Written by David Smith, CEO WeDo Help Limited
The payments sector is ripe with growth opportunities, but winning in this market takes speed, agility and a relentless focus on the customer experience. Yet all too many financial services companies are running on legacy technology stacks that aren’t up to the challenges of today’s dynamic market.
Incredibly, some are operationally dependent on technology that was installed as far back as the 1970s or 1980s. Without the right infrastructure in place, incumbent payment service providers and banks will find it difficult to keep pace with evolving customer expectations and fintech innovation.
Yet replacing the legacy infrastructure in your institution’s engine room is a daunting prospect. Given the costs and risks of the decision, there’s a strong temptation to kick the can down the road. But if you defer the decision indefinitely, your infrastructure will eventually meet a challenge it can’t handle. The result? Bad press and an appointment with the regulator.
The challenge of change
In my experience, legacy thinking and organisational structures are an ever-greater challenge than legacy technology. In my 25 years in retail payments, I have seen how much of a gnarly knot organisational silos have become. Turf wars are too common and genuine inter-departmental dialogue is too rare.
The CEO, the chief revenue officer (CRO), the CIO and the CFO—and the functions they lead—are often at odds about the best way forward for payments modernisation. In some cases, IT departments have crafted fiefdoms, existing independently of the business’ revenue needs, and urgency.
Not only are internal agendas in play, but also those of vendors and service providers, each with their respective motivations and values. The CRO—the person ultimately responsible for appealing to new consumer expectations and turning them into sustainable revenue streams—yearns for a paradigm shift.
So where should this transformation start? A good place is to relook who drives the decisions. Too often, decisions about migrating off a legacy payments platform fall to those responsible for its maintenance. Carefully compiled feature lists assume the centre stage and the primary focus becomes “doing the same things as before but with newer equipment.”
Don’t get stuck in a cul-de-sac
This is not transformational innovation; this is upgrader innovation.
It will ultimately lead you into a cul-de-sac of diminishing returns. If I were responsible for such a transformation, I would empower a young, energetic technical expert to lead the change under the direction of business stakeholders – ideally the CRO and their team.
This team would start by qualifying what the business really wants in a world of digital payments, customers, and competition, rather than by quantifying what it currently has.
They can leverage powerful open-source software such as Ubuntu Linux, Kubernetes, MySQL, Kafka, H2O, Apache Spark, Grafana, Kibana, and Prometheus, to experiment and research new ways forward at low cost and risk.
Another step I would take would be to install a modern payments platform to run that infrastructure. A solution like TANGO from Lusis is built on an agile micro-services architecture to address business needs now and in the future. This gives the agility to acquire, route, switch, authenticate, and authorise transactions across multiple channels.
A third step would be to focus on the content and interaction with the managerial dashboards. Improved operational efficiency is fundamentally dependent on timely actionable intelligence. Just as you cannot fly a modern jet plane without a sophisticated cockpit, you cannot optimally fly a company without crisp visibility and agile maintenance.
Taking production to the cloud
While the functional research is going on, you can start working on the production deployment decisions. Going “Cloud” is an easy decision, but which cloud is a complex choice. The strong public cloud candidates are Amazon’s AWS, Google’s GCP, and Microsoft’s Azure. There are also compelling private cloud as-a-service options like HPE’s GreenLake for Payments.
Whichever option you choose, look for a partner that can expertly facilitate the entire migration process. Look for a partner that will deploy and operate your payments solution in accordance with the agreed governance and service level agreements. Ideally, you want the partner to look after the infrastructure while you focus on growing revenue and the customer value proposition.
Payments disruption is just getting started
Although payments fintechs are no longer the market darlings they were during the pandemic, it’s too early for incumbents to breathe easy. Whether your strategy as a financial institution is to be proactive and beat the fintechs at their own game, or whether you are reactive and want to move second, there’s still a lot of time left on the clock.
Fintech companies have moved quickly to develop new features and roll them out before traditional banks could. In so doing, they have helped to create new customer experience benchmarks. But banks that move fast to modernise legacy technology will be able to rapidly respond with innovative features and products.
With many fintechs struggling to simultaneously maintain, innovate, and scale for growth, banks have a window of opportunity. Sure, banks have baggage, but a lot of that baggage is good baggage – it’s stability, security and market knowledge. Data, customers, and capital to fund payments projects are already there, whereas fintechs must build from the ground up.
Focusing on these advantages while transforming the consumer experience will be a winning combination. On the flipside, depending on rigid payments infrastructure leaves banks vulnerable in the long term, and unable to react to changing market conditions. It’s a choice between staking out a leadership position today or waiting for an inevitable crisis before you act.
About the author:
David Smith, CEO WeDo Help Limited
David Smith has over 25 years’ experience working in the Payments industry. He has significant knowledge and expertise in the marketing, innovation and delivery of new payment solutions, having worked with numerous global payment organisations throughout his career. These include ICL Financial Services, ACI Worldwide, BHMI, FSS, Auriga, Renovite Technologies Inc., and Lusis Payments. David’s interests and specialisms include cloud-native technology, payments technology and innovation, application lifecycle management, test automation, and ATM solutions.