(Payment) Cards on the Table: Is Your Infrastructure Up to the Challenge?
The introduction of new payment types has created a greater need for a strong, flexible card infrastructure than ever before. That’s easy for issuers to lose sight of; mobile services are new, exciting and backed by demonstrable customer demand. Fundamentally, however, mobile services rely heavily on card payments.
Below, Rune Sørensen, at Nets, explores with Finance Monthly the impact that sophisticated card infrastructure can have on mobile-led banking.
All this innovation is pushing and pulling card infrastructures in ways no-one could have predicted a decade ago. Mobile banking, ecommerce integration, loyalty and rewards schemes and even IoT payments all link to cards. That’s a lot to ask of a back-end system.
So the question is: how can issuers balance a need to be perceived as innovative with providing a reliable, compliant and fit-for-purpose payment infrastructure?
Payment revenue is falling, so issuer’s profit margins are being squeezed. Technological change is advancing faster than internal systems can be updated, and the demand for developers with the skills to design and implement back-end solutions is growing faster than supply. As a result, the most forward-thinking banks are taking a critical look at their go-to-market strategies, and questioning if a business model where they design, implement and maintain their own systems is still feasible.
Technological change is advancing faster than internal systems can be updated, and the demand for developers with the skills to design and implement back-end solutions is growing faster than supply.
Take payment gateways as an example. Banks need a payment gateway to the card schemes as they are the backbone of broad e-commerce payment acceptance for their customers, thereby enabling banks to benefit from the international e-commerce market - set to grow to $4.5 trillion by 2021. To avoid locking themselves in with a single scheme, these gateways must also be card scheme agnostic. Issuers now have the choice of whether to develop and maintain these gateways themselves, or to prioritise reliability and time to market by working in collaboration with a trusted partner.
The debate around outsourcing infrastructure has been simmering under the surface for the last few years, and was brought into focus by the Second Payment Services Directive (PSD2). Open banking is bringing huge opportunities to banks because the importance of national borders in the provision of financial services is diminishing. This opens up the market and benefits consumers, and enables banks to target whole new countries of potential customers. However, these opportunities come hand in hand with two significant challenges.
Open banking is bringing huge opportunities to banks because the importance of national borders in the provision of financial services is diminishing.
First, banks must ensure that their payments infrastructure is compliant not only with EU and their own national regulations, but the domestic regulations of any other international markets they intend to enter, as well as the complex and constantly evolving requirements of the card schemes. Card scheme compliance alone is a great responsibility, demanding increasingly more resources as the service portfolio diversifies and becomes more complex, predominantly driven by mobile payment enablement. This is an enormous undertaking – and one difficult to justify when there are dedicated providers of back-end systems offering full compliance for less than it would cost a bank to create and maintain it themselves.
Second, scalability is key. In the increasingly globalised world of financial services, exciting new products must be made available to all customers at the same time, without any of the downtime associated with launching new products and systems. Stability and security are fundamental to banks; innovation alone means nothing.
It’s clear that, in an era where banking and financial services are evolving faster than ever before, banks need to put their money where it counts. A flexible and reliable card infrastructure will be crucial to a successful transition as more and more financial services move to being predominantly mobile – and in the future, maybe even mobile-only.
Although most consumer-facing financial institutions now offer mobile applications, that doesn’t mean that they are ready for a world where smartphones are the primary point of contact with their customers. This is a new reality, and as the industry changes issuers must evolve too. Those that survive and thrive will be the banks that focus on their delivered customer journey and value-adding core business areas – and it’s time to ask if this really includes developing and maintaining back-end systems.
So, put your cards on the table. Is your infrastructure up to the challenge?