The payments space has evolved so rapidly in recent years that it has become cliché to ask what ‘the future for payments’ looks like. There is no single definitive answer, but we can certainly look to trends that we continue to see developing born from broader social and technical dynamics that influence how we interact, and how we exchange value.
Never before has there been such demand from consumers for instant fulfillment on transactions. Driven by retail and e-commerce, where getting exactly what you want instantaneously is the norm, the public demands speed from financial services. We’re also using cash a lot less, so many of the smaller transactions that we make are now digital. Therefore, demand for contactless payment methods has grown — consumers want to be able to make these transactions quickly and easily.
So after all of these seismic changes and the added convenience they bring for consumers, what exactly is coming next? Now, I don’t have a crystal ball, but I’ve worked in transactional banking for a quarter of a century and had a close-up view of the application of many technologies to banking services in that time. From my perspective there are several key trends that are going to drive future change in payments and migration to the cloud is perhaps the most central amongst them.
Shifting to the cloud
Of course, one of the most significant trends for the banking world in general in recent years has been the shift to the cloud. As Accenture explained, this shift has happened in three distinct stages: Firstly, with sales and marketing as platforms such as Salesforce have been adopted; secondly with the integration of HR systems such as Workday; and thirdly—and most significantly—with the migration of core applications and processes.
One of these core processes is payments. While many financial institutions operate their payment gateways on premises, there are definite advantages to using cloud-based technology here. With the increasing number of transactions being made, the scalability of cloud services means that the system can deal with any peaks and troughs. It’s also a more flexible platform that allows for easy upgrades, whether quick performance tweaks or the adoption of entirely new standards and regulations for compliance purposes. If the payment gateway is still baked into your on-premises core systems this is much more difficult to achieve.
However, much of the debate around cloud migration for banks was whether it was best to take a public or private approach. The former gives the bank complete ownership of their cloud but comes with a great deal of expense, while the latter offers virtually infinite scale but means the bank is at the mercy of the cloud provider to some degree.
My view is that while this debate is valid, it misses the point somewhat. The achilles heel of a single cloud approach—whether the bank owns that cloud or not—is that there’s a single point of failure. And while it must be said that all of the large public clouds have built weapons grade resilience into their platforms, at some level they still represent a single point of failure. If the cloud goes down, then everything stops
Multi-cloud offers ultimate resiliency
For payments, the best way forward is the multi-cloud approach. Rather than migrating to the cloud and choosing between Amazon, Google or Microsoft, you choose all three. This means if one of these three has an outage, then you can redirect activity and data to another one. It’s basically the ultimate resiliency play. Don’t rely on a single provider, spread the risk across multiple providers instead.
Imagine, then, that you have multiple data centers, all connected to each other, and each of which is connected to all three public cloud providers. A load-balancing application directs traffic flow from within the data centers to the appropriate cloud, with a database tracking all activity replicated in each cloud. So if any switch needs to be made due to an outage or any other reason, you can pick up exactly where you left off. It’s about as bulletproof an approach to resiliency as you can have.
Thinking multi-cloud will pay dividends in a number of ways. The growing demand for real-time settlement and the increased volume of payments being made require robust, flexible infrastructure; the kind that a multi-cloud approach can provide. Due to the interconnected nature of the global economy, the volume of international payments has picked up a lot in recent years. These cross-border payments are happening not just for large trade items, but also for smaller exchanges of services. Using multiple clouds is a solid basis for providing the support required for the increased number of cross-border payments being made.
Payment gateways belong in the cloud
Operating a payment gateway on premises is very expensive. There are the facility costs and hardware to consider, and an awful lot of connections to make depending on which territories you deal with. Standards change all the time, so maintaining all of these connections, applying all of the security patches and so on is a considerable drain on resources. Think about all the work involved in supporting Swift's migration to ISO 20022 or connecting to the forthcoming FedNow platform—it's a real headache.
By moving the payment gateway to the cloud, facility and hardware costs are taken out of the equation, and management and maintenance also becomes a lot easier too. Of course, cloud migrations have to be handled carefully. You can’t just take your existing platform from the on-premises environment and just replicate it in the cloud and expect it to instantly create savings and efficiencies. You need to think cloud native, with flexible micro-services that can be easily connected to each other and every provider, payment system and partner you work with.
But the flexibility and resiliency of the multi-cloud approach makes it, in my view, the most appropriate way to support the fast-changing needs of the payment sector. It will ensure that upgrades can be delivered effectively, new services can be plugged in quickly and easily, and new connections can be made without a problem. It will also provide a steady foundation for the continuing evolution of payment services in the future.
By Dave Scola, U.S. CEO, Form3