Modernizing payments: A faster transition isn’t always better
Moving from a legacy payment infrastructure to a modern, flexible, next-generation system requires a purposeful, phased approach.
The payments landscape has evolved considerably in recent years, and customers are increasingly demanding the newest innovations from their banks. This rapidly shifting environment presents a material challenge for financial institutions.
Most legacy platforms were launched decades ago and were explicitly designed to handle physical cards and point-of-sale and ATM transactions. They were not built for the needs of the digital age, yet many organizations struggle to see beyond their complex systems – which are burdened with technical debt – and “do something different.” As a result, many financial institutions incur cost, experience reliability and scalability issues, and lack the innovation, flexibility and speed to market of newer services.
More forward-looking banks are deploying modern payment platforms that feature reusable services. This approach enables them to consolidate many current payment schemes into a single-use platform. They can also future-proof their business by facilitating the easy adoption of new payment types because they can reuse existing services and reduce the amount of new development required to support a new business venture.
Built on a cloud-native, microservice architecture, these platforms incorporate API connectivity and development resources. They provide a number of benefits, including:
- The ability to offer modern payment systems.
- Reduced time to market.
- Less dependence on multiple vendors.
- Rationalized operational costs.
- A more centralized view of authentication, authorization, exposure and risk.
The big question
So how do banks and credit unions go from its legacy payment infrastructure to a modern, flexible, next-generation system without risking current operations and budget or stressing the resources needed to make the change?
There are proven ways to make a successful transition, including running a new system concurrently with the old one. Cloud-based technology can help leapfrog legacy infrastructure to bring together existing technology with future-ready options. This approach allows financial institutions to begin to take advantage of flexible cloud-native capabilities while simultaneously modernizing critical operational components to quickly advance the technology road map and become more agile—thus dramatically reducing time to market and risk.
The new platform acts as a payment services hub that can seamlessly process numerous payment transactions and keep pace with regulatory compliance. It also enables financial institutions to rapidly configure new payment offerings and orchestrate transaction flows across multiple systems by reusing the technology.
Using a phased, agile approach that includes introducing the new system alongside the legacy one, banks and credit unions can upscale step by step, service by service, and transaction by transaction. The new system can be integrated into the existing ecosystem and marketplace to provide a 360-degree view of customers, accounts and transactions.
By leveraging an API-driven architecture, this approach combines existing systems with future-ready options. These ecosystem partnerships—on common, cloud-native architectures—ensure that critical operational components can be modernized cost-effectively. This approach can reduce per-transaction processing costs, elevate margins and decrease the need for manual repairs and reconciliations.
This approach also makes it possible to bridge the gap between existing systems and modern services—namely, real-time transactions, cloud-based services and API enablement. Ultimately, firms are enabled to gradually scale down investment in older platforms, scale up investment in new services when convenient, and shift across skills and knowledge in a measured way.
This architecture is also the key to reuse, as services can be swapped in and out with minimal development support. If services are built according to modern, cloud-native principles, the payments platform can consume best-of-breed products, such as AI-based fraud detection, as well as new authentication services such as facial, voice or iris recognition. It offers a “build once but use often” design that can reduce operational costs and increase speed to market for current and future alternative payment methods.
Focus on the here and now
No matter what resources that banks and credit unions have invested in maintaining legacy systems, they can start planning for the future now. Institutions can prioritize new and alternative payment types and examine external factors, trends, regulations and consumer expectations. An open and accepting mindset can enable FI leaders to strategically map their new payments journey.
Approaching change in bite-sized pieces can make modernization more manageable, more achievable and less risky. Using available tools to configure new payment offerings quickly can help financial institutions dive into the modernization path without the arduous processes, risk and expense of a complete system overhaul.
Jens Audenaert is SVP and general manager of payments software at Diebold Nixdorf.
Pick up valuable intel on emerging methods, technologies and competition in the payments world in the BAI Executive Report, “Payments: Increasing competition in the fast lane.”