Managing the disruption:  Processing payments in the digital age

The world of digital payments is incredibly complex. And it’s only going to get more complex as the popularity of digital payment apps such as WeChat Pay, Alipay and Apple Pay continues toincrease.

According to the Global Interconnection Index, a study published by Equinix that tracks interconnection bandwidth, private and direct interconnection between financial service providers transacting and exchanging payments digitally is set to grow 38% a year until 2020.

The digitisation of the financial industry is the major driver of this growth. Trading has largely gone electronic and now we are seeing banking, insurance and payments following suit.

Each individual digital payment requires real-time collaboration across various mobile networks, operators, financial institutions, card networks, retailers and fraud protection services.This is an incredibly complex process that needs to take place in real time, to ensure latency issues do not impact the customer experience.

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So,how are companies preparing for the shift from a cash economy to a digital economy? And how are digital infrastructures being updated and rearchitected to ensure digital payments can be processed efficiently?

Developing a digital payment infrastructure

A recent study from UK Finance, a trade association for the UK banking and financial services sector, shows that debit card transactions surpassed cash for the first time in the UK last year. In 2017, a total of 13.2 billion debit card payments were made, up 15% on the previous year compared to a 15% decrease in cash payments to 13.1 billion. Better access to card payments and new technology is giving consumers increased choice and convenience in the way they pay, and there’s no doubt it’s a change that’s happened for good.

As the amount of digital payments increases, so does the demand placed on digital commerce solutions such as electronic wallets, security systems and network and cloud infrastructures. Data is created at every step along the digital payment supply chain, and it’s imperative that banks, retailers and digital commerce companies manage and process this effectively, so they can gather useful insights into consumer spending habits.

By positioning themselves in data centres close to their customers, partners and suppliers, businesses create an ecosystem where different companies can directly connect to one another.  This increases the speeds at which data can be transferred, as companies bypass the public internet. It also makes it easier to scale-up during spike periods for digital transactions, such as the annual Boxing Day sales.

The interconnected future

In May of this year,Equinixannounced the expansion of our LD4 data centre at our London Slough campus. We made this decision as a direct response to the increased demand we were seeing from companies within the financial services sector based in the capital who want to connect directly with businesses all over the world.

Expanding LD4 was a natural choice. Its proximity to Canary Wharf and The City of London – two of the world’s major financial hubs – have made it Britain’s single biggest hub for high-speed financial services trading. In addition to this, LD4’s proximity to Oxford Street and Westfield London, two of Europe’s premier shopping destinations, make it a prime location for processing card payments within the retail sector.

The financial services and payments industry has come a long way in the last 20 years. These days, financial transactions largely take place inside the confines of a data centre, as algorithmic trading and digital payments become the new norm. As a result, latency of just a few microseconds is business critical – delays of even half a second can have multi-million pound implications.

Companies that colocate inside LD4 such as Nasdaq, the creator of the world’s first electronic stock market, demand this ultra-low latency to ensure they can transact in real-time. The London Slough campus offers latency in the region of 30 milliseconds to New York and 4 milliseconds to Frankfurt, andthe £24 million we are investing in LD4’s expansion is set to grow the financial hub by a third. This investment will also double the capacity of the initial build and enable customers to interconnect securely with 1,000+ businesses including leading capital markets’ participants, insurers and electronic payments firms, as well as 200+ network service providers and 275+ cloud and IT service providers.

A global solution

Digital disruption is impacting all industries, forcing companies to transform and rearchitect their IT infrastructures to remain competitive. It’s vital that financial services companies embrace this change, because the world of payments is only going to become more complex as time goes on. Those that do not prepare for thisrun the risk of falling short of their competitors that have become digital ready in response to this increased demand or, in the case of the rising FinTech firms, have been digital-first from the very start.

At Equinix, we understand that companies can only survive and thrive in this new world if they have the right digital infrastructure behind them. We have invested heavily in creating a digital payments ecosystem for global financial companies – those that embrace it will find themselves well prepared for what will be a truly digital future.

Russell Poole is UK Managing Directorat global interconnection and data centre company Equinix.

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