Payment Processing Platforms
At Consult Hyperion we spend a lot of our time looking into payments processing platforms for our clients. Over recent months we’ve delivered;
- technical due diligence, assessing their capabilities
- security and vulnerability analysis on networks and products
- designed fundamental security architectures for new payments solutions
- advised clients on the selection of payment platform solutions
- and helped design new platforms or extended the capability of their existing platforms
It’s fair to say we have a comprehensive understanding of payments processing. The products and solutions offered by Fintechs, Banks, Neobanks etc. rely on the capabilities of the underlying payments platform(s).
Those platforms sit at the core of a financial institution’s business. The ability to compete by offering new products and services is only enabled by the flexibility and extensibility of these payment platforms.
Compass Plus asked us to look into the impact a payments platform’s architecture has on its ability to enable the delivery of financial products and solutions in today and tomorrow’s market, and to write this up in a whitepaper. This provided us with the opportunity to step back from looking at specific client and platform needs, and to take a more holistic view of payments platforms.
Generations of Platforms – it’s not all about the cloud
As many will have observed, financial institutions operate at different speeds, some innovate quickly, others take time, reflect on where the market is going and bring solutions to market at a later date. This is not through a philosophy of being a market follower rather than an innovator, but a constraint imposed on the institution by their ability to adapt their payments platform and implement new solutions.
We consider payments platforms in terms of generations:
- 1st Gen platforms are children of the 60’s & 70’s, developed in house when card payment processing was new, and each bank developed its systems to suit its needs.
- 2nd Gen platforms arrived in the 90’s, by which time card payments were no longer novel, but a core business need. These platforms needed to be efficient, handle ever increasing volumes, and offer flexibility in the card products that were on offer. Financial Institutions outsourced the supply of these platforms to specialist providers focused on developing and delivering these systems.
- By the late noughties the digital world had arrived, e-Commerce and mobile phones were changing customer expectations and the Fintechs, Neobanks and Challenger Banks emerged delivering services on these digital channels with new 3rd Gen platforms.
3rd Gen isn’t just about being cloud enabled, many 2nd Gen platforms can be delivered on cloud platforms, the differences between 2nd Gen and 3rd Gen run deeper than that. 2nd Gen platforms were designed and built to operate as card centric platforms, e-Commerce and omni-channel (where omni-channel simply meant face to face and e-commerce) were major challenges, but the 2nd Gen platforms adapted over time to service those needs. With 3rd Gen platforms, the card is only one channel by which a payment can be initiated, in 3rd Gen platforms omni-channel means any channel any payment. These are payment centric platforms.
Vendor Independent Extensibility
As 2nd Gen systems became more outsourced to the platform vendors, so did the reliance on these for developments. Card products used to compete on interest rates, interest free entry periods, rewards programs, and 2nd Gen systems are brilliant at providing different card products based on a range of variable parameters.
However, as interest rates tumbled along with interchange and differences between banks in their ability to model risk lessened, competing on interest rates and rewards was no longer enough to differentiate product offerings. The services around the account became more important, and this is where the Fintechs and Challenger banks focused their energies, on making the product work for the individual consumer, personalising the payments products.
The Fintechs have a mantra of “fail fast”. They launch a product or product feature, see how the market reacts and change it, quickly. They can do this as they have control over the services they offer.
In 2nd Gen platforms, innovation and development of new features and capabilities can be restricted by the limits of customisation available on the platform. Truly innovative products require changes to the platform. This means Financial Institutions are reliant on the platform vendor to implement their new innovative features, this takes time and money, and they will be in the development queue. Unless the FI is prepared to pay for long term exclusivity there is also inevitability that in due course the innovation will become a platform feature available to their competitors. As more client features are added to 2nd Gen platforms, the additional complexity of test & QA for the release of platform updates slows this development and innovation process further.
With 3rd Gen platforms, the platform vendor looks after the core payments features, with the financial institution able to extend the platform by adding their proprietary innovations and features themselves in a client layer. This is enabled through native platform support for a rich suite of APIs and SDKs allowing the FI to build on the foundation of account, payment and billing objects that underpin the platform.
Being able to extend such platforms in a safe way, rather than having to open them up and perform heart surgery on core business logic, ensures that new features and products can be built and released to the market in days rather than months.
It is the combination of extensibility by design, vendor independence and focus on payments rather than cards that sets 3rd Gen platforms apart and is allowing FIs to implement their true product vision putting digital services at the forefront of financial service.
Read and View
Our whitepaper “Future Ready Payments Platforms” examines 2nd and 3rd Gen systems and the drivers and constraints around moving to 3rd Gen platforms.
In order to delve further into the platform issues and implications brought out in the whitepaper, Consult Hyperion hosted a webinar with Compass Plus to discuss these in detail and get to explore how 3rd Gen platforms can open up the possibilities for FIs.
About Consult Hyperion
Consult Hyperion is an independent strategic advisory and technical consultancy, based in the UK and US, specialising in secure electronic transactions. With over 30 years’ experience, we help organisations across the globe exploit opportunities presented by new technologies, regulatory changes, and consumer expectations. We design systems that support mass-scale secure electronic payments and identity transaction services. We deliver value to our clients by supporting them to deliver their strategy. Hyperlab, our in-house software development, and testing team, further supports our globally recognised expertise at every step of the electronic transaction value chain.