SEPA Instant, SEPA Credit Transfer and SEPA Direct Debit. We shield our customers from the complexity of the different integrations, market practices, standards and 89% of testing efforts with no hardware or software at our customers.
Payments as a Service has a lot of potential for banks and their ability to react quickly to the changing payments landscape. Cloud based, or off-premise technology has become more palatable over the last few years, but do you think banks have been quick to take up the opportunity of PaaS?
Incumbent banks have realised the challenge and we experience on a daily basis that they are catching up and looking to move to cloud native environments. This type of change is a big challenge, to completely overhaul back offices is an expensive and complex project. Challenger banks are greenfield and are able to pick up the latest technology and use it immediately to their advantage. In contrast, incumbents have to deal with batch-based processing systems a multitude of processing engines, different end points and an existing customer base that has higher service demands and expect migration to real time services to happen without disruption. That is why the decision to go cloud native and use off-premise technology often goes hand in hand.
Compared to a few years ago, there is so much more collaboration between incumbents and fintech, where each party recognises each other’s expertise. There is a realisation that combining their services will help incumbents gain the speed to market and agility they need to stay relevant. It makes for a very interesting payments landscape. I can’t remember a more exciting time to be working in payments than right now.
More than ever we are in a continuous changing payments landscape. I can see ever more challenges and more opportunities! So, there is no time for any of the stakeholders to rest on their laurels.
To what extent are security concerns still a barrier to adoption for cloud technology?
Security concerns are sometimes brought up in discussion, but it happens less and less. I think the industry understands that by now `cloud` has scaled and is also used by a number of critical infrastructures. The providers of cloud environments are highly specialised and offer advanced security tools not available in any other set-up. I would argue that AWS is as secure if not more so than many of the old school data centres that the industry is used to depending on.
The regulators, at least in the UK, have been very vocal about open access to payments systems. How much of that issue should be solved by the supply side of the payments sector versus changes to the underlying infrastructure governance, do you think?
When you talk about the supply side, I would divide those into two – on the one side, parties like us that enable both banks and fintech to deliver end-customer services and secondly, those financial institutions we service that are looking to provide better and innovative services to consumers and corporates. I think it is clear that both parties on the supply side are already on the move. Open access to payments systems though in my book should not just be a push driven change.
Irrespective of the type of FI licence that new payment providers hold, the underlying infrastructure governance needs to support their access to payments systems. PSDII opened up the market to new players but incumbents of the industry and more importantly the infrastructures need to further allow these regulated parties to play their part. Democratizing the landscape will benefit everyone, bringing further collaboration on innovation, reducing cost and support financial services to become more inclusive.
The UK FPS system shows that allowing regulated financial institutions, like our customer Ebury, onto their central system as a direct participant is possible and not disruptive; it is something in which I hope Europe will follow suit. The Bank of England shows vision by looking at opening up the balance sheet to new payment providers. It is the new reality of the financial world and it is better to adapt. As the Governor of the Bank of England, Mr. Carney said it is important for regulators to balance innovation with keeping the resilience of the market. I would also quote his statement at the G20 Finance Summit in 2017 that the reason that the balance sheets of the Bank were only available to banks in the past was because they were at the core of the payments systems but now that is changing. Providing access does not necessarily disrupt the resilience, The Bank has understood that.
It is not just an issue in the UK, as more countries adopt instant payments, the issue of access to these systems arises. How active is Form3 in dialogue with other markets?
Though our first home market is the UK and our second Europe we have always thought global from day one. We are committed to become the global leading provider of payment back-office technology. Therefore we follow the global market closely; the changes in the real-time market, the interoperability agreements and its challenges, to ensure that our product is future proof. Through our broad network we are in touch with stakeholders in different markets and always make our case for a multi-tenant approach and our aim to open up the market to all regulated FI’s. We see that new real time markets like Canada are planning to include all types of stakeholders from the start. The same is true for certain initiatives in Asia.
Instant payments have been a warm topic in Europe since its launch in 2018 but we haven’t seen a wholesale move towards it in all markets across the region. Smaller banks have been much slower to adopt. Do you think cloud-based solution and PaaS is the technology this sector of the market needs?
The SEPA set up should not be directly compared to local systems like FPS. For one, the SEPA Instant Payments is an optional service. It caters for both domestic and cross border payments and the SLA of 10 seconds, in reality most payments are processed in 2 to 3 seconds, runs from initiation to the confirmation of the credit on the beneficiary account, back to the originator. This SLA adds complexity of screening and such at speed to the mix.
Considering the time the service has been up and running and the high percentage of domestic payments, the uptake of the pan-European scheme is considerable. Around 85% of the end points that could already be reached via SEPA SCT can now also be reached via SEPA Instant.
Some countries like The Netherlands have chosen to go-live slightly later to ensure a simultaneous launch for domestic and cross border instant payments that include all stakeholders of any size in their market. We are strong believers though that instant will become the new normal.
So yes, there is a different level of uptake per country and we recognize that reachability is key to ensure that other players join that market. We are building an intelligent router to cater for full access in SEPA whilst that instant market grows. When the instant market further grows, there will be demand not just for the transaction but for more data and different data services. In the real-time payments market the combination of cloud native microservices based architecture in combination with API technology is going to be key to cater for all these demands.
Form3 received $13m funding at the end of last year, what can we expect from Form3 in the not too distant future?
We are looking to add further functionalities to our platform to allow our customers make better use of the data and add further microservices to our existing products such as intelligent routing capability, which we will launch for our SEPA services later this year. We are also planning to bring our service for both direct and indirect connectivity with settlement systems in other geographies.
We also recently got rewarded £5m from the BCR innovation fund together with Ebury to build out a service for international payments for UK SMEs.
We are looking to further build on our strengths both in depth of services and across geographies without losing our unique approach of providing single and cost-effective access.
Jolanda Schekermans, Senior Product Manager, Form3