Over the last decade, payment acquirers have made leaps and bounds in FinTech innovation — for instance, major players like PayPal, Intuit, Stripe, and Square have completely reinvented the acceptance process.
Meanwhile, payment issuers and retailers are mired in legacy systems that are preventing many transactions from becoming the seamless experience they should be in 2017 – writes John Mitchell an expert in the payments industry at Episode Six.
This lack of new technology threatens the ability for payment product providers to deliver what customers expect in the digital age. And until they adopt new technology, issuers are effectively playing a losing game of catch-up.
What’s Wrong with Business as Usual?
Banks and blockbuster retailers continue to utilize core processing technology invented in a bygone era to issue payments. While this has historically worked well, standard core technology has three major flaws that are slowing down issuers’ progress as the rest of the payment industry advances:
- It’s dated – Many banks and retailers are operating with core technology that is anywhere from ten to thirty years old. These systems were put in place before smart phones, chip cards, mobile wallets, and even direct P2P payments came into play. They were designed during a time when stripe cards, paper checks, and cash were king. As a result, their systems aren’t equipped to seamlessly handle new forms of payment technology.
- It’s rigid – It is difficult to make existing core infrastructure perform new, necessary functions. Because it was designed with standard tasks in mind — without a true contingency plan for additional needs — solutions and fixes for new payment processing methods often must be added on a case-by-case basis, which makes for clunky performance at best.
- It’s expensive – Whether outsourced or created and maintained in-house, core technology is a huge budget line item. As such, significant time and capital has been invested in running processes the way they’re currently run. Making a switch to a new core or trying out new software for the core is a very high stakes decision for a bank or retailer to make. The industry perception is, once you switch, it’s difficult to roll back. And that if you find you’ve made the wrong decision down the road, the potential financial ramifications could be enormous.
New Solutions Are Positioned to Streamline the Issuing Payments Sphere
But that perception isn’t necessarily accurate. With the right FinTech, issuing banks and retailers can apply versatile software technology seamlessly to their core. This allows them to add new functionalities to existing products and/or roll out new products easily and quickly test and perfect new processes without any interruption to existing customers and businesses. This presents a much more attractive proposition to issuers to drive growth: lower cost, lower risk and faster speed to market.
Existing FinTech can also empower issuers to either displace limiting infrastructure entirely, or enhance their current payment strategy with software that fully integrates with the core. Cloud-based software applied to current technology can allow in-house developers to upgrade and build out new products and processes to their exact specifications, replacing existing legacy infrastructure without the exorbitant hardware and associated costs. Because this type of technology is essentially self-service, issuers can gain ownership over their issuing payment process and roll out initiatives on their own timelines, without relying on the support of a third party.
Most importantly, issuers will then have the capabilities and flexibilities to design products with unique features and functionalities for their own customers from different demographics, markets and geographies with diverse needs. They no longer have to offer “me too” products, allowing them to stay competitive and differentiate themselves in the crowded payments space.
Issuers That Adopt New Tech Will Have the Upper Hand
The vast capabilities of cloud-based software have the potential to open major opportunities for banks and retailers in the payments issuing game. They are on the verge of widespread discovery and slated for broadscale adoption in just a few years’ time.
As multichannel commerce evolves, consumers will continue to expect the latest mechanisms for presenting payment. Issuers that are prepared to meet this demand will outpace the competition — and successfully catch up to the acquiring payment sector in terms of adopting technology that changes the industry for the better.