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      Payments Modernisation: How cloud adoption and transformation can drive innovation

      Explore the main payment challenges, key payment providers archetypes and if cloud is best solution for payments
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      In the ever-evolving landscape of financial services, payment platforms stand as critical pillars facilitating seamless transactions. However, the modernisation of these platforms often encounters a myriad of challenges that hinder their ability to keep pace with the demands of the digital age. In this series of articles, we embark on a journey to explore these challenges and uncover how the adoption of cloud technologies can serve as a catalyst for accelerated modernisation.

      The first article explores Payments Modernisation and how cloud adoption and transformation can drive innovation.

      Peter Harmston
      Peter Harmston

      Partner, Head of Payments Consulting

      KPMG in the UK

      Processing payment challenges

      The payments industry is undergoing a significant transformation driven by technological advancements and evolving customer preferences. Customers demand fast, secure, and convenient payment options, leading to the rise of digital, mobile, and contactless payments. Fintech companies and other non-traditional payment service providers are disrupting the market, challenging established players, and fostering innovation. These shifts present both opportunities and challenges for payment providers as they navigate a rapidly changing landscape. Some of the challenges (the list is not exhaustive) are:

        • Fraud prevention
        • Regulatory compliance
        • Cybersecurity
          • Cross-border payments
          • Payments infrastructure
          • Customer experience

            Payment provider archetypes

            Payment providers have been gradually adopting cloud computing technologies in recent years as more businesses see the advantages of employing cloud-based services for their payment operations. This has evolved from using cloud-based services for non-core tasks like email hosting and customer relationship management in the early phases of adoption, to firms now moving essential payment functions to the cloud. Nevertheless, as technology improved, and security issues were resolved.

            For a variety of payment-related tasks, such as payment processing, fraud detection and prevention, data analytics, and risk management, many payment providers are now completely embracing cloud technology. Additionally, they are utilising the scalability and flexibility of cloud-based services to expand operations swiftly and effectively as needed.

            The payments industry, however, has not adopted cloud technology with equal fervour, as businesses may encounter regulatory challenges or other barriers to cloud migration. Nevertheless, as cloud computing technology continues to advance and its advantages become more obvious, it is anticipated that the trend towards cloud adoption among payment providers will persist. The difficulties encountered will often differ depending on their archetype and the services they offer.

            There are several archetypes of payment providers, including:

            • Traditional financial institutions:

              These are banks and building societies that provide payment services, such as current accounts, unsecured lending, and mortgages

            • Payment gateways:

              These are companies that facilitate online transactions by securely processing payment information between a merchant and a customer

            • E-wallets:

              These are digital wallets that allow users to store and manage their payment information, such as credit card details and bank account information

            • Payment processors:

              These are companies that provide payment processing services, including authorising, and settling transactions, and managing chargebacks and refunds

            • Point of sale (POS) providers:

              These businesses provide payment options, such as card readers and mobile payment terminals, for actual retail locations

            Each of these payment provider archetypes has a particular function and targets a particular group of clients. Additionally, each archetype will be facing their own unique challenges due to being at various stages of their cloud adoption journey, such as:

              • No cloud adoption: All systems built in legacy data centres leading to poor agility when responding to consumer demand
                • Some cloud adoption: Potential quick wins identified and moved to cloud. New challenges created by having legacy systems now creating bottlenecks for further adoption
                  • Fully cloud native: All systems running in cloud and built using agile and DevOps methodologies

                    Application of Cloud transformation to payments

                    Challenger banks and fintechs are modelling themselves around specific archetypes, thereby taking on large traditional financial institutions by focussing on very specific services and offering tailored functionality. The use of cloud technology is a huge component of this, and is levelling the field in several ways:

                      • Cost savings: Compared to traditional banks with expensive and cumbersome legacy systems and infrastructure, challenger banks can considerably lower their operating expenses by employing flexible and scalable cloud-based infrastructure and software. This enables them to provide customers with lower costs and better interest rates
                        • Agility and speed: Thanks to cloud technology, challenger banks can swiftly create and roll out new goods and services, such mobile applications, and digital wallets, without the need for a big IT infrastructure or drawn-out regulatory clearances
                          • Data analytics: To better understand consumer behaviour, spot trends, and enhance the customer experience, challenger banks are utilising cloud-based data analytics solutions. They can better target their goods and services to satisfy customer tailored wants as a result
                            • Resilience: Cloud providers frequently have strong resilience SLAs due to the use of multiple regions and/or availability zones. Design patterns leveraging these features will have enhanced protection against outages

                              Overall, the use of cloud technology enables challenger banks to be more nimble, innovative, and customer-focused than traditional banks, which can be slow to adapt to changing customer needs and market conditions. As a result, challenger banks are quickly gaining market share and disrupting the traditional banking landscape.

                              The adoption of cloud could help traditional financial institutions combat the speed, agility, and efficiency of challengers. Which leads to a question, is cloud becoming a de facto standard for the payments industry? And if so, what changes are required to payment architectures to make best use of these new capabilities?

                              KPMG’s guide to starting your cloud adoption journey Adoption of cloud technology requires transformation across the entire architecture of a bank. At KPMG, we are supporting clients define a holistic strategy to map out the end-to-end transformation needs, and then deep dive into individual modular implementations. 

                                Is cloud the best solution for payments?

                                The potential benefits of cloud technology for Payment processing systems are undoubted; however, suitability depends on the demands and specifications of the system in question. When determining if the cloud is the best option for your payment processing system, there are several things to consider:

                                  • Performance requirements:

                                    Some systems for processing payments need to be fast and have minimal latency. A cloud deployment might not be the ideal choice in these circumstances since network latency can affect system performance. In other circumstances, cloud deployments can be tailored to satisfy performance needs

                                  • Security requirements:

                                    Sensitive data is handled by payment processing systems; hence security is crucial. Cloud providers offer strong security features, but it's crucial to make sure the one you choose adheres to the required security standards and laws

                                  • Compliance standards:

                                    Payment processing systems must abide by several legal standards, including PCI-DSS. Cloud services can assist in achieving compliance, but it's crucial to make sure the selected cloud service has the required controls and certifications

                                  • Scalability:

                                    Cloud installations are an appealing option for payment processing systems that face demand spikes since they can simply scale up or down as needed

                                  • Cost factors:

                                    By removing the requirement for up-front capital investments in infrastructure, cloud deployments can result in cost savings. To decide whether a cloud deployment is more cost-effective in the long run, it's crucial to thoroughly assess the total cost of ownership

                                  There are numerous ways that cloud computing might help the payments sector. Payment providers may not need to make as many expensive hardware investments if they can grow their operations more easily and economically with the help of the cloud.

                                  Additionally, cloud-based systems can offer increased adaptability and agility, enabling payment providers to react more swiftly to shifting consumer requests and market circumstances. Through the provision of sophisticated security features and disaster recovery capabilities, cloud-based platforms can also increase the security of financial transactions. To boost efficiency and creativity, cloud-based solutions can also make it easier for providers and other players in the payments ecosystem to collaborate and share information.

                                  Overall, cloud adoption can benefit payment providers by lowering costs, enhancing security, and stimulating innovation, making it appealing to companies trying to maintain their competitiveness in a sector that is becoming more dynamic. Cloud can be an excellent option for systems that handle payments, but it's crucial to consider the unique demands and requirements of each system before deciding.

                                  Should you have any questions or would like to discuss the topic in more detail, please don’t hesitate to contact us.

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                                    Peter Harmston
                                    Peter Harmston

                                    Partner, Head of Payments Consulting

                                    KPMG in the UK

                                    mark-corns
                                    Mark Corns

                                    Cloud Lead Partner for Financial Services

                                    KPMG in the UK