Building a payments solution: Understanding the rise of payment development frameworks

In an effort to better stay in control of their costs and risks, Tier 1 banks have increasingly shifted over the past decade from buying software for payments processing to building their own solutions in-house. 

Icon’s series on in-house builds has examined the drivers and implications of this trend, analysing the key strategic and technical considerations. This final instalment explores how Icon set out to empower banks to successfully develop solutions in-house with the aid of a payment development framework – the Icon Payments Framework (IPF) – and how the core philosophies of flexibility as well as continuously learning and evolving have fundamentally shaped our approach.

How to solve a problem like in-house builds

Our experience tells us that, too often, in-house builds do not achieve the success they set out for

The core problem that became evident to us was as follows. Banks need to modernise their payments estates to meet new demands, but they do not want the lock-in of a traditional software vendor engine. Equally, while they do have some capacity to build in-house, they typically recognise that delivering a multi-year modernisation programme is too overwhelming (even when depending on a system integrator or consultancy).

Addressing this problem emboldened us to think differently. We didn’t want to provide our customers with just another traditional payments engine. This stemmed from having started out life as a payments consultancy and collaborating with customers to truly understand their challenges and what solutions would (and wouldn’t) solve them.

The benefits of a framework approach

Our unique perspective brought us to a realisation: banks should not be forced into a binary choice between buying a traditional black-box solution or building entirely in-house.  With a new approach, they can take a sustainable approach to modernisation with the aid of a payment development framework. For want of a better phrase, this allows banks to have their cake and eat it too. They get the functionality of a vendor package, with the freedom and independence of an in-house build – all without the risk.

The good news is that the industry is increasingly moving towards this way of thinking. As one bank put it in an RFP: “We are not looking for a traditional payments engine, but a flexible framework that will enable the bank to facilitate instant payments, upcoming future use cases and gradually shift existing flows from our legacy payments systems to the new infrastructure.”

Creating a payment development framework

To ensure that our payment development framework solution – the Icon Payments Framework – truly marked a different approach, two key principles have been critical: embed flexibility at every level and the ability to learn, adapt and evolve.

Embed flexibility at every level

Three things are invariably true for any large bank embarking on a payments modernisation initiative. They have complex banking and payments estates. They have very specific and evolving requirements. And they are contending with an industry landscape that is constantly changing, whether it be from regulatory drivers or the emergence of new (and converging) payment types such as, for example, one-leg out credit transfers.

These factors mean that while traditional one-size-fits-all solutions may have served the interests of software vendors, they simply are not fit for purpose for the banks themselves. It is crucial to have something that is inherently flexible that can adapt and be moulded to specific requirements.

Yet true flexibility cannot be an afterthought. It must be built in from the very beginning from the bottom-up. For example, the architecture should enable flexible partitioning, not be specific to a given payment type, and be configurable over time. This allows for progressive transformation towards a single, consolidated payment infrastructure that supports any payment, anytime, anywhere.

Flexible architecture patterns should be supported by enabling technologies. For instance, we have found the use of low-code, domain specific language for payments orchestration to be invaluable in the pursuit of complete flexibility.

Learn, adapt, evolve

It is said that someone who has never made a mistake never tried anything new. And developing payments software is no exception.

Yet one of the reasons in-house built payment solutions may ultimately fail is because they cannot fail. Banks are too often in an environment where they can’t take a step back to take two forward.

In contrast, our ability to learn and adapt has driven us forward. For example, the first iteration of IPF had all the right ingredients but did not deliver the true flexibility we envisioned. Customers did not have full control and independence without too much effort on their side.

If we were a bank, we would likely have been forced to say “good enough” and put up with the limitations for the next couple of decades until it was time for another go. Fortunately, we were able to take a step back, understand where improvements could be made, revisit our golden principles, and come back with an enhanced solution.

Given the fact that payment systems often stay in place for decades, we encourage banks to think long-term rather than short-term. If doing it in-house with a solution that is ultimately unproven, ensure you have an environment where you can learn, adapt and evolve.

Leading payments forward

As we reflect on approaches to in-house builds, one unavoidable fact becomes clear: payments transformation is hard. And it stands to be made even harder in an increasingly uncertain age defined by geopolitical and macro-economic shifts, increasing regulatory divergence across different jurisdictions, and rapidly evolving technological developments.

Given the clear limitations of traditional vendor solutions and significant challenges of building entirely in-house, banks are turning to flexible payments development frameworks that enable them to modernise safely, quickly and cost-effectively to meet new opportunities and requirements as they emerge.

This progressive approach to transformation is empowering banks with the fundamental ability to change that enables them to lead payments forward.

For more information on how IPF can support banks building a payments solution in house, download our whitepaper.