Payment Infrastructures – A Wave of Change Ahead
Over the past two years the payments industry has seen some fundamental changes in corporate and IT requirements. Combined with the increasing focus on cost, these factors are providing some serious business challenges to any organization operating in this environment.
The legacy infrastructures built over the last three decades have been combined with many specialist industry application providers providing the basis for innovation and lowering of transaction costs – particularly in the payment cards environment.
To date Banks and processors have been reliant upon an ecosystem of infrastructures, products and suppliers to support the needs of compliance and innovation and this has sustained their needs. However, the winds of change being forced through new business demands, advances in technology and increased regulatory and financial changes are now threatening these already fragile environments.
These delivery infrastructures have been predominantly built around options including in-house custom applications, third party products, or through outsourcing to payment processors who will have built their environments typically through a combination of these options. Most organizations have acknowledged the costly business of running these legacy environments but never seen the compelling need to update to more efficient, scalable and flexible platforms.
There is a plethora of application and solutions vendors in the market but in reality only a few make up the lions share of the market – ACI being one of the most dominant with the BASE24 platform, Euronet Worldwide investing in outsourcing processing and solutions, Metavante and Fidelity (who bought Efunds), being some of the more dominant.
However, some of the new entrants from both a technology and business perspective, are now making progress and challenging the status quo. For example, PayPal is making great strides to replace the need for card payments wherever it can, whilst new technologies from the likes of Distra are demonstrating lower cost, improved performance and increasingly flexible models needed to support the new business demands.
Interestingly, we are now even seeing the new power players moving into the payments space – SAP, Oracle, IBM, Microsoft and Cisco – all acknowledging the need to provide and support key infrastructure components in the face of new business demands and the need for more efficient platforms.
To underline the need for change, in addition to the challenges outlined above, the scope is only increasing for banks and processors with the growth of new payment initiatives – contactless, mobile, new card schemes and some great initiatives now being seen in emerging economies for creating greater financial inclusion.
The order of magnitude reflected in these challenges is obvious. The challenge becomes not what to do but how to get it done with a sustainable infrastructure that can support the ongoing changes required. That will encompass one of two options – migrating their infrastructure to a more flexible and efficient platform, or alternatively outsourcing to a processor able to meet the future demands. The challenges and opportunities underpin each organization’s core payment business and should be dealt with from this perspective – including not only IT but also business solutions and organizational commitment from the highest level. These issues will not go away and without urgent attention there are likely to be serious operational problems or even casualties.