By Bethan Cowper, Head of International Marketing, Compass Plus
Over the last 50 years the payments ecosystem has changed irrevocably. With technology as the driver, banking has grown expansively and regulatory requirements, investment and the customer base itself have all grown alongside it. Banks began to heavily invest in technology in the 1970s and 80s, especially in the more developed markets. This led to the rise in popularity of mainframe platforms providing financial institutions the technology they required to process larger transaction loads on a more fault-tolerant and higher availability system.
Fast-forward to the present day and a substantial portion of global payments are still being processed on these monolithic systems, which clearly demonstrates their important role in the evolution of payments. However, financial institutions (FIs) have had to continuously update this infrastructure and unearth inefficiencies in order to stay relevant in the increasingly evolving payments landscape and this has led to the proliferation of “spaghetti-like” legacy systems that no longer offer the same advantages that the standalone mainframes once did. Mainframes were built on requirements and regulations from 50 years ago, when no one could foresee Internet banking, let alone the introduction of mobile and other alternative payments.
To keep up with innovation, FIs using mainframe-based payment platforms have had to adapt and as a result, have adopted a strategy whereby new applications are bolted on, often in peculiar ways in order not to cause excessive stress on the overall infrastructure. This chaotic setup is no longer efficient, or cost-effective, though undeniably it can still support new functionality to an extent. FIs running on these systems, therefore, face the age-old conflicting argument between “if it ain’t broke don’t fix it” and “you can’t teach an old dog new tricks.”
From the mid-to-late 1990’s newer players began to emerge in the market, running on modular systems built on the plug-in-and-play mindset. These types of platform tend to be much more integrated, easily scalable and just as fault-tolerant if not more so, allowing FIs to be more innovative with much quicker response times to market for retail banking products and services. FIs running on older, yet workable systems have struggled to compete with this speed of innovation.
Today, the pace of payments system innovation is unprecedented. The extensive growth of retail banking and payments; from customer base to the number and range of product and services on offer has led to the birth of young, dynamic and specialist players offering quick-to-market, innovative products all fighting for market share.
As such, the underlying payments infrastructure has had to adapt in order for FIs to remain competitive. This evolution has developed payment platforms from monolithic mainframes to modular multi-database systems through to open development banking platforms (ODBPs) built on service-oriented architectures (SOA) and has grown banking from an institution-focused enterprise to a more customer-centric business.
To be competitive in the market today, technology is the undisputed key to differentiation, ODBPs offer FIs the tools to achieve this edge. Penned in the industry as the future of payment systems, this architecture is specifically designed to meet the challenges presented by emerging payment technologies.
In the current payment ecosystem, more and more customers expect banking products and services specifically tailored to their daily requirements and increasingly digital lives. FIs who are not able to respond quickly enough to new market opportunities, limited by both the time and cost constraints associated with changing and maintaining their existing technology infrastructure, will not be able to retain let alone grow market share.
Both ODBPs and modular systems can deliver agility, flexibility, easy integration and faster service development and deployment, however these platforms offer distinctive advantages over each other depending on the philosophy and underlying business objective of an FI.
With over 20 years experience and customers across the globe, Compass Plus is a vendor that understands the stress that payments evolution is putting on FIs and other service providers and we are available to discuss the merits of these platform types on a case-by-case basis.