On the journey to modernising your payments architecture, there is no one-size-fits-all approach. The financial services industry is vast and varied, made up of organisations of all shapes and sizes, from large incumbent banks, to small, more agile Fintechs. Each player comes with their own unique set of circumstances, requirements, and priorities that require consideration when identifying a suitable way forward.
So how do you successfully agree the approach most appropriate for your organisation?
Step 1: Consider your payment offerings
Customer demand and expectation is a fundamental driver for any payments architecture modernisation. Understanding your customers’ payment needs, whilst also enabling future innovation and offerings, are key to defining your design and approach. Deciding early on if payments are either a differentiator or a commodity for your organisation will also be a factor.
We advise our clients to look closely at their payment offerings which should ultimately support your overall payments strategy. For example, if you’re a challenger bank targeting a specific demographic, you may provide diverse payment options like digital wallets, cryptocurrency integration, and seamless peer-to-peer transactions. Conversely, an established financial institution serving a wider customer base, may instead prioritise traditional options such as debit and credit cards, standard online and mobile payments, whilst exploring emerging payment innovations more cautiously.
Identifying which payment offerings to support will influence the decision on whether to build the capability in house, or to explore partnerships with a third-party vendor. If payments are a differentiator, a bespoke payments platform may be the only way to achieve the flexibility and customisation you require.
Step 2: What’s your starting point?
Whether it’s a more modern, digital-native technology stack, or a legacy mainframe platform that needs attention, your existing technology stack determines the opportunities and constraints you’re working with, and the speed with which you can modernise.
A modular, microservice led architecture, enables greater design flexibility, without the complexities of updating or replacing complex monolithic platforms. This means options such as cloud are more attainable in shorter timeframes and the existing design may allow for rehosting as opposed to significant efforts to rebuild or replace the platform.
Legacy on-premises systems with tightly coupled applications, modified over years, may result in limited understanding of the overall platform. Unpicking the legacy system often demands significant investment and substantial platform redesign to shift toward a more modular architecture that aligns with future needs. In such cases, a gradual transition is usually more suitable, with legacy systems maintained alongside the new payments platform to ensure business continuity and compliance. However, this co-existence poses challenges as different payments are processed by two platforms. A thorough analysis is essential to ensure correct payment routing, information presented to customers is clear, and downstream systems can support managing feeds from these distinct platforms.
Step 3: Define your target state
A well-defined target state sets the guiding vision that influences decisions and priorities, including choosing the most appropriate technologies. If your target state includes a cloud native payments platform, agreeing upfront whether to explore Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), or Infrastructure-as-a-Service (IaaS), or even a combination, will set the direction for modernisation.
SaaS or Payments-as-a-Service offerings provide a complete capability along with ongoing vendor support, covering maintenance, upgrades, and technical assistance, reducing overheads. They enable speedy delivery but necessitate careful consideration for integration into the current system. However, they transfer substantial control over changes to the vendor, which might not be an issue for banks viewing payments as a commodity but can limit differentiation opportunities for those seeking unique payment offerings.
PaaS or IaaS options offer the intrinsic benefits of cloud computing, such as resiliency and scalability, whilst ensuring you retain control and responsibility for ongoing maintenance and support. In the case of IaaS, all applications built on the cloud will also need to be built from scratch which can require significant effort and investment.
Step 4: Agree your scheme participation
Participation status also plays a factor. Indirect participation provides access to payment schemes and systems without the need for extensive supporting infrastructure, but it limits control over access to new central offerings and modernisation initiatives. You rely on direct participants to adopt these changes to enable access, which reduces customisation options for payment processes, instead necessitating adherence to standard practices and interfaces.
Direct participants can capitalise on new payment offerings and hold more influence over industry-wide modernisation. However, this comes with greater scrutiny by industry bodies and the need to adhere to scheme standards, making modernisation more difficult due to the need for ongoing compliance with standards. Early collaboration with the scheme and regulators can help address concerns and expectations, enabling continuous cooperation and responsive communication.
Step 5: Setting up for success
Ensuring your internal governance frameworks are ready to support major technical change is fundamental to a successful modernisation journey. Streamlined decision processes already aligned to new technologies such as cloud, allow you to capitalise on modernisation opportunities more quickly, responding to market changes with relative ease. Organisation permitting, adopting a ‘fail fast’ mentality, can allow for greater flexibility when embracing new, cutting-edge technologies.
Bureaucratic approval processes, involving internal and external forums, can hinder modernisation if not addressed up-front. By engaging relevant internal stakeholders early, you can reduce friction and raise support for change. Collaborating with risk colleagues to adapt risk assessment criteria to the proposed technology helps define the architecture’s success criteria and identify the standards your new platform needs to meet.
Step 6: Consider partnership opportunities
When planning modernisation, partnerships can be an efficient way to reach your goals and inform your target design. A microservice, API-driven approach eases external integration, while trying to integrate with a legacy payments platform may necessitate the inclusion of an integration layer to separate the third-party solution from your complex backend structures.
However, your organisation’s size can be a factor. Smaller organisations with lesser market share may have limited influence over customising services, relying on standard offerings, so the suitability of the existing offering becomes crucial. Larger banks making substantial investments typically have more sway over the product and can shape the vendor’s future agenda.
An ongoing journey
When it comes to payments architecture modernisation, a tailored approach is critical to a successful journey. Organisations’ strategies will vary depending on their current state and future aspirations, with topics beyond just the technology requiring consideration. However, irrespective of the scale or complexity of the change, modernisation is an ongoing journey. As technology and customer expectations continue to evolve, financial institutions must adapt continuously to stay competitive and meet their customers’ changing demands.
Payment innovations: where should you invest?
We explore the payment innovation ecosystem and provide guidance on the key innovations we believe will have the most significant impact on the payments.Read more
Navigating payments innovation
While new products, technologies and partnerships are being introduced at a pace never seen before, the financial services industry isn’t yet aligned on which payments innovations to invest in.Read more
Reflections on the Future of Payments Review
Baringa is pleased to have contributed to the ‘Future of Payments Review.’ In this video, we share our reflections on the report and what this means for the UK payments market.Read more
Regulated Liability Network: the future of the UK market
We look at the role the Regulated Liability Network could play in the UK market, the roadmap required to achieve it, and how regulation will impact it.Read more
Related Case Studies
Supporting reluctant customers to become a digital-first insurer
How did a leading healthcare cover provider overcome initial resistance from customers to encourage them to embrace new digital channels?Read more
Leading the operational transformation that made a £4 billion insurance deal possible
How did an insurer cut through the complications of one of the biggest carve-outs in recent history to emerge stronger and better equipped for the future?Read more
Building world-leading climate risk modelling software
How do you help the world’s biggest companies to understand their climate risks?Read more
Delivering regulatory change for UK building society
How can a UK building society deliver regulatory change while ensuring a great customer experience?Read more