Changing consumer behaviours and demands are pushing financial institutions to a critical inflection point. Further, the proliferation of new payment types, innovations in authentication methods, the rising costs of traditional card processing and interchange fees, and competition from fintechs are all challenging traditional payments platforms. Banks are now required to look ahead if they want to stay current – not only at trends dominating the market now, but also those set to shape its future.
Electronic Payments caught up with Rajesh Venkatraman, Diebold Nixdorf’s Vice President of Sales, to find out his view on the seven key trends transforming next-gen payments technology, including that of Vynamic™ Payments.
1. Cloud-native technology
Now a mainstay of the computing industry, the cloud has found its way firmly into every aspect of our lives. The rise in virtual meetings, remote learning, video streaming, and telehealth, brought about by Covid has only increased its adoption. The financial industry is no exception. Banks choosing not to leverage cloud-enabled tools risk being left behind, especially as more and more cutting-edge technologies are released primarily on cloud shifting away from large, complex on-premise implementations.
“A true cloud-native approach provides financial institutions (FIs) with the ability to break away from the shackles of expensive, resource-intensive infrastructure. It also provides flexibility and increases the level of security in that delivery platform. There’s no question in anyone’s mind around the move towards and benefits of cloud-native technologies. It’s here now and there’s more than enough evidence around what it does for FIs and their business models,” says Venkatraman. “Payment service providers can leverage cloud delivery models allowing developers to build, host and launch applications quickly without having to worry about setting up and managing their own server. As a result, services available now allow consumers to make payments through the tap of a mobile banking app, or scanning a QR code from an e-wallet. These options are made possible as cloud technology plays a significant role in linking and integrating EFTPOS (electronic funds transfer at point of sale) systems with other services, like Apple Pay.”
Microservices are small, single-function modules within a system, each running their own process and connected via application programming interfaces (APIs). Deploying this kind of architecture significantly increases a bank’s flexibility. As such, it’s a trend that’s putting serious pressure on the FIs still relying on what Venkatraman terms “large, black box monolithic installations”.
“A lot of the newer digital banks are starting with microservices architecture and therefore have a significant advantage over established players who are essentially held down by their legacy infrastructure. Because you’re able to make tweaks with faster turnarounds, microservices also encourage innovation and experimentation. You’ll find the delivery teams working with a lot more partners in the ecosystem.”
3. Low-code development
In response to mounting challenges around application delivery, developer shortages and skill-set challenges, IT leaders are turning to low code application platforms to improve the ease at which business applications and functionality can be delivered. Low-code development leverages high level programming language and one step deployment techniques.
“A couple of decades ago payments applications were heavily dependent on specialised developers writing long, complicated strings of code in antiquated computer language. With the advent of low-code development this no longer has to be the case. A common benefit is that a wider range of people can contribute to the application’s development—not only those with coding skills. LCDPs can also lower the initial cost of setup, training, deployment and maintenance,” explains Venkatraman.
4. Continuous integration/continuous deployment (CI/CD)
CI/CD is the practice of introducing automation into software development to deliver rapid and frequent code changes that enable continuous improvement. The result is products reaching customers faster than ever before.
“There’s no breaks with CI/CD; it flows from one practice to another and it’s all integrated. Changes are made in real-time. In today’s fast-changing environment and the urgency with which banks are trying to get their products and services out to market, this can be leveraged for real competitive advantage,” says Venkatraman.
5. Third-party integration
In the past, third-party integration was an extremely labour-intensive and expensive project. The rise of the APIs has created a new dynamic. By removing the friction in connecting applications in the ecosystem, open banking is now a firm reality.
“Banks have gone from being sceptical to integrating with fintechs to reinvent financial services by using customer data. The winners are the end users who are suddenly getting access to a whole new world of value-added services,” says Venkatraman. “We’re just seeing the start of collaboration between partners in the financial services ecosystem. It will continue to proliferate as companies focus on their core competencies and start leveraging others in the ecosystem that can complement those strengths.” Banks now view open banking as a way to initiate their journey towards digital banking and in many countries looking to adopt open banking without regulatory push.
6. Alternative-currency ready
Digital currencies, issued and maintained using blockchain and distributed digital ledgers, could overturn how individuals and organizations transact value, eliminating the need for costly payments intermediaries, ensuring greater price stability, and reducing counterparty risk. As a result, adoption is gaining serious speed and financial institutions must now start equipping themselves with the tools they need to support these alternative-currency payments, especially as advantage in this space is significant
“These transactions bypass the traditional life cycle of a payment,” explains Venkatraman. “Current payments models can be inefficient. For instance, payments can take days to clear because of complicated national and international gross settlement mechanisms. Also, the dynamics promote a model where small and midsize businesses often pay significantly higher fees than larger entities because pricing is generally based on volume. Now, digital ledger technologies could help bring people into the financial system. Although regulatory standards would need to be updated to include this capability, blockchain could allow client onboarding and know-your-customer documentation to be completed on a peer-to-peer basis, without need of a formal banking arrangement. So, all financial institutions need to modernize their digital capabilities to support these newer payment types by making it a mainstay of their roadmap. It’s not optional anymore.”
7. Smart routing
Smart routing is a service offered by acquirers as a value-add and competitive business service to their merchants. It ensures an important payments technology where incoming authorisation requests are routed by highly efficient business rules engines based on pre-selected criteria for making payment routing decisions such as card data, customer data, geolocation, risk assessment, and platform or application-specific data. There are many benefits, including mitigating false transactions and automating the overall process to ensure each payment is handled in the best possible way.
“Using this technology makes the payments marketplace more efficient, secure and also lowers transaction fees, which add up for a merchant over time,” adds Venkatraman. “Smart Routing allows merchants with choices between multiple network/lanes over which to send a transaction. This enables merchants and acquirers to route to the most efficient and economical network.”
Future-focused transformation requires banks to break from the traditional, channel-centric approach, and embrace the above-mentioned technology foundations to provide a payments experience that can scale on demand. Finding a partner who can offer the right mix of these services and technology allows banks to focus on the financial products themselves without having to worry about the impact on legacy codes or algorithms. It makes operations management more agile and efficient since they won’t be burdened by having to build resources or a new infrastructure from scratch. With Vynamic Payments, Diebold Nixdorf can be this partner.