Murtaza Hussain is the Global Field CTO, Payments at Microsoft. Connect with him @LinkedIn.
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With the proliferation of many fintech startups in the payments space, it's hard not to acknowledge the innovative solutions that they're offering to customers based on their needs. But although major players within the payment ecosystem are leveraging cloud infrastructure to a certain extent, it still remains unfathomable for many banks to adopt cloud computing for full payment processing or replace it with a cloud-native version.
As many financial institutions have started their digital transformation journey to lift and shift their systems to the cloud, they're facing challenges due to switching costs and risks. But beyond this, why are so many financial institutions afraid to make this huge digital leap of faith? After all, one small step for a bank will turn into a giant leap for financial services.
But the reality is quite different for many players within the payments industry. Here, business leaders should be asking questions such as: How can I start our digital transformation? When can we start it? What will it take to start this journey? How much will it cost? What type of training is needed to upskill our workforce? What are the biggest pain points?
As M&As in the financial services industry accelerated in the 1980s and 1990s, most banks didn't plan properly to integrate their legacy systems with other new systems. As a result, they created a hodge-podge of siloed information systems across different departments.
One example of this is when Barclays Capital acquired the remaining assets of Lehman Brothers after its bankruptcy in 2008 and there was widespread disruption at the technology level due to system integration issues. It took a couple of years before new employees learned how to use legacy systems inherited from Lehman Brothers and understand how to phase them out or integrate them with existing systems or platforms.
Advantages Of Cloud-Native Payment Platforms
So, what are the biggest advantages of embracing cloud computing for payments?
1. Scalability: Millions of customers and small businesses switched to cashless transactions during the start of the pandemic in early 2020. This means that many banks and financial institutions around the world have been facing a dilemma in which they need to scale up their on-prem systems or migrate their increasing workloads to the cloud. Switching to a cloud-based payment platform is one viable option for most financial institutions when it comes to increased usage and payment volumes during peak times.
2. Improved Customer Experience: Since the pandemic started, many customers have been opting for mobile wallets or contactless cards to pay for goods and services. Having a seamless payment experience is now considered an important factor in customer retention for many players within the payment ecosystem. Some major financial institutions had already begun scaling down their branches across the U.S. years before the pandemic hit, which spurred many banks to revamp their online or digital presence.
3. More Payment Options: Many consumers have moved away from writing checks to pay their bills or using their credit cards to pay for big-ticket items. Today, customers have more power in terms of flexibility and options to make payments that suit their preferences and needs. However, many incumbent payment providers are still grappling to modernize their core systems or revamp the overall payment experience to attract new customers, such as those in Generation Z. Cloud computing can provide a platform to create APIs that can integrate external systems and share data for better delivery of products and services.
Challenges Surrounding Cloud-Native Payment Platforms
Although cloud-based payment processing can provide significant benefits for many financial institutions, there are some challenges that we still need to address before planning an actual implementation.
1. Security And Compliance: Trusting sensitive consumer payment info with a third-party cloud provider poses a huge risk in terms of storage and access. The impact of such a risk is fully realized particularly when a major security incident occurs and consumer privacy is compromised at a large scale. Mitigating such a major issue not only requires immediate correction of risk failures but also calls for continuous improvement of cyber defenses that will help prevent security breaches in the future.
2. Cloud Outages: With the recent AWS cloud outage that impacted major sites and services across the country, many payment providers are hesitant to migrate core payment operations to the cloud. As a result, many financial institutions are accumulating huge technical debt by adopting multicloud strategies to prevent outages. This approach may work temporarily for the near term but it's not sustainable to scale up business in the long run. How do we mitigate such a challenge? We need to choose one dedicated cloud provider and set up a hybrid cloud architecture that optimizes usage of resources across many on-prem and cloud-based payment platforms (both private and public) on a single IT infrastructure.
3. Speed And Performance: Real-time payment processing in the cloud will soon become a reality, but in the meantime, the overall speed and performance of different payment types may vary depending upon the location of each sender and recipient. Although cloud-based payments for point-of-sale transactions have been successfully tested using NFC-enabled mobile wallets, their widespread adoption will largely depend on how the payment infrastructure evolves over time with the impact of 5G networks on the cloud. How do we prepare financial institutions for improved payment performance? By addressing integration issues and capturing end-to-end test results of different payment methods with multiple stakeholders, we can not only enable timely delivery of digital payments but also secure each payment transaction successfully for all parties involved.
This digital renaissance in payments was already set in motion before the pandemic occurred and boils down to two primary factors: shifting consumer preferences and rising economic inequality. If financial institutions want to win the hearts and minds of their customers, they'll want to consider cloud payment processing to scale their businesses to the next level. Financial inclusion can empower customers to make decisions that benefit society from an economic perspective and change the payments landscape for a better future.
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