PAYMENTS INNOVATION: BEWARE OF FANCY APPS IT’S TIME TO INVEST INTO PLUMBING

2014 was the year when Britain (and much of the rest of the world) fell in love with mobile payments. Hardly a day went by without a story about a new payments service or anothercool new payments app.ApplePay was announced to the world with much fanfare and the London transport system went contactless.

However, in the midst of all that hype one story remains largely untold – the rails along which all those payments (and along with it our data) are sent weren’t built with the needs of the modern world in mind. Sometimes of course we are reminded of the fact that our payments systems aren’t up to scratch;for example when the Royal Bank of Scotland was fined £56 million following an IT meltdown in 2012 which locked millions of customers out of their accounts.  Or in September when the Bank of England’s CHAPS payment system collapsed for almost a day, leaving thousands of home buyers unable to close deals.

Paul Thomalla

2015 might be the year when things begin to change. Legacy modernization is now a top priority for more than two-thirds of the world’s financial institutions, according to a new major report by Ovum published last week.  Banks worldwide are finally planning to invest into new infrastructure, payment switching and authorisation platforms, clearing and settlement systems and payment operations.

What’s remarkable about the report is that there seems to be a serious shift underway from a ‘make do and mend’ mentality towards making long-term infrastructure plans.  Banks are beginning to understand that placing bets on any individual payment technology might be to some degree risky, and that investing in infrastructure that will enable whatever type of payment in the future is the way forward.

But of course, there are vested interests in keeping the old systems alive. Many of them are run like fiefdoms and those who govern a system want to hold on to their reign as long as possible. Most risk departments and IT chiefs will not sign off investment into new payment infrastructure because it’s a time and cost-intensive process. Wrapping 40 or 50 different payment engines into one is a scary and complicated task.

Many of the banks have been frightened by the size and risk of the task but solutions exist.  Banks don’t need to rip out all their old systems in one big bang and replace it with new technology but there are ways to upgrade IT infrastructure in ‘bites size’ chunks and to minimize the risks involved.  Modern banks need effective and reliable IT systems and 2015could be the time the industry faces this issue and cooperates on bringing its IT systems into the 21st century.