The digital world and PSD2 has made instant, real-time payments a necessity and is driving payment volumes. As a result, financial services institutions have exciting opportunities for business transformation. Steen Jensen, MD Europe, Temenos, reveals why a cloud based platform is the natural partner for financial institutions looking to take advantage of payments in the new digital landscape.
The need for cloud
PSD2 and particularly its focus on (and the opportunity of) APIs means that we are seeing even more new players moving into the banking industry. Competing with these agile, built-from-the-ground-up digital players is a challenge, particularly as banks must focus on retaining customer loyalty.
Cloud can help address this challenge. Financial institutions can leverage cloud providers to allow them to focus on what they need to do rather than having to run large IT setups. For banks of all sizes, cloud has the potential to reduce costs, respond to change and innovate quickly.
Today, banks, corporates, consumers – even regulators – use cloud in some form. Consequently, cloud is increasingly being seen as a deployment choice for many banks, particularly when combined with an agile payment hub.
But isn’t the cloud for larger banks?
Payment services hubs are traditionally seen as the preserve of the biggest banks, because of the size, reach, and complexity of their payment businesses. Because of this, payment services hubs offer more than what is required by anyone except these top institutions. Indeed, they are perceived as complex technical solutions, however, banks are now realising that this is a fallacy.
Cloud democratises payment services hub functionality by allowing this state of the art technology to be provided in a very simple, consumable way. This is very similar to how many small banks buy automated clearing house processing services from one of the large vendors. Yet these vendors provide this service using a solution designed for bigger banks. A payments hub in the cloud allows banks of any size to benefit from the agility of a hub along with all the usual benefits of the cloud and more.
A level playing field for smaller financial institutions
Cloud-based payments services hubs are an elegant solution to a difficult problem. They provide modern payment technology, at lower cost, in a simplified manner, providing a way for smaller institutions to level the playing field against their larger competitors. Cloud-based solutions typically have shorter implementation times and lower initial price points than on-premises solutions, making them especially attractive to smaller institutions.
Ingredients of a payment service hub
Payment services hubs are founded on standardised processes, services, and APIs which makes them perfect to deliver in the cloud. At the same time, the cloud provides benefits of scale far in excess of a hosted version. At its simplest, the cloud scales perfectly for the largest financial institution while being delivered in a way that’s consumable for the very smallest bank.
With payments in the cloud, banks are able to run and process payments and core services in a single, scalable solution. The benefits are felt at the CXO and Commercial level:
Reduced complexity: payment services hubs can translate between payment formats, eliminating the painful decision about when to move to ISO20022. Upgrading is automatic, so is no longer a concern. This in turn removes the cost and effort of testing after every update. Instead of needing a solution for each and every payment type, there is just one solution, with a consistent set of tools and interfaces, and a single connection.
Rapid deployment: in an on-premises model, banks need to choose whether to upgrade and when, along with the costs involved. In the cloud, vendors have full control over when to begin their real-time payments plan, adding new functionality and turning it on instantly. This provides a clear path that will continue to support the volumes as they grow over time, which is reassuring in a relatively new payments world.
Reduced costs: payment services hubs on the cloud are designed to update 24/7 with no downtime. As a result, it will be easier to comply with the requirement of the always available, zero downtime nature of real-time payments. This will reduce costs as well as ensuring the bank remains compliant.
Ability to innovate – the seamless solution gives banks the freedom to become creative with its data and in turn service its customers with behaviour based products. With multi-channel integration, developers can create in the morning, deploy in the afternoon. A standalone payments in the cloud provides the shortest route to this innovation across all banking channels.
Cloud payment transformation use cases
At Temenos, our customers are already utilising the power of the cloud to enrich their payments offering. Itaú Unibanco, the largest financial conglomerate in Latin America, is implementing Temenos software on the cloud to enrich the customer experience, reduce time to market for new products, generate efficiencies and reinforce the segments' digital strategy.
We are seeing banks utilising the cloud to optimise their existing business and enter new markets. In the latter case, they want to enter a new area in an efficient and cost effective manner so that they can test the business case before making further investments.
Fullerton Financial Holdings, a Singaporean bank that operates in emerging markets, is doing something similar and exciting. According to the Making Access Possible survey by the United Nations Capital Development Fund, more than 70% of adults in Myanmar don't have formal access to credit, deposit and other financial services. However, by harnessing the cloud, Fullerton Myanmar may proactively address these issues of inclusion by giving the bank the ability to conduct secure transactions using smartphones and tablets in the places where people live and work. As a result, it has launched services in that market using the cloud, which has enabled it to grow rapidly without having to make huge investments in IT infrastructure.
In summary: considerations for moving to a cloud-based payments solution
• Ensure that the vendor’s solution is futureproof – capable of supporting the ever changing payments landscape, and whatever comes after PSD2
• Look for a cloud platform agnostic infrastructure, capable of interfacing with whichever cloud platform is best suited to the needs of your specific financial institution
• Look for a vendor that operates a distributed database e.g. one that does not tie all storage to a single processor but that shares it more evenly across multiple locations. This is key to increased transparency, reliability and resilience across data centres, locations and cloud platforms.
Steen Jensen examines how banks can leverage the exciting opportunities enabled by ISO20022Learn More