The global impact of Covid on payments has seen a surge in the use of contactless cards and account-to-account transactions, creating a giant pressure point for payment processing.

Banks and financial institutions must adapt if they are to cope with substantial increases in payment volumes but also more effectively and efficiently handle the inevitable peaks and troughs of transaction flows across multiple timescales. 

This blog delves into why cloud payment processing is the answer to scaling challenges and what Banks and financial institutions should look for in a future-proof, Cloud-based Payment Solution.

Payment processing is the next substantial battleground on which challenger and enterprise banks are competing. The size of the global real-time payments market was valued at $10.64 billion (USD) in 2020, with compound annual growth (CAGR) of 33% expected between 2021 to 2028.

Banks’ success in scaling up their payment processing in response will vary, relying heavily on how they set up their systems.

Cloud-based payments processing is really the only viable option that enables financial institutions to build the level of flexibility required at low cost and low risk in order to remain competitive in an increasingly digitised, responsive space. By 2025, PwC predicts eight out of ten financial services institutions will have outsourced cloud and platform infrastructure.

But what do we mean by dynamic scaling in payments? How are Fintech specialists enabling banks of all sizes to respond to the race for real-time payments faster than ever before, and how can financial institutions assess what they should look for in a cloud payment processing partner? 

The Necessity of Cloud for scaling in modern times

Firstly, let’s define what we mean by dynamic scaling in payments, and why it’s so crucial for financial institutions. Broadly speaking, dynamic scaling in payments is the process by which payment volumes (or number of transactions) are accommodated flexibly. Capacity is always met with the optimal level of technical support, ensuring that systems remain as efficient as possible, with financial institutions only paying for the processing power they use.

Modern cloud-based platforms and solutions, therefore, provide a previously unimaginable level of flexibility and cost-effectiveness opposed to their legacy counterparts. Cloud-based payment platform infrastructure is especially attractive for financial institutions that have struggled to streamline, maintain and upgrade legacy infrastructure: systems they built themselves which have proven ill-equipped to deal with changing market environments and rapidly accelerating technology.

It takes a long time to provision hardware. In the current climate, lead times on buying and installing servers and network equipment are 9-12 months. That means that you need to know for sure (or overprovision) what your peak capacity is going to be in 12 month’s time. And, hope you don’t scale faster than you expect, or your business requirements don’t change in the meantime.

Any bank wishing to avoid a lot of this unnecessary infrastructure cost and complexity needs cloud-based payment processing.

Why is Cloud-based payments processing essential right now?

Since the Covid-19 pandemic began in early 2020, more people than ever have opted to use contactless cards to pay for goods and services, with 74% of US customers reporting that they will continue to pay using contactless options once the pandemic is over.

Furthermore, account-to-account transactions, enabled through Open Banking and global instant payments services, creates another pressure point for payment processing. As of September 2020, two million Open Banking accounts had been opened in the UK, with the figure set to grow rapidly.

Banks and financial institutions must adapt if they are to cope with substantial increases in payment volumes but also more effectively and efficiently handle the inevitable peaks and troughs of transaction flows across multiple timescales.

For example, daily, there are far more transactions in the middle of the day compared to the middle of the night. On a monthly basis, there is far more flow at month ends (salary payments etc.), and on an annual basis, Black Friday etc are much busier than other times of the year. Therefore, if you don’t have flexible scaling, you must cater for your peak of peak volume, which can be several times your normal volume.

Fintech partnerships are key to effective cloud-based scaling

Financial institutions have a sporadic range of digital priorities to manage. As the nerve centre of the global economy, the time, resources and capacity of their internal teams have consequences far beyond their company’s individual financial performance.

Thanks to innovations in the banking sector, financial institutions don’t need to do everything alone. Partnering with Fintech specialists can take the burden of highly complex cloud-based payment processing off their shoulders, providing them with solid foundations for future payment scalability.

When It’s Best Not to Build

Traditional attitudes towards risk in the financial sector led to the creation of legacy tech. Rightly security-conscious banks believed it was better to build systems from scratch and own the technology themselves rather than depend on another provider. However, banks ultimately owned the responsibility of cumbersome maintenance above all else which has, in turn, handicapped their businesses in the modern age.

New technology provides financial institutions with the means to finally escape this trap cost-effectively and reliably. In 2019, 94% of financial service companies reported that they believed fintech partnerships would help them grow over the following two years.

Cloud-based payments processing provides a level of speed, agility, scale, resilience and repeatability that can’t be replicated by alternative methods. Furthermore, banks no longer need to maintain infrastructure themselves as its all taken care of.

How Fintech providers help banks to scale payment capacity

Fintech specialists enable financial institutions to dynamically scale their payments processing capacity, horizontally and vertically to limitless volumes without affecting performance. As their focus is entirely on delivering the best real-time, cloud-based payment processing, they ensure banks have more than enough capacity at any given moment. 

Automation ensures that adequate bandwidth is always supplied, as modern cloud native platforms respond and react automatically whenever financial institutions approach their current capacity, the platform knows to increase space, averting overloading.

Due to the reliability of cloud-based payment systems, financial institutions can spend more time innovating to create new products and services, helping them to encourage customer loyalty and less on infrastructure maintenance and updates.

What Banks Should Look for in a Cloud-based Payment Solution

Not all cloud-based platforms are created equal. For the best cloud payment processing, financial institutions should check whether a payment partner provides the following: 

●      Cloud native from the ground up

●      Simple and uniform design – simple API integration

●      Proven to be a globally scalable solution

●      Rapid, continuous delivery - multiple daily, releases

●      Full payment visibility and notifications

●      Reliable & secure​ with highest levels of resilience and zero downtime

●      Dynamic, AI and machine learning enabled scaling with automated testing and correction.

Embracing Cloud Payment Processing to Achieve a Future of Scale

Financial institutions are migrating away from hosting their own payment infrastructure and embracing the benefits of cloud payment processing to scale their businesses. Dynamically responding to surges and falls in payment volumes will help businesses take advantage of the operational and cost efficiencies gained from a cloud-based solution in which you only pay for what you use.