The payments industry continues to be rattled with changes all around–and for the better. For customers, digital experiences have become permanent fixtures across industries and buyer journeys. Meanwhile, businesses will see payment processes long overdue for change become more efficient and increasingly effortless going forward. There is an increased focus on payments infrastructure modernization and SaaS platform adoption to bridge the digital divide. With the evolving complexities of the payments eco-system both from a technological and operations viewpoint, mounting pressures of regulatory compliance, and the rush to deliver new services, the payments players are in a fix – whether to do it all by themselves or delegate to a trusted partner? And this is exactly where the HPE GreenLake for Payments solutions comes to the fore.
HPE GreenLake for Payments is a powerful and complete solution for Retail payments and is fully capable of handling both card-based and non-card, consumer payments. The HPE GreenLake for Payments solution is based on the industry-leading TANGO software from Lusis Payments, deployed on the trusted, highly scalable and fault-tolerant HPE NonStop systems, and is backed by HPE’s pedigree track record in the migration and operation of mission-critical systems. Delivered through HPE GreenLake, customers get a pay-per-use, scalable, fully managed solution, delivered as a Service.
The TANGO software provides a modern, cloud-centric, open SOA for acquiring, routing, switching, authenticating, and authorizing transactions across multiple channels — including ATM, point of sale, Internet and mobile banking. TANGO also supports multi-institution environments across different geographies and features integrated active-active and DR support for the ultimate in processing robustness.
HPE GreenLake for payments’ unique design removes complexities and reduces migration risks and time frames. Off-the-shelf functionality and rapid development capability mean that standard card types, international card schemes and devices, national and regional switches, and hosts can be easily deployed within the standard product.
Importantly, the solution delivers all the cost advantages of pay-as-you-go computing resources within the security of your own data centre. Data sovereignty and regulatory compliance needs are easily validated and controlled within your own environment and HPE’s superior managed services ensure trouble-free operations and the safe, rapid deployment of new services. The solution brings together the best of all 3 worlds together: the open and integrated architecture coupled with payments expertise of Lusis TANGO, the proven, fault-tolerant distributed transaction processing of HPE Nonstop, with cloud-economics of pay-per-use via HPE GreenLake.
Consequently, banks and payments processors can embrace GreenLake Payments as their strategic payments platform with complete confidence.
Assessing The Challenge
The payments industry is facing an unprecedented set of challenges. Whether financial institutions are able to come out of this stronger, is ultimately down to how well they can adapt their technology stack to meet rapidly evolving customer needs, industry challenges, and business opportunities.
The good news is that the payments industry has never been a sector that has stood still. We’re used to handling technical, regulatory, and compliance changes, and building new products and services. The difference this time is the speed of change. Technology means we’re moving at a rate never seen before.
The challenge facing the industry isn’t whether we understand the technical barriers, but instead whether financial institutions are able to execute the right technology strategy to meet market needs. More than anything else, the biggest risk facing payments businesses is failing to adapt to changing markets faster than their competitors. Leadership teams have to prioritise the time and resources required to emerge into the new payments landscape stronger and more agile than before.
It’s become a cliche now that the pandemic greatly accelerated the adoption and diversity of digital payments. But the financial sector was already meeting the challenge of these changes before the pandemic hit. Millennials have very different saving and spending habits than their parents, and digital-only banks had emerged into the market more than five years before.
The risk now is that CTOs, boards, and other senior leadership teams don’t keep moving forward. Falling into a false sense of security that you’ve met one of the biggest economic and social challenges of the last hundred years will prove fatal.
Before the pandemic, the global banking industry began to see a rapid increase in the number of neobanks, with funding pouring in from Venture Capital firms to fuel the fire. Ultimately, the success of this generation of banks has been fuelled by changing expectations of a new generation of end-users. With more trust placed in the internet, digital-only offerings were able to flourish.
The pandemic has compounded this. Many of those who were reluctant to bank online or use contactless payments instead of cash have found themselves with little choice but to do so since March 2020.
While a small proportion of users may return to their pre-pandemic habits, the majority will not. Banks are also facing pressures on their business models. Many are struggling to make money the way they used to, with pressure from falling interest rates, current account revenues, managing branch footprints, and loan losses amongst others. Ultimately banks need to figure out how to meet the needs and wants of a younger tech-savvy generation. That means providing tech-first products that younger generations want to use.
Banking is a heavily regulated market. Although some initiatives, like PSD2, are designed to open access and technologies to the market, the vast majority are still geared towards consumer protection and the management of risks taken on by banks. Consumer protection regulation will also play a key role in how much revenue financial institutions can make from their payments businesses, by governing fees and charges.
Striking at the heart of the economy, the pandemic has had a significant impact on the banking sector. McKinsey anticipates $3.7 trillion of revenue will be lost over five years in the sector. The sector seems to have handled the initial set of challenges well. Many bank CTOs will even have had some of their fears around increased fraud and the ability to handle large-scale online payment processing alleviated.
However, while the core infrastructure has performed at a tactical level, many senior teams will be left wondering what they could have done differently had there been better infrastructure in place. Customers needed new and different types of financial products. They needed protection from increased online fraud. Businesses needed to change how they operated and collected payments.
Compounding these challenges is massive consolidation in the service provider industry. Payment providers aren’t constrained to be simply banks or financial institutions. Indeed, Service Providers typically experience much more flexibility in how they do business. This has led to the commoditization of many elements of the payments landscape.
In general, banks were positioned to survive, not thrive going into the pandemic. That could cost them customer loyalty, and ultimately revenue.
Facing The Challenge
Some CTOs who are aware of the structural challenges they face may implement changes on tactical elements of their systems where they perceive risks to be lowest. But they will still steer clear of significantly enhancing their payments solutions and systems, alienated by what they consider to be high risk.
Unfortunately, this overly conservative strategy is more likely to create problems in the long term than it is to solve them. On top of that, when you have an outdated payments system you’re constraining your ability to react to the marketplace and take advantage of opportunities, and perhaps even defend yourself against a FinTech threat as well.
When a bank’s technology fails, the first repercussion is that it makes headline news. The second is that the regulator gets involved. Combined, the bank could face fines, fees, and a badly damaged reputation.
If we look even further into the future, disruptions from the likes of Blockchain and AI could bring further, more dramatic change to the industry. While they are still in the early stages of development and rollout, a CTO must be able to anticipate the change that these, or other unknown technologies, might bring and be in a position to react and adapt efficiently.
Meeting The Challenge
Continuing to depend on rigid infrastructure leaves banks vulnerable in the long term, and unable to react to changing market conditions. The question for bank leaders is, ‘how do I achieve change from my current position’?
The GreenLake Payments solution is founded on 5 critical principles that ensure the delivery of the low-risk, affordable change required to future-proof a payments infrastructure for the 21st Century.
Principle 1 – Build for uncertainty.
12 months ago, no one would have predicted how the payments market would evolve. The complete shift of consumer attitudes and needs to electronic payments was unprecedented.
Governments, even those with pandemic preparedness policies, were taken by surprise when the event actually happened. Banks can’t protect themselves from change, they know it is coming, but they can’t predict the specifics. You need to build for flexibility, not scenarios.
Principle 2 – Build for business priorities and technical realities
Technology is too often a conflict point between departments, teams, and decision-makers. Decisions made by just the technology team won’t meet customer needs, and those driven just by business teams won’t get to market. Building systems that are the result of teamwork, communication, and conversation is the only way to go.
Understanding how aggressive you want to be in pursuing payments and supporting solutions will guide the infrastructure you put in place. There’s a significant difference between how a global bank and a local building society will define their strategy.
Principle 3 – Build for your business model
The cost of putting your infrastructure in place won’t be sustainable if it doesn’t reflect the business model that the world of finance operates under. Fully anticipating the cost of building, licensing, and running your payments infrastructure is an essential step. We know that payments are a volume-sum game. You need infrastructure programmes that reflect that reality.
Principle 4 – Build for changing regulatory requirements
Payments will always be a heavily regulated industry, and regulations are prone to change. Regulators also increasingly need to see more data and will often mandate a time frame for delivering it. A well-designed system should meet these requirements. But it requires a strategic decision to put it in place. If a regulator introduces new requirements on you tomorrow, you need to be confident that you have a system that can be adapted.
Principle 5 – Build for the future
The journey you embark on to change your payments infrastructure has to see you through the next two decades of business. The only thing you can be sure of in that time period is uncertainty. That also means you need a development partner who you can trust, which takes the same approach to payments that you want to. How you implement your new payments solution depends on a number of factors including your current infrastructure, budget constraints, business objectives, and the organisational appetite for change. Most generally the ‘Rip and Replace’ or ‘Augmentation First’ approaches are typically used.
A ‘Rip and Replace’ approach is motivated by a need for speed and opportunity. This approach works for those who want to rapidly open up new payment types, bring in new channels and process them all. The development of microservices has enabled this approach. Combining lots of small building blocks to develop new applications very quickly is now an accepted best practice.
An ‘Augment First’ approach initially leaves the old systems in place and implements the latest technology for new applications and challenges. The timeline is extended, perhaps by several years, but it provides a way forward for cautious CTOs who want to address structural challenges without trying to turn too quickly.
This approach also comes with new opportunities. You’re able to bring in new services, products, and revenues alongside introducing the technology to support them. These new opportunities can often justify the business case for change. Once you have the new opportunities and solutions in place, you can focus more time and resources to understand how best to move your old system across to the new.
A Final Reflection
Don’t delay change, because the longer you leave it, the harder it’s going to become. Remaining dependent on a stack of legacy infrastructure will leave you vulnerable. The pandemic might not have knocked it down, but the next challenge might.
We don’t know where the marketplace is going. We don’t know what will happen in FinTech. Banks need to prepare their systems for as much flexibility as possible. Crucially, banks need to understand that flexibility is not the same as your ability to react.
The art of business is not about whether you can scrape through the next crisis and survive, it’s about reducing risks and ensuring you’re well placed to thrive.