Hard Lessons

Determined not to be caught out again, resilience is the new buzz word when it comes to PSPs’ tech strategies, says Form3’s Mike Walters

The global economy has been upended in the last two years by the COVID-19 pandemic, and the payments industry hasn't escaped that impact.

Which has led, according to Mike Walters, chief product officer for Cloud-native platform payment technology provider Form3, to a push to strengthen infrastructures against future shocks. He believes that Cloud technologies should be front and centre in that drive.

Having raised $200million to date, including $160million from its latest funding round in September, Form3 provides banks and regulated fintechs across the globe with an end-to-end managed payments service, which delivers complete payment processing, clearing and settlement to the universe of payment schemes through a single API.

Overseeing teams designing and laying out the products and services Form3 offers for its financial customers, Walters knows better than most how habits have been changing in his industry – a landscape he describes as ‘challenging over the last 12 months’.

Not surprisingly, COVID-19 has seen an increase in the volume of remote transactions, given reduced access to shops, restaurants and hospitality and leisure venues during successive lockdowns.

The volume of push payments and other account-based transfers, has also increased dramatically. “That’s been compounded by the move away from cash and towards contactless. In those areas that have stayed open, there has been a much more immediate, digital feel to payments for consumers over the last 12 months,” says Walters.

And these trends have ‘exposed a little bit of the complexity of doing that in a real-time environment, with legacy technology’, he adds.

“This kind of move to even more rapid, remote, digital-focussed payments, has really started to reinforce an issue that was already there – a need for continued investment in the flexibility of the technology used in financial institutions to make those payments happen.”

Given Form3’s Cloud-based credentials, it's no great surprise that Walters is a cheerleader for such technology.

“Cloud is a fantastic thing, and has a role to play in the way customers maintain their flexibility, particularly when you see rapid changes in demand,” he says. “Resilience, security, scalability, cost- effectiveness… for all these reasons we would encourage financial institutions to embrace the use of Cloud technology, particularly Cloud-based ways of working around development, maintenance, and a full embracing of DevOps (development and operations) models,” he says.

Financial services infrastructure provider, Banking Circle’s, July 2021 survey Futureproofing Payments Tech: The Challenges Facing CIOs And CTOs, polled 600 CTOs and CIOs at banks, fintechs and payment services providers (PSPs) across the UK, DACH (Germany, Austria and

Solving the equation:

Banks are looking at ways to build better, more resilient, payment services

Switzerland) and Benelux regions, and offered insights into the challenges currently faced by this cohort. When it comes to building or buying new solutions, for example, two-thirds of respondents were planning to build their payments technology in-house, with the same number also planning to buy off the shelf. Only slightly fewer (65 per cent) expected to outsource or partner – often utilising a combination of providers, bringing together external and internal resources to meet current and future business and customer requirements.

The current mismatch between intent and execution in the UK, when it comes to the banking industry’s adoption of Cloud, however, can be seen in another recent survey of CTOs and CIOs representing 60 per cent of UK banking assets. EY’s Banking Public Cloud Adoption Index showed that 80 per cent of UK banks have migrated less than 10 per cent of their business, with just 27 per cent planning to migrate 50 per cent or more of their business over the next two years.

Could it be that the Cloud still isn't being viewed from a strategic perspective, banks instead being more concerned about rolling out new apps and solutions, often at the expense of middle- and back-office applications, with the risk that this could lead to an undermining of governance and regulatory compliance?

Regulators, for their part, are more specifically worried that many banks relying on the same Cloud infrastructure provider could create systemic risk if it were to go down. However, the fact that an August 2021 Harris survey for Google Cloud showed that 88 per cent of the 1,300 corporate respondents polled were considering moving to a multi-Cloud strategy in the next 12 months might assuage those fears.

Walters argues that Cloud, in any case, strengthens compliance; it doesn't undermine it. Regulatory changes in particular can be made in a single place and applied to all customers at a stroke.

“That’s the model we operate in Form3 for payments. A change driven by a regulator to a payment scheme or infrastructure, once we’ve made it, is applied and available to all our customers at the same time, and that really reduces the cost and burden of that compliance environment for banks,” he adds.

Yet it’s not simply down to the banks themselves knowing how to address compliance and regulation issues; it’s also a question of them finding the right partners to help with the technology deployment, and possessing the necessary business understanding to make it work and stay relevant.

“It's really important, and we pride ourselves on that,” says Walters. "One of the real strengths of a well-put-together, platform-centred, Cloud-based service, is its ability to handle scale, and to respond to changing behaviours at short notice.

“I think that’s one of the things that’s really come to the fore over the last 12-to-18 months, in that there can be very rapid changes in payment activity and payment trends.”

“Up to that point there had been much longer, more well-telegraphed, trend-based change in payment activity; but it really does show that businesses need to be able to react with scale and resilience – and with high levels of automation – to deal with quite interesting changes in dynamics. That’s especially so in non-Cloud environments where there may be restricted, or even no, access to local data centres, which could put legacy systems under pressure.”

Resilience and scalability of infrastructure is not just about keeping the lights on, it’s about doing it quickly and affordably

Which begs an obvious question: given the rapid increase in the volume of low-value payments, how can banks stay competitive in the payments ecosystem? For Walters the first, obvious consideration is ensuring the resilience and scalability of their infrastructure.

“But that’s not just about keeping the lights on, it’s about doing it quickly and affordably,” he says. “And you’ve only got to look at the amount of digital content, such as remote video activity, as well as the payment landscape, to see how well Cloud services have coped with very rapid change in customer behaviour.”

He adds: “It’s important that banks aren’t just looking at scalability, but at how quickly they can deploy change. One of the features of modern technology is the ability to roll out change four, five, six, 10, 15 times a day, into production environments; to take advantage of opportunities and allow for maintenance and ongoing delivery of payments.”

One way for banks to future-proof their payments business is to decouple it from core infrastructure. However, Walters acknowledges that banks’ technology estates are very complex – in particular institutional, Tier 1 providers.

“Core activities, such as ledgers, records of account and individual product services, have historically been very tightly-coupled with payment activity,” he says. “One of the trends over the last few years, has been a recognition that banks need to decouple services that aren’t required to be related to one other. Whether it’s payments coming out of core banking, billing moving out of payments, or the service wrapper moving into its own, shared service within financial institutions, Form3’s view would be that a high-throughput, real-time piece of payment technology isn’t the same thing as a billing system, a ledger, or a product system. It makes sense for those things to be run independently, for banks to realise their advantages.”

Worth considering, too, according to Walters, is to examine the conversion of those banking technology estates, where applicable, into platforms that can consume other platforms.

“We think that’s really important, because it means best-of-breed capability in each area, without the need to manage it, host and run it yourself. And that doesn’t apply just to payments, but also to fraud, sanctions screening and a number of other services that will be core to a bank’s activity,” he notes.

While speed continues to play a major role in transactions, Walters stresses that changes to technology to allow for the carrying of incremental information is just as important.

“We’re going to see this trend develop at pace, with the adoption of large-scale ISO 20022 infrastructures. The ability will be there not just for payment information, but also invoicing and even image data, to be transported alongside payments. And that will revolutionise the customer experience around payments,” he adds.