What’s behind the shift to a platform-based approach to payments and how can this trend accelerate the pace of modernization in banking? To answer these questions, Form3's Head of Product, US Miriam Sheril recently took part in a webinar, Rethinking a Platform Approach to Payments.
Alongside Miriam were Peter Gordon, Founder and Managing Partner at Atlantic Fintech Advisors; and James Wester, Research Director for Technology and Infrastructure at Javelin Strategy.
The panelists took part in a lively and insightful discussion centered on the theme of how traditional payment gateways have often hindered innovation and acted as a constraint on payment modernization. Watch the webinar on-demand here.
Evolution of payment gateways
Historically, banks have relied on basic, limited-functionality gateways to process payments. This approach lacked any flexibility, with consumer payments processed in batches at fixed schedules. The system architecture used to facilitate this was built around massive mainframes, hosted on-premises and maintained by in-house engineers.
This legacy infrastructure was built to fulfill a clear purpose, but as the years passed it became clear that these systems were holding back the evolution of payments, rather than enabling it. Increasingly, bankers became frustrated with these back-office systems – and these frustrations are a big part of the reason that Form3 exists today.
As the panelists outlined, the demand of modern consumers for 24/7 services, highlighted the need to develop real-time payment models. But banks with limited, mainframe-based architecture can’t adopt RTP and FedNow without a radically different approach.
Platform approach to payment processing
Moving to a platform-based approach, then, enables banks to integrate additional capabilities directly into the payment initiation process, free of the constraints of traditional gateway systems. It’s a more realistic way for banks to reach their goal to commercialize ‘value-added services’ and develop a more client-centric service model.
Platform-based approaches utilize technologies such as cloud computing, APIs and microservices to build agile, scalable payment gateways that can be easily connected to the growing number of payment types and rails available like FedNow and RTP. The flexibility of this approach means deployment is faster and payment processing is cheaper, empowering banks to offer better services to their customers.
"The most notable evolution in payments in the past decade is how decoupled the entire payment ecosystem has become from end-to-end. For decades, payments existed in a fixed way: consumers had a top-of-wallet payment method issued by their bank who used massive mainframes to batch millions of transactions across a few payment rails. It was simply the way things were done."
"In the past decade we have migrated to flexibility everywhere: in the payment types available, in how those payment types are issued and processed, and even in how the systems themselves are deployed. That flexibility has led to more complexity in many ways, but it has also led to the payments system becoming much more open, faster, and cheaper."
James Wester
Research Director for Technology and Infrastructure at Javelin Strategy
Flexibility and client-centric services
The panelists discussed how the platform-based approach allows banks to add diverse, value-added services or incremental capabilities at the payment initiation stage, opening a world of possibilities.
Banks that modernize their approach will have the flexibility to add products and features to their offerings that customers will really value. As well as instant payments on the RTP and FedNow networks, they can also connect to other financial services such as cross-border payments, peer-to-peer payments, loans and the like to develop a more client-focused service model.
Orchestration and decision-making
Through a platform-based approach, banks are now empowered to make informed decisions on behalf of their clients regarding payment types, timing, pricing, and beneficiary considerations.
This means that customers can pay all their bills and make other payments without having to worry about when the settlement takes place. They can keep their books balanced and the bank chooses which mechanisms are used, whether the payments are made instantly, through credit, or in installments. The customer has the flexibility to make transactions as and when they want to, while the bank handles everything behind the scenes.
The benefits of the multi-cloud approach
Cloud-based payment processing offers flexibility, scalability and speed at a lower cost, but for banks that want to ensure that their platform-based approach is resilient enough to provide a guaranteed 24/7 service customers, they need to think multi-cloud.
Utilizing a multi-cloud architecture provides banks the assurance of continuous availability whilst removing concentration risk associated with single cloud providers. For payments services that truly meet the needs of modern customers, it’s the best option.
Dive deeper into the discussion by watching Form3’s on-demand webinar here.
