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Bank the benefits of moving payments to the cloud, now

The area of payments, like many in banking, is undergoing seismic change: digital and neo banks are pushing innovation fast; real-time payment volumes are growing rapidly; and new regulations like the ISO20022 migration and open banking are coming to ensure that banks adapt their processes and systems accordingly.

Running payment services in the cloud offers significant benefits to banks. Top of the list, perhaps, is the scalability and agility that cloud brings to banks’ payments strategy. In turn, these benefits enable banks to only pay for what they use, bringing significant cost savings as a result.

Being in the midst of the evolving COVID-19 situation further strengthens the case for moving to more resilient cloud platforms. We are already seeing the profound impact this global pandemic is having at both an economic and societal level, and this is likely to have lasting effects.

In the context of payments, the COVID-19 pandemic has brought about an acceleration in digital payments adoption. We are already witnessing a significant increase in contactless card transactions and mobile payments around the world as consumers avoid handling cash and other paper payment instruments like cheques. 

Hooking up your bank to the cloud

Signing up with a cloud provider – rather than investing in on-premise hardware – allows banks to adapt as digital payments evolve. In fact, by migrating to the cloud and leveraging its on-demand infrastructure, banks can address many of their traditional payments pain points. For example, spikes in demand for processing power – Black Friday, in the US and UK, and Singles’ Day in China – can be easily accommodated.

The cloud also provides a level of resilience and security that is hard to match – let alone beat. And given that payment systems are the one service that all customers use every day, both resilience and security are paramount.

But these benefits don’t come from a cloud provider alone – they simply supply the underlying processing power and storage. The full potential of cloud services can only be fully realised by choosing the right software vendor – who’s responsible for delivering the business applications.

While the cloud provider opens the door to benefits like scalability, agility, resilience and cost efficiency, it’s the software partner that allows the bank to truly grab them. 

A good software partner should help you decide, and understand, the difference between cloud-enabled or cloud-native software. The best outcomes are achieved with the latter. While cloud-enabled software can be adapted to work on the cloud, it remains sub-optimal. Cloud-native, on the other hand, is built for just such an environment.

But that’s not the only consideration. A vendor’s cloud applications must be able to talk seamlessly with the rest of the bank’s systems – something that is truer for payments than for any other service. This is because payment solutions need to be connected across all customer channels and the bank’s key systems – from fraud and anti-money laundering to core banking and analytics platforms.

Essentially, if the software the bank is running isn’t designed for the cloud, its many benefits cannot accrue.

Key questions to ask your software vendor: can it perform and adapt at speed?

Take the example of scaling payments for peaks in demand. While the cloud provides the capacity to scale, it’s the application software that needs to deliver hyper scaling at low latency when demand rises and scale down as demand troughs. Without this ability, the additional processing power provided by the cloud is pointless.

Similarly, when it comes to agility and being able to adapt at speed, cloud is only the facilitator. Being able to support change fast is down to having a fully configuration-driven low-code platform that allows change to go live in weeks rather than months, or even years. It’s this ability that helps banks to be future-ready.

Being future-ready is a key part of the cloud sell. But a vital piece of this jigsaw is working with a vendor that can provide the same business applications on any cloud, i.e. be cloud-agnostic. That way, should the bank need to change strategy and migrate all, or some, of its payment processing to another cloud provider, or become multi-cloud (using multiple cloud providers), it can do so easily.

Anticipating regulatory and systemic risks

Cloud-native solutions can also help banks overcome the various regulatory challenges they face today and prepare for those on the horizon.

It was widely reported that many banks were late to meet the revised Payment Services Directive (PSD2). As a result, the sector has been given extra time to meet Europe’s new Strong Customer Authentication (SCA) rules.

And now there’s ISO20022, the new open global standard for payments messaging, that SWIFT and many payment infrastructures like Target 2 and UK CHAPS are migrating to. With compliance required as early as  next year for some market infrastructures, the new standards will certainly impact all banks.

Looking ahead, regulators will become increasingly focused on the consolidation risk of a bank being overly reliant on a single cloud provider. In fact, many regulators are already advocating multi-cloud strategies for some banks, based on their circumstances.

The regulatory landscape is one subject to constant change, but regulation doesn’t need to cause the headache that it does for so many banks today. Those looking to the cloud and working with a proven software vendor will find adapting to change much easier.

Successfully migrating to and running payments in the cloud is a two-step decision process that requires banks to consider the track record and solutions of a software partner as much as those of a cloud provider. This is no light decision, but making the right choice and investing correctly will prove invaluable to banks.

No bank can predict the future, but with the right software partner, it can better prepare for it. The only decision that remains is with whom to partner.

 

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