Payments infrastructure modernization is imperative given the disruption and complexity in the payments landscape. We explore the three big drivers behind these efforts. Payments systems are complex and the past several years have seen substantial disruption that has further driven the need for payments modernization. Between complex and ever-evolving regulations, emerging technologies, and increasingly sophisticated consumer demands, more challenges exist than ever in the payments space. Payments modernization and upgrading infrastructure to meet and exceed these challenges in a cost-efficient manner are imperative. We’ll explore the top three drivers of these changes below.
1. Regulation
Financial institutions are under a more stringent level of accountability, due in large part to the financial crisis of 2008. Aligning with global regulatory standards has become a top priority for payments organizations, including providing end-to-end payments reporting. Reporting requirements are just the beginning; as the adoption of open banking gains momentum abroad and the PSD2 edges closer toward API use standardization, payments firms must strive for transparency and consistency to meet growing obligations.
Additionally, regulatory edicts like the PSD2 are increasingly democratizing customer data and lowering the barriers of entry for additional fintechs and competitors. As data becomes more readily available, payments organizations must be able to efficiently process and analyze it, which is more easily done through cloud technology and API-based systems.
2. Technology
Perhaps the most obvious driver behind payments infrastructure modernization is technology, or more accurately, the cost of technology. Payments firms that are reliant on legacy payments infrastructure find the inflexibility forces them to depend on multiple vendors. So not only does the ongoing maintenance of on-premise hardware, software, and storage become expensive, but the total cost of ownership — including dependence on a wide range of vendors — does, too.
In addition to cost, the lack of agility hamstrings organizations by fragmenting platforms and applications. Monolithic legacy core systems are resistant to nimble changes, making it challenging and slow to deliver new products and services. Add to that the regulatory concerns above, where aging systems are unable to respond to emerging regulatory mandates or effectively guard against new threats.
To say we are living in a fast-paced payments world is an understatement. We are currently in a 24/7, always-on, instantaneous payments world. This requires agility and scalability that legacy systems simply cannot muster, making it challenging to meet quickly changing customer needs. Those that wait to modernize payments infrastructure to adequately meet those needs will quickly fall behind, especially as competitors who do modernize can take advantage of new payment channels and innovate.
3. Customer Experience
Arguably the most critical driver behind payments infrastructure modernization is the customer experience. Convenience is the ruling factor and on-demand services across almost every industry mean payments service providers should be offering the same via real-time transactions. Customers are comfortable transacting across a number of channels, and they want to be able to do so easily, with funds being transferred in real-time.
In addition to fast payments, consumers also expect secure payments delivered seamlessly. That means payments should be accompanied by strong, channel-appropriate authentication measures with minimal friction. This should also happen in a consistent way across channels.
Speed and security are table stakes, but innovation matters, too. Given the shifting behaviors in the wake of the pandemic, it’s become clear how quickly innovation can shift the payments landscape. Before the pandemic, mobile wallets were struggling with adoption; however, the touchless element of that technology has made it a hero in pandemic payments, where people are seeking out alternatives to cash and credit cards.
That same innovation is also broadening and deepening the pool of payments players who are delivering creative new payments products and services. From a competitive standpoint, payments infrastructure modernization is not a question of “if” but “when”, where the answer is “as soon as possible.”
All of these factors combined are introducing even more complexity into the payments ecosystem. To survive and thrive within it requires a flexible, agile, scalable infrastructure that cannot only weather the storm of disruption but play nice in the new Payments-as-a-Service (PaaS) sandbox.
Without a doubt, the payments landscape is changing at a speed never seen before. Innovation, evolving customer preferences, global trends, and emerging business models are creating the perfect storm of payments disruption. The new challenges require new solutions — solutions not found in aging, monolithic legacy payments infrastructure. Modern times call for modern technology and modern measures, making payments modernization a necessity to remain competitive and for continued innovation. Legacy systems will not bear the weight of payments complexity, new payment channels, and an increasingly competitive and fast-paced landscape. Payments infrastructure modernization is the only path forward for those that want to future-proof their business and survive the storm.
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