Wading through the noise around payments transformation

As part of Icon Solutions’ thought leadership in the world of payments, our latest webinar, ‘Busting the Myths of Payments Transformation’, delved into the noise and misnomers in the payments transformation space and aimed get to the truth regarding the future of payments.

Payments transformation has emerged as perhaps the single biggest opportunity, as well as challenge, for banks. Banks are continuing to grapple with growing complexity in the payments landscape. New technology, such as Cloud; increased regulation, including Open Banking; and entry of new competitors has prompted systemic and operational changes that are often difficult for banks to navigate.

But myths and misconceptions, that are abound in the industry, can stall progress and hamper innovation. Busting these myths allows financial institutions to avoid common pitfalls and seize the opportunities that are there for the taking.

Regulation is not just a burden

The first myth the webinar sought to dismiss is that regulatory compliance is the end goal for payments transformation. Regulation in payments will only increase as innovation and competition come under the watchful eye of regulators and central banks around the world. Banks must learn how to exploit regulation to offer more advanced customer propositions.

The first speaker to present, Ian Povey, Head of Payments Technology at NatWest Group outlined that regulatory compliance is always an opportunity to drive value and improve customer outcomes. Speaking on this Ian noted that ‘regulation offers those with an agile mindset unrivalled opportunities to leverage the challenge and better serve customers’.

While regulatory compliance is of great importance, the customer should always be at the centre of any compliance exercise. Payments ultimately supports other processes and activities in a customer’s life, regulation and transformation both need to keep these front and centre.

Ian highlighted the need to bring internal staff along on an organisations transformation journey, noting ‘a legacy mindset is more dangerous than legacy systems’.

Payments can be profitable

Payments as a utility business is often seen as the ‘plumbing’, or ‘rails’ of the broader transaction business. In a modern, digital world there is the myth that payments can’t be profitable as they offer nothing more.

Speaking next was Hendrik Van der Watt, Chief Enterprise Architect, Payments at Danske Bank. Hendrik outlined that payments will always be a utility business, but in a digital world banks must identify which aspects are a commodity business whilst identifying areas of differentiation. Banks must simultaneously invest in a data strategy and value-added services, whilst lowering cost via streamlining business practice and optimising technology investment.

Hendrik stated that ‘profitability from payments is a challenge if viewed through a traditional utility lens’. He added that ‘banks need to look at revenue from areas that they may not have been able to capitalise on before, such as data. Or value-added services where perhaps the infrastructure wasn’t there in the past’.

Cloud technology is no pie in the sky

The next myth that the webinar sought to dispel was that Cloud technology is too risky for the payments industry. Whilst it has often been touted as a way for banks to compete in a more agile, flexible manner there are still concerns over its security. Speaking on this, Matt Pitchford, Principal Solution Architect at AWS noted that  ‘security in Cloud services has been fine-tuned with years of experience’. On-premise IT infrastructure is more likely to be attacked, more often, and through a broader spectrum of attack vectors than cloud-based infrastructures

Cloud technology has come a long way. Today, the four largest banks in the U.S. process their payments in the Cloud (i.e. remote data centres that are accessed via a private network and/or the Internet). This is because, according to Matt, ‘organisations are thinking more along the lines of what is the right tool, rather than what do I have on-premises.’

Matt noted that ‘one of the biggest benefits in Cloud technology is scalability’. In a time of uncertainty, such as COVID-19, having elasticity in the system is vital. Having a payments infrastructure that has an innate ability to support product growth as well automatically adapting to increased traffic and occasional spikes, is becoming increasingly important. Cloud technology is a great way to support this.

The value of the Cloud has never been more evident than it has with the COVID-19 outbreak, with millions of businesses adapting to new remote work environments and home offices. A major bank had to move their entire call centre application to the Cloud, due to the need to close the physical call centre as a result of the pandemic. Cloud has enabled the bank to keep that channel open to their customers.

Outsourced versus in-house – does it need to be binary?

Speaking next was Simon Wilson, Co-Head of Payments at Icon Solutions. Simon highlighted that the industry often discusses outsourcing and in-house as a binary decision, but it is not an either/or. Today there is more nuance due to technology developments as well as business requirements. The customer expectation of payments is rising as is cost pressure.

Simon noted that the single most important issue when thinking about outsourcing is ‘knowing your strategy, but also knowing where you are starting from’. This includes identifying costs as they exist today. Part of that strategic thinking needs to be an ‘understanding of how important payments is to your organisation’ added Simon, ‘for many it is the most important touchpoint with customers, and the source of a trove of data’.

Many cost efficiencies can be made by moving to the Cloud. But an understanding of micro-services, scalability and a holistic approach to Cloud is vital, not just short-term reduction of cost.

Simon gave the audience a few areas for consideration when it comes to outsourcing, ‘pick commodity and/or less integrated areas that are easy to outsource; manage risk by starting small; and view your first steps as the first steps on a longer journey’.

It was clear from audience engagement in the Q&A that there are questions about transformation strategy and technology choices. But it is clear from the panellists, the industry should avoid snazzy slogans and focus on how payments can support their customers.

You can listen to the webinar here.