‘Legacy issues’, ‘mature payment systems’, ‘modernisation’, ‘interoperability’, ‘biometrics’, ‘real-time’, the list goes on.
These words and phrases are commonplace in hangouts and boardrooms across the globe as those within the banking sector grapple with advancements in what has become an increasingly complex environment, that of payment systems. The most challenging, and often shelved, questions asked of those involved in the payments space – are ‘how?’ and ‘when?’ to upgrade a maturing payment system.
The constantly evolving world of card and merchant payment processing won’t wait for those who linger in indecision.
Pressure on existing payment systems
In organisations across the globe, payment systems that have and continue to serve their purpose are in existence. The challenge is the effect on these systems of the emerging, real-time payment services of today.
The changing habits of consumers are catapulting these more sophisticated payments systems into the market. As they become more commonplace, so do they increase pressure on the existing or legacy payment system which could be in place since as early as the 1980’s.
Think about this situation for a moment; legacy payment systems have been manipulated and supplemented in bits and pieces over time to accommodate the evolution in payments software. Some of these systems developed in 1980’s and 1990’s when a phone weighed more than the average laptop does today, have been adapted to allow them to process payments made by our smartphones. Think of it like a puzzle, the result of this continued manipulation is not just a jigsaw incorrectly assembled but pieces from different jigsaw puzzles, pieced together in an indecipherable and unsecure manner.
Whole systems need to upgrade and be better placed for continued evolution; this evolution is undoubtedly for the better of all stakeholders within the payments ecosystem.
In Capgemini’s 2015 Financial Services Analysis, a question was put to respondents, those working within the payments industry ‘What are the challenges facing the success of immediate payments going forward?’ With on overwhelming majority of 82.5% of respondents citing the issue, legacy payment systems was found to be the biggest challenge facing the success of immediate or real-time payments within the banking sector.
Notwithstanding the pressure from consumers demonstrated by their preference for real-time payments, regulatory changes such as the intended ISO 20022 standard for messaging and the EU’s SEPA initiative serve to further compel banks to upgrade their payment processing systems.
SWIFT’s recent Global Adoption of Real-Time Retail Payments Systems report underpins this belief. The report quotes Juliette Kennel, Head of Market Infrastructures at SWIFT: “The emergence of real-time payment services is having a transformational impact on underlying payment systems. Real-time is a growing trend led by consumer expectations, supported by regulatory reform. Legacy and new models will need to co-exist both at a domestic and cross-border level, so, for banks, interoperability will be key. The industry is going to have to come up with ways to enable banks to offer real-time capabilities while keeping costs in check. Collaboration and innovation is going to be key.“
So, with interoperability in mind, let’s return to those key questions again: ‘how?’, and ‘when?’ to upgrade a mature payment system?
How should a payments upgrade work?
An ‘upgrade’ sounds positive, but what does it really mean and how should the process actually take place? There will be regulatory compliance issues such as PCI and EMV as well as fundamental cost concerns.
The key to any upgrade is services-oriented architecture (SOA).
SOA is an approach used to create an architecture based upon the use of services. Services (such as RESTful Web services) carry out small but important functions, such as producing data, validating a customer, or providing analytical services. SOA is really about fixing existing architectures by addressing most of the major systems as services, and abstracting those services into a single domain where they are formed into solutions.
Banks implementing a systems architecture influenced by specific customer-desired services will require SOA. Forbes recently labelled SOA ‘the enabler of the digital world’. Its implementation to an existing payment processing system can quickly, compliantly and efficiently transform a legacy platform.
Certain iterations of SOA do so by easily integrating into existing, or planned, payment systems thus providing management with peace of mind as regards cost and effectiveness. An ‘upgrade’ does not have to be ‘all or nothing’.
The added beauty of an SOA implementation is that it is agile and scalable.
Not predicting the future, just preparing for it.
Banking technology needs to keep pace with consumer purchasing habits. Systems must be structured to accept all of today’s payment services and messaging types. Of course, they must also do so in an acceptable timeframe, and satisfy budgetary outlooks.
Any new technology introduced into a payment processing ecosystem needs to meet budgetary requirements, must improve security, and needs to embrace new and emerging payment services and methods, such as mobile, in-app, in-browser, and internet-based.
Deloitte research – revealed in this Wall Street Journal guest blog titled ‘The Mobile Payments Tipping Point’ – illustrates just how fast these emerging payments are maturing: “In 2014, an estimated 2 million people worldwide used their smartphones on a monthly basis to make payments. In 2015, that number will likely jump to 30 million to 60 million people.”
Mobile payments are finally gaining traction with consumers and that aforementioned Forbes piece states that “SOA is here to stay. In fact, all of cloud computing is fundamentally based on SOA.”
For payment processors the use of SOA, offers instant access – read interoperability – to this new world of maturing payment types. In addition this implementation opens the doors to the offering of numerous value-added services such as Dynamic Currency Conversion (DCC), loyalty and gift card processing and mobile top-up.
There are trends that can be used to prepare those in the payments ecosystem but too many ask for a complete overhaul when this approach is simply not necessary.
SOA doesn’t predict the future, it prepares systems for it.
The quest for value in payment technology must not come at the expense of innovation. If it does then these decisions can lead to stagnation, and the firm runs the risk of going into freefall due to one crucial decision.
At Fexco Transaction Services we are committed to developing future-proof solutions to assist our clients in overcoming the obstacles presented by the ever-changing payments ecosystem. Our unique switching technology enables us to assist our clients in upgrading legacy payment systems to better service the needs they have today and the needs they will have in the future.