Long reads

How to design a payments system that never fails

Madhvi Mavadiya

Madhvi Mavadiya

Head of Content, Finextra

Payment data is driven by innovation, real-time experience, high availability, and cost reduction. Financial institutions must meet consumer demand via an infrastructure that allows for mobile-first banking, real-time analytics, API-driven open banking, and data enrichment, for instance, personalisation and fraud prevention.

However, this is not possible without a core platform based on hybrid cloud or multicloud that has the flexibility for innovation. As our industry evolves, having the right infrastructure to modernise, innovate and monetise is more important than ever. Analytics should never be an afterthought and technology driven decisions should be prioritised to instil cultural change and in turn, embrace data and its potential.

What should financial institutions be doing to develop their infrastructure to support real-time and high-availability payments? Where should they be implementing flexibility, and how should technology-driven decisions be prioritised to embrace APIs, data and its potential for personalisation and prevention of financial crime? How can payments systems be built in a way where the design never fails?

Finextra spoke to Ramon Villarreal, payments industry lead, Red Hat; Scotty Perkins, executive vice president, head of product management, ACI Worldwide; and Oren Marmur, SVP, CTO of the Payments Business Unit, Finastra about how customer expectations are shifting and the technologies that can help financial institutions build highly available, low cost and real-time payment innovations.

How are customer expectations shifting? What are they looking for: reliability or quality of service?

As Villarreal highlighted, in this Internet age, there has been an explosion in digital devices usage and as a result, digital commerce has also gained traction and changed customer purchasing behaviour in a substantial manner. According to Statista, retail sales from m-commerce in the United Kingdom will surpass £100 billion by 2024 due to close to 100% of individuals owning and using mobile devices.  

It is evident that digital commerce is here to stay because of its efficiency, its automation, and its integration with different types of shopping experiences across several platforms. As Villarreal stated, customers are “looking to maximise interactions with digital devices and simplify processes related to payments. At the same time, customers are asking for more and newer capabilities, want to ensure their system is reliable and that quality of service is constant. Customers are not used to waiting minutes for transactions to be executed anymore.”

In Marmur’s view, customers are also expecting what he refers to as “service agility, which needs to be introduced while still maintaining reliability and quality of service across mission critical applications.” Referencing his experience in the telecommunications industry, Marmur added that downtime or operational failures that last over 30 minutes in any sector is not acceptable. In financial services, this means that “the economy is effectively paused and as we move into a global economy, our expectations become more significant particularly around real-time payments.”

If this is not provided, Marmur explained that customers will look elsewhere for value added services. “Banks can either become a platform that will allow customers choice or allow customers to choose through a bundled solution that offers best of breed value added services. I think this is where the ability to innovate faster to understand what your customers are expecting comes in - enabling you to act quickly and create that differentiation by tapping into an ecosystem concept.” This is one of the most significant customer expectations.

However, this desire for reliability and resiliency is not new. In order to deliver this, the underlying infrastructure will need to change. Perkins explained that “what’s changing is the hardware that banks use to run these applications on and the infrastructure that they need to maintain to support that in for those applications is becoming less and less cost-effective.”

The financial services industry is at an inflection point between the risk that the bank undertakes to maintain heritage architectures for hardware and data centre environments and the cost of the alternative, which is public and private cloud. This cost is progressively getting lower, and this is creating an opportunity for banks to start considering moving to cloud-based architectures.

What are the technologies that are helping financial institutions build highly available, low cost and real-time payment innovations?

Innovation is imperative to survival in this market, and as Villarreal mentioned, “the cloud miracle” can help drive banks and financial institutions to utilise technologies such as APIs and composable applications that are more modular, more flexible, more adaptable to new requirements and less monolithic. This is key for the development of innovation and these technologies will change the way in which we transact and interact with each other.

Similarly, Marmur posited that it is cloud and not only the infrastructure, but the entire operating model that is so critical to offer services in real-time, but also, to be able to scale in real-time. “When you want to optimise your operational footprint and consider all the requirements around that that are related to georedundancy, high availability, availability zones and security, you are much stronger when you can leverage the true power of the cloud, rather than build everything on your own.”

He added that hybrid and multicloud processes can help financial institutions operate as part of an ecosystem. “The true power and the true ability to introduce innovation in real-time capabilities is through the fact that you can enable onboarding of different partners onto your ecosystem and easy consumption of that by the financial institutions because they have the best payment solutions for specific requirements, resolving specific challenges,” Marmur said. In line with this, there are four key requirements to achieve payments innovation success: APIs, data, personalisation, and fraud prevention.

What are the benefits of APIs?

In conversation with Villarreal, he said that “immediate monitoring APIs and event driven architectures is key for that evolution of the market and will change the way that data is utilised because that is a key part of how you can maximise the benefits of that innovation.”

Taking a step back, Villarreal expanded on this point and explored the holistic benefits of APIs and how “APIs for the payments industry bring the ability to facilitate the communication between systems in an easier and in a more dynamic way. The reutilisation of capabilities that come from that are available in multiple environments in an ecosystem of actions that can interact is also a benefit of the API,” he said.

As mentioned, by modularising systems and leveraging APIs, they can be built in a way so that they are more flexible, composable and share a common language as part of the ecosystem, which is required to ensure customer needs are being met. Building a payments system that merely provides payments services is no longer enough: financial players must be constantly collaborating with different organisations to aggregate their functionalities to create new services.

Perkins agreed: “Moving into cloud architectures allows traditional software providers to migrate what were traditional packaged products into solutions that expose themselves by APIs in either a public or private cloud environment. This makes it easier for customers to stitch together end-to-end solutions through interoperability between those historically very different applications. Now, they become adjacent parts to an overall user journey.”

Standardised open APIs are the most critical building blocks to creating a true ecosystem because with a certain level of standardisation, integration between different organisations becomes easier, faster, and more effective. This is particularly important for small to medium sizes businesses in the payments industry that now rely on being part of a broader ecosystem and scaling through specialisation.

Perkins added: “If we want to create true innovation, we need to ensure that whoever introduces that innovation can build to a standard interface and know that they will then be able to be consumed by pretty much every player in the market. And that by itself is what creates that platform concept.”

How can data be utilised?

Payment data is driven by innovation, real-time experience, high availability, and cost reduction. However, participants in the payments market, while they have access to a wealth of data, are not utilising it to its highest potential because of the level of security and privacy that they need to maintain for their customers, and to comply with regulatory requirements. The solution? AI.

AI systems can utilise data that these organisations have access to in order to deliver new capabilities or provide statistical information about trends in the market. “After cleansing and purifying that data and treating it in a different way, you can bring new products that have real world benefits for organisations in the market,” Villarreal said. However, this is not an easy task.

While ensuring compliance with data policies, data cleanliness and data privacy, financial institutions must also ensure AI systems are not biased and data is being taken advantage of for required purposes. Perkins furthered that these techniques can also help banks understand their customers better and provide enhanced experiences to them.

“With AI, you get a much more powerful basis for doing analytics and in our world, that is something that is very important because by having that data in a cloud environment, which is relatively accessible, both securely and with high, underlying performance, it allows payments solutions to be able to evaluate transactions in real-time and ensure the financial services ecosystem operates in a safer and much more effective way,” Perkins explained.

What opportunities do personalisation present?

Personalisation is key to the future of payments. This third element that is crucial to payments innovation success also supports financial institutions in keeping pace with constantly changing customer requirements. AI not only provides customers with new services based on their new requirements, but also allows the customer to make decisions about what is offered to them. According to Villarreal, this is a huge opportunity.

“The interaction with the customer is going to be a big part of the development within the payments market. Within the next five to ten years, you can envision a world in which you don’t even have to think of what type of payments functionalities you want. Your systems directly offer these functions or products to the customer based on trends. You can decide whether you want to leverage those services and share your information. It’s an interesting moment in time,” Villarreal said.

Perkins also believes that this is an opportunity for companies that provide payments solutions to both banks and merchants because payment information, or data, can be leveraged to securely and highly reliably provide enhanced personalisation for consumers to give them a better consumer shopping experience. This is of paramount importance as the world increasingly moves to accept mobile commerce.

Alongside this, personalisation gives merchants and consumers more intelligent ways to interact that are much more relevant, especially in brick-and-mortar environments, and do so in a way that doesn't require them to do things like disclose their personal information that could be potentially problematic from a compliance and privacy perspective. “Using payments information in that way, but still being able to provide enhanced consumer experiences by responsibly understanding what payment methods those consumers use and how they relate to purchase preferences that are unique to them, is a huge opportunity for improving the retail experience.”

How can this be done? Marmur again returned to the topic of standardisation and commented that with standardised frameworks, standardised interfaces, and standardised architectures, personalised or contextualised customer journeys can be established. Although, the reality is that it would not make logical sense to force upon the market solutions that would meet all the requirements of every single user, across different geographies.

In Marmur’s view, “standardised APIs and standardised architectures would help us create that common framework on top of which we need to then contextualise customer journeys through different user experience frameworks or through different partners.”

Data is, of course, critical to this and understanding how best to personalise and contextualise the user journey. Marmur added that this is “probably one of the most underutilised potential areas in the market.” There is a wealth of data available and that will only increase as the sector processes massive volumes of payments.

In addition to this, with the transition to ISO 20022, this will enable more data to be embedded within the payments message. “I don’t think that everyone has fully exhausted the potential of what that data would mean, but the foundation of the infrastructure exists and I have no doubt that the more we consume data in an intelligent manner, the more we use data - not just for regulatory reporting and archiving, but also for actionable, monetisable insights, you can understand the additional value added services that can be offered to customers.”

How can fraud prevention be advantageous?

On the fourth and final point, Villarreal explored how as there is an “uptake of cashless, electronic payments, there will also be incremental increases in the potential for financial crime and how fraud prevention systems interact with technologies will become more and more important.” While it is interesting to see how technology can help improve these processes, what’s more is that the quantity of false positives are also being reduced by AI.

As Villarreal suggested, there is a lot of work that needs to go in to training these tools, but this development is part of the evolution of payments and AI will continue to permeate the fraud prevention market in the future.

Marmur expanded on this point and said that AI is “definitely an enhancement layer and can work as a complementary component to data. If we just accumulate massive amounts of data and when we start looking at immediate payments, we’re looking at it as an order of magnitude increase in the amount of data we will accumulate if we rely on legacy, manual or semi manual processes to use that for reporting or alerts.”

There are minimal benefits that can be gained from this. This is where AI and machine learning come in, as discussed. Marmur said that when attempting to prevent fraud, there is a very fine balance between proper intelligence and false positives. “If we look at screening, the issue is that if you set the threshold too high, you will you'll reduce any risk or exposure to fraud, but you will also disrupt the business. There’s also a discriminatory angle which countries, like the US, have a strict regulatory framework around.”

“We have two competing themes: on the one hand, we need to properly screen and monitor and on the other hand, we need this to be as least intrusive as possible to avoid any business disruption. This is where you need more intelligence because if you just apply thresholds, it's going to be very challenging to find that balance.

“Data is the fuel, but we need the engine that can run and that’s where AI and machine learning come into play.”

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