Payments technology has advanced quickly in the past decade because newcomers in the industry have operated fully, or at least partially, in the cloud.
The cloud of 2021 is nothing like that of 2010. Cloud computing has become more of an API-driven, software- or platform-as-a-service technology, initially built for internet delivery but eventually brimming with cloud-native applications, or those offered within the cloud service.
"The cloud concept has been around for a long time, being called 'time sharing on the mainframe' at one time," said Rodney Nelsestuen, a senior analyst with Aite Group. "So now, we have a more elegant term for it. All of the fintechs are using it, and certainly many of the payment fintechs, with PayPal maybe being the most famous, but all of the mobile Pays are cloud-based."
Modern cloud hosting platforms support an array of payments, processing and security products that allow service providers, banks and merchants to deliver the speed, ease and security consumers expect from other services in their daily lives.
For a company to convert to the cloud, it must typically work with a provider to develop new services or streamline operations and data handling.
IBM had been in the hardware-sharing realm for years before offering IBM SmartCloud in 2011 and
As Apple moved into payments with Apple Pay, its cloud services and capabilities grew along with it for both transaction communications and payment credential security.
In addition, the major card brands have
"Some people forget that there still has to be hardware and data centers to host the cloud, but they are being built using agile approaches now," Nelsestuen said. "They are not building monolithic applications any more, as it is now about building apps on micro services and assembling them and delivering them when needed."
New converts
Some payment providers have been cloud-based since day one, while others continue to migrate services onto the cloud over a period of years.
"Paysafe technology has grown up in physical data centers with physically curated applications built to serve businesses," said Roy Aston, chief information officer at Paysafe. "The opportunity for Paysafe now is to really drive more business to take friction out of payments for our consumers and merchants (through cloud services)."
The cloud will allow Paysafe to innovate quickly and get new products to market faster, while bundling products for merchants in a way they can receive the Paysafe wallet, cards and payment processing through one organization, Aston said.
"At the same time, we are looking at how we operate that technology and are moving away from running all of that infrastructure ourselves and instead leveraging cloud-based services," Aston added.
Companies are also finding that hooking into cloud services provides a first look at new technologies from their cloud providers.
"Look at any provider now and there are so many software-as-a-service solutions," Aston noted. "You can quickly integrate a third-party partner and get access to that software, in a way you would never be able to do 10 years ago because of big license fees and not really just paying for what you use. That is the beauty of the cloud for us."
Partners are key
Working with a company like Snowflake, which enables its clients to use any of the major cloud providers, provides a clear path to adding services.
Snowflake launched its Data Cloud in 2012, and has since increased its capabilities for customers to execute new data processes and functions through boosted workloads, for data warehousing, engineering, science, sharing and apps.
"Snowflake helps customers unlock their business and ecosystem data from silos and pair it with third-party data to gain deeper understanding of their business and customers," said Matt Glickman, vice president of customer product strategy in financial services at Snowflake. "These data insights also provide a way for organizations to monetize their data for new revenue streams to drive the business forward."
It is likely that payments providers and their customers will continue to see a growing amount of digital data entering their networks through mobile, social and internet-of-things channels, making it even more vital for cloud services to manage that.
"While small data tasks were manageable with legacy data platforms, these technologies quickly struggled to handle newer, larger datasets, delaying timely insights to data," Glickman said. "Organizations often had to wait days or even weeks to query and visualize data, which only decreases its value."
These systems were often "clunky and cumbersome to use," Glickman added.
Only dedicated IT or data teams were able to access data, reducing the visibility of data insights across the business. Technology like Data Cloud makes these issues a thing of the past, Glickman noted, and organizations now quickly centralize data in one location, and have access to real-time data across the business ecosystem.
Early adopters
Some fintechs launched with cloud services in place from day one, sending the message that the time for hardware-based legacy systems were numbered. The goal was to provide API-driven payments services to connect to and operate alongside legacy equipment, allowing for a transition to modern digital methods at whatever speed the customer — a bank or a business — was comfortable with.
"At first, it felt like the cloud was just a server on a different site," said former Dwolla CEO and current board chairman Ben Milne. "But something that has become clear at this point, in my view, is it has become easier now to configure cloud services that are more flexible and more secure than it was to do with on-premise services."
No company really wants to deal with the security risks of on-premise services any longer, Milne added.
"The level of complexity and security that you are able to configure across cloud services is absolutely incredible," he said. "We could have spent years trying to do it on our own to get parts of our infrastructure to that point and it wouldn't be anywhere near as good."
Currently, it's become moot to talk about how Dwolla's infrastructure operates, Milne said. The company relies on AWS.
"It's a narrative for everybody," Milne added. "We tell clients we have a system that your top engineers would want to work with and that we are fun to work with. There are different types of leaders coming into roles at big banks and they are technologists first, and we are getting some of these changes more rapidly adopted."
What's still grounded
Despite the advancements in cloud services, particularly with cloud-native apps and near plug-and-play capabilities, a vast majority of the world's computing power is not operating in the cloud. In the payments industry, that is changing fast — but it doesn't mean that the change is easy, or a migration to cloud is not without its challenges.
"The traditional payments rails are still there and can use different APIs or platforms to connect to the cloud, with many building their cache of APIs that can connect, while others are using vendor-based platforms that manage APIs for them," Aite's Nelsestuen said.
Legacy platforms may have moved past cash registers, telephone lines and massive computer servers, but there is no denying they are systems running on older technology designs.
"When people say they have moved their applications to the cloud and you ask them how they did it, they may say they didn't do anything, they just moved them," Nelsestuen said. "In reality, that is just hosting apps and they haven't really changed anything."
More commonly, core payments systems are being re-engineered. A core network vendor goes in with a diagnostic team to look at a core platform and begins to figure out how to break that platform up into separate services — as simple as being able to send mobile notifications to a customer or as complex as moving money into accounts.
"What are the micro services and how do we define that with all of the functionality we have?" Nelsestuen said, in noting how a core engineer might approach a change to cloud. "We can make them big services or small services but will still call them micro services. Will each one just be an alert, that's a micro service, or will it be everything that defines a customer? There is a lot of effort."
A lot of time is spent figuring out how to break down a core system into a microservice, sometimes several months, Nelsestuen added. "It's basically a re-platforming, and people aren't going to change everything overnight."
Major vendors like FIS, Fiserv or Finasta bring in their own library of APIs and technology for converting a core network into cloud services.
In the end, the customer picks up a competitive advantage, Nelsestuen said.
"Companies used to build applications and the best ones would not be used with anyone else," he said. "That is how they got customers and kept them to gain an advantage."
In today's technological world, the way to be competitive is to have open technology, the type that would work with anyone, Nelsestuen said. "It should be able to work for anyone, and that is a real advantage in today's technology world."
