Key steps to select a cloud payments solution – and some myths to bust along the way
In the first article, Full speed ahead: why the US has entered the era of payments in the cloud and why now, in this two-part series on the transformation underway in US payments, we looked at what’s driving the current changes, and at why implementing a cloud based payments solution may be the most effective response for banks. In this second article – again based on our white paper commissioned with Celent, US Payments in the Cloud: A Response to Uncertain Times – we tackle some common misconceptions about cloud solutions, and go on to map out the key steps in selecting new payments technology.
First, let’s bust some myths. As with any technology not previously used by financial institutions, the misconceptions about payments in the cloud are legion. Here are five of the most persistent – together with our response to each.
1. “The cloud is less secure than an on-premise solution”
Although nothing is impenetrable, one of the benefits of using a cloud-based solution is that the vendor handles one of the least-consistently completed security tasks — patching — as well as security monitoring. The use of firewalls between internal and external networks and encryption for valuable data further improves security. Given the wide usage of cloud, the bar for security is likely to be set even higher than a bank’s current standards.
2. “Our regulator would never let us put payments in the cloud”
Once the cloud became available, regulators actually championed its use for compliance tools like sanction screening, because it can enable banks to improve their capabilities in a consistent and transparent way. Since then, both standards bodies and the federal government have become increasingly receptive to cloud deployments.
3. “No one else is using the cloud, and we don’t want to be the first”
The reality is that banks have been using the cloud for a long time — they just haven’t
been using it for payments, yet. Organizations already using the cloud include services like Salesforce, payment solutions like Apple Pay and PayPal, and probably your card processor.
4. “You have to move everything to the cloud”
Cloud actually provides the flexibility to move only what you want, when you want. Many banks adopt a hybrid solution with core elements of the payments infrastructure in the cloud and other elements remaining on premise. Examples include using a hosted online banking solution at the front end, with the billing and sanctions engines on-premise.
5. “Using the cloud won’t save us money in the long term”
With this myth, the reality depends on two things. First, where you are on the adoption curve. Operating an identical solution in the cloud may cost 20% more on a cash-on-cash basis. But once you factor in the avoided costs of upgrades and testing cycles, the cost of the cloud-based solution is usually lower. Second, the pricing model. Some hosted solutions are cheaper to install on-premise above a certain volume. But with cloud the opposite is true, since the investment in the platform has already been made. So total cost of ownership for both short and long-term should be cheaper with cloud.
Key steps in selecting a payment technology
With such misconceptions addressed, it’s time to plan your technology selection journey. This involves three main steps. The first is to create a coherent business and technology strategy for what you want to do and how quickly you want to do it. This may seem basic but failing to take it may well prove to be an expensive mistake in years to come.
The second step is to choose a technology. This decision should be informed by the strategy and defined by why, how, and when the technology is needed. Selecting technology that enables the bank to adapt to changes in a timely and cost-effective manner is imperative.
Third, choose a deployment model. Deployment choices are binary — on-premise or hosted — but it’s possible to mix and match these for different activities and payment types. By deploying payments solution capabilities in the cloud, US banks of all sizes can often move forward both quickly and more cost-effectively than with on-premise solutions.
If your bank hasn’t yet considered the benefits of a cloud based payments solution, now is the time to do so. At Finastra, we think you’ll be glad you did.
To learn more, download the white paper, US Payments in the Cloud: A Response to Uncertain Times, at finastra.com/viewpoints/market-insights/payments-in-the-cloud.