A national payment switch has become a necessity for a cashless or ‘less cash’ society. The advantages of such a switch include boosting financial inclusion, stimulating innovation, competition, growth and economic prosperity.
So, how does a market best implement a national payment switch? And how does it cope with the considerations and inevitable trade-offs?
It is an exciting, if not exactly easy, time to be in payments. The transformation to digital is well underway with the increasing use of card, mobile and real-time payments. The range of different payment methods and new entrants, some of which come from a non-bank background, is also influencing the opportunities and threats for traditional operators.
The imperative for a cashless or ‘less cash’ society
Against this backdrop, a national payment switch is no longer a nice-to-have. It is a must-have for governments, who want control over their own financial infrastructure and independence. For banks, who want faster and more cost-effective innovation on a shared platform. And for businesses and consumers, who want security and convenience when they spend, save, borrow or invest.
The importance and opportunities of a national payment switch for all stakeholders is not in doubt. The challenge is understanding the considerations that go into implementing or upgrading one.
The anatomy of a national payment switch
A national payment switch acts as the front and back end processor that should be able to handle an unlimited number of devices, networks and host systems. The national payment switch has to be fully compliant with the payment networks it unites and fully customized for the processing environment it targets. It has to scale, accommodate all payment types and meet high standards of security and fraud management. At the same time, national payment switch should support innovations and the use cases of its stakeholders.
So, how does an implementation best balance functionality against the cost and time-to-market? What is the optimum trade-off between long-term benefits and more immediate ones? What are the roles and responsibilities of the various stakeholders? The right partner will help you find the answers to these questions and the many others that arise during such a large-scale project.
Selecting a suitable partner
When looking for a long-term partner to develop or re-shape your national switch, consider their record in managing complex system projects. Consider also their commitment to a particular region, as demonstrated by their existing deployments, as well as the experience of their staff on the ground.
Within a decentralized payment infrastructure, government initiatives are complex to manage. A partner familiar with government procurement processes and negotiating and influencing at the most senior level within government and banks is desirable. A national switch may bring about cost savings as revenue is often lost when transaction fees leave the country in hard currency in the case of international card schemes. A partner should be able to help in drawing up the business case, policies and parameters to give local stakeholders maximum return and autonomy.
The local knowledge of a partner is critical to understanding the regulatory and technological considerations, which could impact a project. Their credibility is essential to obtaining stakeholder buy-in, and their culture to working in partnership throughout the project.
When it comes to the technological, consider a partner’s ability to support a national payment switch now and in the future. Can their switch offer the capacity and functionality needed? How easily will it cope with both volume growth and new functionality in the future? How likely it is that the partner will be able to maintain and update the switch for the duration of its life? The stability of a partner’s business is also something that should be taken into account.
For more information, download our white paper The National Payment Switch Market
Tieto is a well-established and well-equipped supplier of switch-based solutions. The company has implemented national payment switches in various countries in Europe, the Middle East and Africa, so has significant experience in the field, plus a proven history of successful projects.
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