If there is one thing that legacy financial services companies have, it’s technical debt. Payments technology and infrastructure grew to support the growth of electronic payments in the 80’s and 90’s, well before the Internet and the advent of cloud computing, meaning that most legacy payment processors deal with layers of technology that typically still have a mainframe at its core. Shrinking margins in core processing have made it very difficult to deliver a solid ROI on platform upgrades alone, enabling tech debt to accumulate in the data center while being hidden behind shiny web-based user interfaces. Good engineering has enabled the legacy processors to keep up with new products while maintaining strong reliability, uptime, and data security. Where the tech debt takes its toll is in time-to-market, since each new layer built around the core increases the amount of regression testing that must be done on new releases, meaning that each new product that comes to market will take longer to launch than the one before it.
Fintech challengers that came to market with a cloud technology advantage are now looking to widen the gap further with a platform strategy that will deliver new levels of agility in the market. Ally Financial has outlined a strategy roadmap that moves away from hardware-based network servers and enables the network to be run by software in the cloud.
“We want to get rid of all the physical stuff and have software-defined networks that have the ability to understand the traffic that is coming in, is aware of all the different applications that have to process the traffic and will intelligently route it wherever it needs to go,” with security protocols embedded, says Sathish Muthukrishnan, chief information, data and digital officer at Ally.
Mastercard is also investing in its technology future with an edge computing model that enables data to be used close to the point where it is generated, rather than being switched back to a central hub via a network.
According to Ed McLaughlin, president of operations and technology at Mastercard, “It’s putting intelligence right next to our customers, all the way to the edge of the customers, within or next to the devices that they’re running.”
Mobile banking startup Current is on a mission to decentralize finance, where data can be exchanged by applications outside of a centralized network structure. This enables users to transact outside of the traditional framework established by legacy banks and payment companies. According to Trevor Marshall, CTO at Current, “What this open data paradigm is creating is the ability for people to participate in the financial infrastructure itself. One example would be where there are protocols that exist where users can actually function as lenders in the way that a bank would in previous cases.” This concept has also been referred to as “embedded finance,” where consumers are able to conduct financial transactions within the framework of another workflow, such as making a purchase or a medical appointment. Current is exploring products based on decentralized infrastructure, although launching them is a technical as well as regulatory challenge, Mr. Marshall said.
“We have to make sure we’re working hand in hand with regulators so that consumers are protected and we can roll this out in a fully transparent way.”
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group