Running a global payments infrastructure business in Silicon Valley I often hear the mantra that innovation and disruption should be a focus for financial institutions. While I wholeheartedly agree that innovation is what drives sustainable differentiation, I disagree with the approach commonly utilized by organizations in their quest for innovation. Setting up an internal innovation group or partnering with a trendy, unproven startup is like giving an old car a great new paint job and racing stripes before the big race. It may look good, but a coat of paint cannot change its performance. Similarly, trying to bolt on innovation to an outdated legacy system simply is not effective. Given the limitations of the existing legacy payment processing technology, there is no effective way to introduce and evolve new payment solutions. The core infrastructure needs to be updated.
The question is not whether financial institutions should have a focus on innovation; clearly they should. In fact, it is their only viable option. According to a study from McKinsey & Co., banks that are digital laggards will have a hard time keeping pace with the needs of today’s mobile and social consumers and could see up to a 35% of their net profit eroded, while those that embrace it could see an uptick of 40% or more. (1)
Payments innovation is especially important in Europe, given the need to generate new revenue streams in the face of multi-faceted challenges from increased competition, evolving consumer expectations, PSD2 and significant reduction in interchange income.
The real question is how to bring bank-grade innovation to market - meaning innovation that scales, integrates seamlessly into the enterprise, is secure, and compliant with the ever more challenging regulatory environment of today.
Trying to out-innovate the competition by developing point products or collaborating with fintech firms and innovation labs is NOT the answer. Nor is continuing to rely on outsourced legacy processing technology or old in-house computing infrastructure poorly suited to meet the realities of today’s market dynamics.
The toolkit for payments innovation
What financial institutions need is a nimble, next-generation platform that gives them the control and the tools to execute their product vision quickly and drive more revenue from their payments business. This approach represents a new model in payment processing called Agile Processing – leveraging highly reliable and secure cloud-based technology that fuses speed and flexibility with a human-centric architecture that increases consumer engagement to improve the payment and commerce experience.
Agile Processing provides numerous advantages over legacy technology:
Moving from Coding to Composition: Much like LEGO bricks that can be pieced together to assemble virtually any structure, an Agile Processing platform should provide a vast library of discrete payments functionality that can be quickly assembled to rapidly bring new solutions to market. Issuers should be able to quickly “compose” and configure new, customized solutions on an inherently secure platform. An Agile Processing approach eliminates the long lead time and large scale expense of custom-coding
Reliability and Flexibility: Legacy processing systems are inherently inflexible and were not designed to keep pace with the compressed timeframe of technology adoption today. At the same time, card issuers cannot risk their reputations by sacrificing reliability and stability for flexibility and innovation. Agile Processing solves this dilemma and delivers bank-grade innovation – fusing reliability and scale with flexibility and speed.
Customization: In Europe, financial institutions face the added challenge of rolling out multiple programs tailored for the needs of individual countries and markets. A one-size-fits-all approach does not work. Agile Processing platforms are flexible and configurable, enabling mass customization of payment programs that can quickly scale up or down to distinct markets.
Going from Sandbox to Scale: The Agile Processing model makes payments innovation a reality by giving issuers the control to create a product roadmap, test it, modify it based on market feedback, and deploy it using a sandbox to scale methodology to get to market quickly – something legacy platforms were never architected to support. Hardcoding makes it unfeasible for financial institutions to test new concepts or product ideas, apply any learning about their customers’ experiences, and then quickly put confirmed functionality into a production environment.
Practical Innovation: Continuous improvement and innovation is a key component of an Agile Processing model. Agile platforms that serve regional or global markets act as a worldwide research and development hub for payments. When new capabilities or features are added to the platform to meet local requirements in different geographies, these improvements become available to any customer using the platform, anywhere in the world.
At the end of the day, practical innovation in payments is about being agile. The markets of today, and the future, do not allow for lengthy product development cycles or point products. The best path forward is an Agile Processing platform such as i2c’s gives financial institutions the tools to respond strategically – and in the moment – to rapidly changing market dynamics without compromising reliability and scalability.
(1) Henk Broeders and Somesh Khanna, “Strategic choices for banks in the digital age”, McKinsey Quarterly, January 2015.
About Amir Wain
As founder and CEO of i2c Inc., Amir Wain is responsible defining the company’s vision to create the infrastructure driving the next generation of global integrated payments and commerce solutions. Widely recognized as a payments industry pioneer, Amir played a key role in expanding the global market for prepaid/stored value solutions and in advocating open standards for mobile payments systems. Amir founded Innovative Private Limited and Avanceon, Ltd., where he currently serves as a board member.
About i2c
i2c provides smarter payments and integrated commerce solutions that give financial institutions, corporations, brands, and governments around the world the control to deliver the high-impact, personalized experiences today’s consumers expect. i2c’s single, global cloud-based platform supports virtually any card-based, virtual, and mobile payments program as well as loyalty and back office solutions. Our customers use i2c’s Agile Processing platform to create and deliver profitable, customized credit, debit, and prepaid solutions that meet the highly differentiated needs of cardholders in 216 countries and territories.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now