Technology plays an obvious and increasingly important role in the evolution of the payment industry. It is the bedrock upon which payment products and services are built, and any transformation within this environment needs to begin from the ground up. To remain competitive in today’s payment landscape, change needs to be relevant, customer-led and responsive in terms of time-to-market.
For established FI’s (financial institutions), making changes to ageing legacy systems to embrace new technologies and offer differentiated services can be challenging. For banks in particular, it is often prohibitive for them to replace their underlying banking systems in order to achieve transformation – Darren Busby, Associate VP & Business Development Director for Europe, Compass Plus.
Transformation is still possible by implementing front-end SOA wrappers, or outsourcing selective services from which a strategy can be maintained and delivered, albeit perhaps with some trade-offs around a single view of the customer, for example.
New entrants have the advantage of being free to choose whichever technology and approach to adopt, and which specific services to offer from the start. The downside is that they are starting from zero and have to convince the general public to trust them with their money, regardless of how state-of-the-art their systems might appear.
Overall, when an FI is deciding how to ensure that its strategy is aligned with its own abilities and direction, the broad options concerning the underlying technology are to:
- Build it in-house
- Buy a Commercial Off-The-Shelf package (COTS)
- Outsource to a third party
The main driver behind the decision to build a solution from scratch is the flexibility and control it affords. If designed correctly, a system can be easily adapted as both the company’s strategy and market requirements evolve. This choice is especially attractive for companies with their own in-house IT team.
However, building a payments system could be seen as trying to reinvent the wheel, with added regulatory burdens, investment in man days and money to build something that might well be available off-the-shelf.
The time taken to implement a ‘build’ solution can be significant; the analysis of in-house requirements and resources, agreeing and signing off on everything and then, of course, implementation. Companies also need to work out how ‘right’ they need to be first time so as not to suffer from critical design errors that may only become apparent at a later stage.
With an off-the-shelf solution, not only will it be tried and tested, companies will have the opportunity to see the solution running in an environment similar to their own and can lean on the supplier’s experience.
Whilst this might seem like the most suitable option for many businesses, buying an off-the-shelf solution doesn’t always cater for specific requirements. There can be unnecessary features that are not needed, or specific features that are required but not supplied and dependency on the vendor for this customisation is expected.
Another option is outsourcing all or some of the payments business to a processor. This allows a company to focus on their core business by outsourcing non-core areas, resulting in lower operational expenses and more predictable cost forecasts. An additional benefit is that support is normally available 24/7/365.
However, when going down the outsourced route, a business will have less control as they are putting their customer relationship and quality of service in the hands of a third party. They are also dependant on their processor to keep up with market trends that are relevant to them; and small companies are often at the back of the development queue behind larger FI’s whose business is more lucrative to the processor. In a multi-tenanted system, customisation may not be possible, some businesses may just have to live with what they are given and adapt to it.
What if there is another option?
This doesn’t have to be an a, b or c decision. Organisations can combine the benefits of two or all three approaches to enable differentiation and future-proof systems. A company can buy a pre-built system delivered as a turnkey solution but which uses open development technology to provide the business with the tools to make it their own.
This would allow a business to take advantage of increased differentiation, whilst shifting the responsibility of compliance to the vendor. Buying and outsourcing can offer similar advantages; outsourcing back-office functions whilst maintaining visibility and control over key business functions.
By completely understanding the roadmap of their business, an FI can use any of the options above or any combination of these in a hybrid model which best suits them. Ultimately, it is the correct allocation of resources (people, time, money and technology) specific to the FI in question that will determine their future success in what remains a highly competitive market.
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