The need to modernize legacy systems has never been more keenly felt, but the risk of big bang migrations has never been higher. At our recent ACI Edge Europe event, Dean Wallace, director consumer payments modernization, ACI Worldwide, Róbert Kiszely, member of the management board, Capsys, and Peter Hazou, business strategy leader financial services, Microsoft, discussed the topic of progressive platform modernization. I spoke to the panelists about the eight steps banks need to take to successfully modernize their legacy systems.
Katrin Boettger: What is driving the current modernization of payment platforms in the financial sector?
Peter Hazou: We are seeing several key factors at play here: The arrival of non-bank providers, particularly the Big Tech or “GAFA” players (Google, Apple, Facebook, Amazon), the fintechs and many new challenger banks have created a completely different dynamic. Suddenly, payments are no longer a bank-on-bank business, but a lot of new players are going after bank franchises.
Most of these new players are born in the cloud, on modern, data-centric technology; they are approaching the whole market differently. Add to that the smartphone which has completely changed the user experience in the economy — a process that has been accelerated by COVID.
All of this is putting a huge amount of pressure on banks, particularly on the core systems of traditional banks. Today, as a bank you cannot compete in the modern economy based on old technology. Many banks have improved the user experience in recent years, but they are still running on older technology and core systems, and at some point, they need to future-proof these systems to compete.
KB: ACI has identified eight steps on the journey to platform modernization. Identifying business requirements is the first step; why is it so crucial?
PH: What we are seeing in talking to banks is that there is a great temptation to approach modernization as a business-as-usual upgrade. But true payments platform modernization requires many new elements, some of the key words here are: not having silos around data and addressing the functional requirements while at the same time designing agility into the approach. Market and consumer expectations are changing all the time and a clear vision of where things should be in five years is probably not possible, so agility is very important.
KB: Róbert, I want to talk to you about steps two and three — deploying the new and adding business benefit — what have you seen as the key choices FIs have to make to stay aligned to their strategic priorities?
Róbert Kiszely: We had a unique situation in Hungary. We had to implement immediate payments which was mandatory for all banks. But at the same time, we had to fulfil PSD2 requirements and some more regulatory-driven changes.
One of the challenges was to design solutions that are compliant with the regulatory and technical requirements, but to build in future requirements at the same time. But the future requirements are innovations which are not set in stone, so we decided to separate the two, and design a two-layer project — one that focuses on the actual compliance and a second one that shows how to meet future expectations.
KB: Looking at steps four and five — moving strategically and growing the new — in today’s market a lot of banks have identified the cloud as a key strategic enabler. Peter, could you expand a bit on that?
PH: The cloud is a famously broad subject; let me touch on a couple of the key points. First of all, the cloud is not just a data center in the sky for hosting; it’s a broad set of technologies that enable agility and modernization in a very secure way. And of course, it offers banks many new tools, in particular, data and data processing, data AI and machine learning. It really helps banks go to where the puck is going. Payments are not just about the widgets that we process as payments, they’re about the insights and the context we can gain from them. And the cloud is a key enabler in terms of helping banks to gain these insights, and it’s where a lot of the modernization is going.
KB: Let’s look into step number six — winding down the old. As banks are progressing through this stage, what benefits are FIs seeing?
RK: Business models are fundamentally changing, and part of that fundamental change is the melting away, within a bank for example, of the silo of the P&L. The other point I would like to make is that the journey to the cloud is a journey; adoption is starting with the infrastructure and then many FIs add more sophisticated elements of it as it goes by. And that’s the general trajectory of the industry; the winding down of the old goes hand in hand with adopting the new.
KB: Step number seven — what would be your biggest piece of advice you would give to banks’ processors and acquirers for managing and planning their future?
PH: Not having siloed thinking about the business is probably number one, I touched upon this before. I would say that, although I come from a technology company, it’s not about the technology, it’s about what you want to achieve from a strategy point of view, from a client point of view, that becomes the driver. The technology of the cloud, for example, is about agility and the ability to accomplish those things. But this is not about all kinds of new, cool technology, IOT and blockchain. It’s about what the banks need to do to serve clients, and I think that should be the main driver.
RK: One piece of advice I would give is to look for the right partners. We have been working with cash register manufacturers and payment application developers, so we collaborate end-to-end and build it end-to-end. Such partnerships create new ecosystems which bring in new customers and sales channels.
KB: Let’s look at the final step, where financial institutions are positioned and enabled to really grow their business.
Dean Wallace: This is the most exciting one. With a future-proofed payments infrastructure, FIs have an evolution path that enables them to modernize without interrupting their business. With modern technologies and solutions, there is choice to leverage different deployment models at different stages of the platform modernization process: in-house processing, cloud processing or hybrid implementations with the option of a managed services approach — all bring benefits tailored to the individual growth strategy of the business.
Ultimately though, the biggest benefit will be improved cost-to-revenue ratios, and reduced time to market for new services — making the organization more competitive and more likely to exceed customer expectations.
Find out more How to Meet the Challenge of Modern Payments
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