The power of the cloud shouldn’t be news for any leader in payments today. Whether public, private, or hybrid, the cloud’s capabilities are widely known and beyond dispute.
But cloud transformation is newly urgent.
Accenture research has found that modernizing payments is a $300 billion opportunity, with 2.7 trillion cash transactions forecast to move to cards and e-payments by 2030.
With this growth will come change, and the possible creation of new winners and losers across payments tools and markets. This recent analysis, measuring the vulnerability of payments to disruption, found that credit cards, remittances, and international payments are the tools most at risk of disruption. The US is currently the most disrupted market and the one most at risk of future disruption.
The pandemic has accelerated the pace of change in payments, acting as an acid test for cloud systems and a catalyst for cloud migration. You could think of COVID-19’s impact on payments as a time machine, transporting the industry to 2025. Cloud investment across all of banking had been growing at an impressive 30 percent annually for years, but Forrester projects that it will reach $411 billion by 2022. This is roughly three times the rate at which tech spend in general is growing.
Meanwhile, seven out of 10 banking executives say that transforming payments is a core pillar of their digital change program.
All of which is to say that the stakes are high and rising in the payments industry right now.
With that in mind, here are five reasons why cloud transformation is a generational opportunity in payments right now.
1. The cloud is uniquely agile
As the pandemic just demonstrated, the cloud—particularly the public cloud—is a uniquely agile technology platform and enabler. The use of off-the-shelf cloud solutions and dynamic infrastructure can cut timelines for digital delivery and help you respond to changing marketing conditions and seize new opportunities.
2. It can super-charge innovation
Start-ups in many industries have demonstrated that one of the major advantages of the cloud is that it democratizes innovation and lowers the fixed costs of launching digital businesses. In the payments space, start-ups like Wise and Stripe leverage the public cloud in their quest to disrupt the sector.
In response, many incumbent payments players are running venture units that try to duplicate the key strengths of start-ups. Many are also opting for the public cloud, which lets them tap into the vast enablement investments made by cloud service providers. Using public cloud also allows for a fail-fast, no-regrets environment that is conducive to innovation.
3. It can transform the cost curve
There is now solid empirical evidence that the cost of operating products and transactions with highly variable volumes is lower on the cloud than on one’s own infrastructure. A strong business case can often be made too that cloud migration can trigger fresh, tough-minded application rationalization. (As every homeowner knows, there’s never time to clean out the attic until you move to a new house.) The cloud can also significantly lower product development costs.
That said, there are still some mainframe applications where the business case for cloud migration remains weak. But Accenture’s experience is that in areas of rapid change, like payments, the total cost of ownership favors the cloud in most instances.
4. It’s future-proof
The cloud’s compatibility with API ecosystems and powerful data management and analytics capabilities makes it extremely attractive to payments providers looking to keep up with evolving data requirements and expectations. This makes complying with open banking regulations much simpler for payments providers.
5. It’s secure
The technological arms race between the good guys and the bad guys is clearly at a fever pitch when it comes to digital security. Major cloud service providers, in response to concerns about the cloud’s ability to safeguard data to regulatory standards, are investing heavily in the security and resilience of their infrastructure. However, banks still bear responsibility for their use of the cloud beyond the infrastructure.
So, what does the cloud in payments look like in action? This is still a burgeoning market, so concrete examples of cutting-edge cloud application in payments are limited. However, a few trailblazers have already proved the power of the cloud in payments. Some are legacy players like Capital One, which in 2020 became the first US bank to move all its data into the public cloud. Some are start-ups, like Wise and Stripe and even PayPal, which most recently ranked 182 on the Fortune 500. Some success stories even come from regulators, like the Federal Reserve’s pending FedNow system.
But I suspect that the greatest innovations and disruptions caused by the use of the cloud in payments are still ahead of us.
I’d love to hear your thoughts on the future of the cloud in payments; I can be reached here.