The ability to adapt to changes in how payments are cleared and settled, quickly bring new revenue-generating service offerings to market, reduce unsustainable cost-bases, and, for older banks, continue to understand and maintain legacy systems, is entirely dependent on modernising their payments infrastructure.
When embarking on a modernisation programme, banks have historically faced a choice: build the new capabilities in-house, or buy an off-the-shelf solution?
In the past, most banks opted to outsource payments modernisation initiatives to third-party vendors who provided complete solutions. However, many were burned as they found themselves locked in to overly complex, costly and inflexible black-box packages with glacial time-to-market.
Consequently, more and more banks are taking payments modernisation in-house to better stay in control of costs and risk. Yet this comes with its own challenges meaning the more important question is: how can banks successfully approach their in-house builds? In response, a third option has emerged that enables banks to take a sustainable approach to payments modernisation by developing payment processing solutions with the aid of a framework.
Short-term projects and long-term programmes
Before exploring approaches to in-house builds and the unique benefits of a payments framework, it is important to recognise the differences between ‘projects’ and ‘programmes’.
Sometimes, there is a need to build tactical solutions to address a looming short-term requirement. While these ‘projects’ are a necessity and come with clear funding models and motivated teams, they should not be mistaken for a strategic payments modernisation ‘programme’. While focusing on solving immediate headaches through tactical delivery can certainly feel like starting a modernisation journey, it rarely translates to building a truly future-proof foundation for innovation that delivers long-term value.
Escalating transaction volumes are a perfect case in point. A 12-month project to deliver the capability to support ten transactions per second can be successful, but what happens when the requirements escalate to many thousands of transactions per second? More often than not, there is neither the time nor money to prove the project can meet these strategic volume demands, so the bank is progressing in hope more than certainty – with the potential to fall behind the competition and expose themselves to unacceptable risk in the process.
Of course, defining, building and proving a future-proof foundation for modernisation takes time and money. Sometimes the business or industry need allows for neither, and the bank will have to focus on solving today’s problem. But in doing so, it must recognise this is a choice with trade-offs and unlikely to mark the start of a transformation journey. In reality, it will likely add to the ‘drag’ of legacy solutions and create more technical debt to be paid off at the expense of genuine innovation.
This is why modernisation needs to be seen as a longer-term programme that is focused on building a flexible framework that can meet new requirements as they emerge. If we look at truly great inventions such as the car, the core components – chassis, wheels and steering column – have remained consistent as they are fundamentally well designed. Because of this, cars didn’t have to be reengineered entirely to replace an engine with a battery, let alone to add in a radio.
The same holds true for payments. Despite the undoubted innovation across the industry, a payment is still the transfer of value from one party to another. If the underlying components within the bank are fit for purpose, change takes care of itself.
A sustainable approach to payments modernisation
As we have already seen, a fundamental challenge is that true payments modernisation is neither quick nor easy. This is compounded by the fact the actual target-state at the outset of the journey is also hard to pinpoint. Building an internal case for budget and resource for a multi-year programme based on the intangible promise of potential future value is a hard-sell for even the most persuasive advocate, particularly when teams are already busy enough simply keeping the lights on.
The good news is that there are ways for banks to take a sustainable approach to payments modernisation.
Building in-house doesn’t mean going it alone
While the limitations of vendor offerings have forced banks towards building in-house, starting entirely from scratch demands a prohibitive amount of time and considerable risk. Yet there is another way.
Payment frameworks provide a foundation for banks to build their own payments processing solution by themselves or with the option of support from technology partners or system integrators. This approach enables banks to ensure modernisation provides a foundation to accelerate the delivery of generic payments processing, while also providing the flexibility so safely build out to address their unique requirements independently from the framework vendor’s priorities.
A framework approach also means banks don’t need to build out every component of the payments ecosystem. For example, with fraud increasing in terms of both volume and sophistication, payment frameworks offer the ability for banks to simply plug in the best-of-breed fraud prevention offering – and then easily change provider if something better comes along.
Start with the why
While the end destination may not be immediately apparent from the outset of a modernisation journey, banks must at least know the direction of travel. There are fundamental strategic and commercial questions that need to be addressed to inform the pace, approach and technology choices, and while banks need to provide the answers, technology partners can facilitate the discussions needed.
Celebrate the wins along the way
While a long-term payments modernisation programme cannot (and should not) be funded and resourced like a short-term project, there are opportunities to deliver tangible business benefits along the way to build internal goodwill and start demonstrating return on investment. These milestones also help to bring the finish line into clearer focus.
Be ready for the ‘new new thing’
Decision-making among all industries – not just banking – is often vulnerable to the ‘status quo bias’, where the likelihood of things staying the same is over-indexed. Yet the sheer velocity of change in recent years, and the compounding impact of new technologies such as AI, mean it is inevitable that requirements will evolve. This does not mean banks have to learn to predict the future. Rather, it is about accepting that change is inevitable and ensuring they choose technologies that have the flexibility to safely adapt when it comes.
Upskill your team
Any successful payments modernisation journey requires educating business and technical stakeholders to build familiarity and confidence with new technologies, payment flows and project delivery methods.
Darren Capehorn is co-founder of Icon Solutions
"Delivering future-proof payments modernisation successfully" was originally created and published by Electronic Payments International, a GlobalData owned brand.
The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
