Finextra Blog | The Modernisation of Payments

This article was originally published on the Finextra Blog here, written by Ciaran Chu – Head of Cloud @ ACI Worldwide.

Public cloud is one of the biggest buzzwords in payments right now. While a few years ago financial institutions and big banks were hesitant to embrace cloud technology – if we had even mentioned putting core payment applications in the cloud five years ago, we would have been met with utter incredulity – they are now much more likely to do so. It’s not a stretch to say embracing cloud technology has been one of the most important developments in recent years in the digital transformation of financial services.

A cloud-first strategy

Today, the overwhelming majority of banks run on a cloud-first strategy. Several factors have contributed toward this; time to market and cost transformation are important ones, as well as the realisation that the cloud is secure. For a lot of banks, the cloud is a pivot to do things differently; a new approach which allows them to scale up and down quickly. And in times of such unpredictability, with constantly and rapidly changing consumer demands and behaviours, the cloud is a core technology.  Covid-19 has heightened this impact not only in the growing peaks and troughs of transactions but in acting as a catalyst for Banks to review their approach to change management which previously hindered the use of cloud.

Banks now realize that the cloud is a key enabler when it comes to the digital transformation of their business, ensuring they can focus on creating new services for their customers, as opposed to being constrained by legacy systems that demand far too much time and money in maintenance. Paired with the understanding that it is secure, and that cloud providers have far more spending power to maintain security measures, banks are quickly realising that the cloud is a requirement to leveraging the digital technology required for their future success. This can be done by improving time to market and enabling them to focus on the aspects of their businesses that matter to customers.

A shift in business models

We are at a cross-road in the history of banking and payments. It’s not a shift in technology as much as a shift in financial institutions’ business models — from a predominantly fee-based model to a new data one. The flow of payments in real time, as well as the data and the insights derived from it, are now crucial to these new business models. Additionally, many cloud-first competitors are taking on the banks in a serious way, and so they have been forced to rise to the challenge. Digital transformation really is about these underlying changes and how technology can support these shifts.

Embracing the cloud

A full “rip and replace” of the current payments infrastructure is not an option for most. We are not at a stage where all banks embrace the cloud fully, and it is also not entirely necessary. Modernisation means different things to different organisations. The process is comparable to renovating an old Victorian house. We don’t want to tear the house down but rather make sure it is resilient, that the roof isn’t falling in and the electricity works. Then we need to set up the interior according to what our priorities are in our daily life; some may want a modern kitchen, others a large outside space. Payments modernisation in the cloud will work exactly like this. We will see hybrid models where banks will run different aspects of their operations in the cloud.

According to a recent survey, 94 per cent of banks globally have a cloud-first strategy and 84 percent of those are planning to move mission-critical systems into the cloud. The big question for most banks is how to deliver value.

While a shift to the cloud can be highly beneficial to financial institutions, simply lifting what they have from their own data centre and dropping it into the cloud isn’t going to increase their agility. Banks hoping to begin their migration to the cloud need to approach the project with tact, investing in talent to ensure that they can get the most out of the cloud. This approach helps unlock value from their adoption of cloud technology by making it easier to deploy solutions and improve time to market, gaining much needed agility to realise cost efficiencies.