A funny thing happened on the way to the Cloud

“Everybody talks about payments moving towards the Cloud – that it’s going to be this $300billion market opportunity in the next five years,” says Ciaran Chu. “A lot of banks say they are committed to the technology, but if you look at the actual workloads being run there, from a payments perspective, a lot of them are still in their infancy.”

As head of public Cloud services at payment solutions provider ACI Worldwide, Chu is involved in the digital transformation journey of many of the 6,000 organisations that it works with, including 18 of the 20 biggest banks globally. And while some may be slower than others, for those who ‘get’ Cloud’s full potential, he believes it can radically change the way they operate as well as their future profitability. And it all comes back to payments…

FINTECH FINANCE: Can you give us a scene-setter – where banks are now and where they are heading to in their Cloud journey?

CIARAN CHU: I think the big challenge that a lot of banks are going to have in the next three to five years is that their traditional business model is under attack: ACI Worldwide’s Head of Public Cloud, Ciaran Chu, says it isn’t just a technology solution – it’s an opportunity to fundamentally reshape banks’ business models

they’re able to charge less fees and interest rates are at an all-time low. They’re the two traditional revenue streams. Where you’ll see an acceleration of Cloud technology, is through artificial intelligence (AI) or other data aggregation services, that allow them to create alternative, new value streams that they wouldn’t be able to create today in an on-premise environment.

Those that are going to be really successful will move components, one by one, to arrive at value, assimilate the learnings and work in a truly agile manner. Ultimately, they’ll be able to unlock that value and transform the business, piece by piece, so that they’re diversifying their revenue, changing their cost base and, ultimately, spending more time on the consumers and less time on the maintenance.

A lot of banks and intermediaries I speak to, be they merchants or processors, are saying: “I want to have a faster speed to market. I acknowledge there may be more upfront cost involved in that because I’m running two platforms – I’m not fully optimised when I’m deploying it in the Cloud – but, ultimately, my major driver is to get faster time to market and increase my agility. By doing that, my expectation is that I'll get new revenue streams that I wouldn’t have got otherwise in the short term. In the long term, much as I’ve done in an on-premise environment, I’m going to optimise my workloads as much as possible, to ensure that my cost comes down.”

FF: You talk about banks finding new business models and revenue streams, but where do they look?

CC: The most logical place for neo and traditional banks to find revenue outside of transaction fees – with the caveat that, while revenue fees per transaction are falling, the volume of electronic payments, especially off the back of COVID, is rising – is through improved customer experience. The easiest way to do that is by improving transaction convergence or giving customers more contextual data to go about their daily lives. 

 The challenge for the established banks is that they’ve got spaghetti architecture – a customer has a retail account and a home insurance account, for example, but those two pieces of data are held in different databases. That means it’s very hard for incumbent banks to pull together a complete data picture of that client. Some of the advantage with the neobanks, particularly in Europe, is that they have the ability to leverage open banking to pull together that aggregated account information – because they’re Cloud native and they’ve got the AI capabilities that the Cloud providers give them. It helps give a far more seamless experience to consumers, which helps to drive more transaction volume. That transaction volume then gives them the opportunity

Does it add up?

Revenue fees per transaction are falling but volume of low-value payments is rising

to provide more contextual information – and, as consumers, what we’re really looking for is the easy button.

So that, I think, is going to be one of the big battlegrounds. Can the incumbents simplify all their data structures, and can they commercialise the fact that they are trusted by consumers to hold information?

And who wins? Is it the trusted bank, which might have a lot of information and can’t quite get it together today, but, as they go towards the Cloud, can use the help of providers to better aggregate that info and make it available? Or is it your neobank that’s jumped straight in and is going to make it so easy for you to use their product, and so easy for you to be able to aggregate all your accounts in their product?

That’s going to be a really interesting space in the coming years, because, ultimately, with transaction fees, it’s a race to the bottom.

FF: Do you see them naturally relinquishing some of the payment services they have traditionally supported in-house?

CC: As a bank moves towards the Cloud, there is obviously a natural pause, a point for them to consider what it wants to offer itself and what it can outsource.

The first big advantage of payments-as-a-service is being able to focus on your customers, while potentially outsourcing the technical infrastructure.

The second big benefit is that a lot of the banks are looking at the Cloud journey and realising it requires a very different technical skillset, which they might not have the abilities in-house today to be able to execute as quickly as they want.

So, the idea that you can just consume a service, as and when you need it, is obviously very attractive from an operation and a maintenance standpoint, and certainly from a resource perspective.

The third big benefit of payments-as-aservice is the ubiquity of the payment experience. If you think about how fast the market is moving – transaction fees are dropping, banks are looking for different revenue streams – one of the challenges is how banks respond to that in an effective time period. Payments-as-a-service is a really neat solution because it just allows you to unlock the new capability as you need it and not worry whether you’ve done the right market analysis, whether you can get it built in six-to-18 months, and, if you do, has the market has already moved on?

Unlocking the payment capability, as you need it, using application programming interfaces (APIs), is massively powerful, because it transforms your go-to-market and your customer experience, not to mention your cost base.

FF: And what can ACI Worldwide bring to the table to help banks navigate this changing environment?

CC: We’ve huge experience of supporting clients that are running mission-critical systems in their own datacentres. But we’ve also been on our own Cloud journey as a company – we now have our own private Cloud business – and that gives us a massive advantage in that we understand what it takes to migrate to and operate in the Cloud. So, I think our own experiences have really resonated with clients, because they can come to us to ask questions like ‘how do I solve the HSM (hardware security module) latency issue?’ and we’ve been able to say ‘like this… you can run it in your own datacentre, and here are the things you need to think about in order to connect to the payment application in the Cloud. Or,

Ultimately, they’ll be able to transform the business, piece by piece, so they’re diversifying their revenue, changing their cost base, and, ultimately, spending more time on consumers and less on maintenance

alternatively, here’s our colocation provider’.

We use our own middleware to connect our different applications, to make them seamless for clients, and particularly to API-enable them, so that customers can come in, use the services they need, when they need them. That’s really helped us think customer-first, about how we can make customers’ lives easier in so far as being able to consume the gamut of ACI’s technology in a really seamless manner, so that they can go to market faster, innovate faster, and also maintain their applications in a far more seamless manner – which, given the amount of regulatory oversight coming in, is in itself a massive challenge. ■