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The way we pay has evolved exponentially in the last few years, with huge appetite from consumers to move from plastic cards towards digital card payment methods, such as QR codes and mobile wallets.
The way we pay is evolving at pace. Consumers in markets across the globe are moving closer to the Indian model as they increasingly prefer to transact exclusively via their mobile phones with a direct connection to their current account. For example, in China, consumers are opting to use “digital cash” stored in WeChatPay. This never turns into actual liquid funds but is simply a promise of value between users to enable exchange of goods and services.
In Europe, we are seeing early signs of that shift to mobile. According to data from GlobalData, there will be a 10% growth in mobile wallet transactions over the next couple of years, covering both cards and alternative payment types and a 14% growth in instant payments. But at the same time, we are seeing enormous growth in card transactions, with around 7% growth across Europe. Considering this is off a base of billions of transactions versus mere millions from our newer payment methods, we can see that cards are not dead in the water for some time yet.
In parallel to growth in cards and emergence of newer form factors, we are also seeing massive change in banking technology. You would have to be living under a rock to have missed the impact that cloud and cloud-native technologies are having on the banking world. Banks have long been challenged by compliance costs and costs to “keep the lights on,” but now, with quickly evolving and growing capabilities in payments, this is making the imperative to change at the banks even more urgent and important.
Yet, many of the world’s largest financial institutions are still running payment systems today that are 20 or 30 years old – systems that were designed in the last century for a very different set of business challenges. The fact that they are still in place today, often part of key national infrastructures processing millions of transactions a day and thousands of transactions a second, is a testament to how well they were designed, built and maintained.
The need for modernization
However, these “legacy” systems are often heavily customized, run on proprietary hardware stacks, written in older languages and designed in functional silos (e.g., credit versus debit versus prepaid versus ATM versus POS, etc.). The cost of maintaining them is increasing, and their risk profile is also rising, as the skills to support them are becoming more difficult to find in the market.
According to ACI customer insights, many financial institutions spend more than 80% of their IT budget keeping legacy systems compliant and up to date. Imagine the value created if 75% of this could be diverted to funding the business, launching new services, processing new types of transactions, supporting new endpoints or improving customer experiences.
The challenge most organizations face is that these are mission-critical systems that have to be available 24x7x365, so replacing them is very much like changing the engine on a plane mid-flight. Most financial institutions are risk-averse; however, over the past couple of years, in a post-COVID business environment, organizations have a bigger appetite to modernize. We are now reaching a tipping point where more and more organizations are getting ready to “grasp the nettle” and finally replace those legacy payment systems. But the question is how they can do this while juggling multiple business priorities and without impacting customers.
Finding the right pathway to the cloud
Today’s CIO has two options. One: to start again with a new, homegrown technology build or supplier that offers cloud-native technology but doesn’t have proven reliability, scalability or security in the payments space and limited functionality. Or two: to embark on a journey with a proven provider of a cloud-enabled solution and committed roadmap to becoming cloud-native in a controlled, safe way, never compromising on stability, and without the risky overhead associated with developer attrition and skill set or placing faith in a partner without proven stability and scale.
The right partner has cloud solutions that are already proven at scale, deployed by some of the world’s largest financial institutions, and backed by effective fraud management in a world where a good customer experience is a differentiator. The result is significantly reduced operational costs and increased business agility for the digital age.
When determining the optimum path to modernizing, the starting point is to examine your unique priorities and challenges. The goal is to enable the business as we modernize, not to replicate technical debt, and to move at the right pace to address the needs of consumers with low risk.
Learn more about how you can open the consumer payments modernization opportunity.