Case study: Nationwide and Form3 on migrating payments

Mapping out a multi-year migration set to improve the scale, resiliency and long-term viability of Nationwide's payments infrastructure

by | August 25, 2022 | bobsguide

In 2018, Nationwide, the largest building society in the UK, began the process of mapping out an ambitious transformation of its payments infrastructure. This transition would end up being a multi-year process, involving multiple providers, improving the resiliency of Nationwide’s infrastructure and ultimately leading up to the adoption of Pay.UK’s New Payments Architecture.

The society, whose group assets total over £230bn, began the transformation with an internal analysis of the project scope and requirements, launched in 2018. This endeavour would result in a migration of the infrastructure underpinning all payments to and from Nationwide accounts for the foreseeable future.

The results of the procurement exercise gained wider public visibility in 2021, when Nationwide announced a partnership with infrastructure provider, Form3.

“The business case was made that there was a need for a new payment infrastructure, which needed to be more cost-efficient, and facilitate long-term growth,” Otto Benz, director of payments at the building society, tells bobsguide.

“The past five years have seen exponential growth in cashless payments. We currently process around 430m Faster Payments per year. We needed a solution that would be able to facilitate this.”

Explainer: Faster Payments is one of the ways consumers can send money electronically in the UK. It is a real-time payments system. The service was launched in 2008 as an initiative to enable mobile, internet, phone and standing order payments to move quickly and securely between UK bank accounts, 24 hours a day.

Before Faster Payments, funds would take approximately three days to move between bank accounts. The overarching system is operated by Pay.UK, the company that’s also responsible for facilitating Bacs payments and the Current Account Switch Service in the UK.

 

A cloud platform offers scale

In 2018, three years prior to Benz joining the business, Nationwide launched a procurement exercise for a trusted provider of locally hosted payments infrastructure.

While the building society received proposals from industry leading participants, in 2019 it pivoted away from its original plan for a locally hosted installation and opted for a cloud architecture instead.

The pivot was well-timed in 2019. A survey by the Bank of England, conducted that same year among the 30 largest banks (including Nationwide) and 27 largest insurers in the UK, revealed that the bank focus group already used cloud for around 2,000 different applications and showed substantial maturity in this regard.

Of all the cloud applications reported by banks, 82% used a software-as-a-service (SaaS) model, while 18% employed infrastructure-as-a-service (IaaS).

For Nationwide, the desision was a practical one, allowing the society to implement DevOps across its payment infrastructure, avoid service downtime around migrations and access a wider pool of tech talent.

“Using cloud hosted architecture provides real benefits to the society. It allows for scalability, longevity and by adopting a more DevOps approach to implementing change means we have less downtime and avoid end of service life risks. As a mutual organisation we have to be mindful we are spending our members money,” Benz explains.

“Cloud-native applications are more cost-effective when it comes to implementing change as they utilise more modern technologies and approaches in software development. It also allows us to access a wider pool of skilled software engineers who are familiar with these technologies who then use agile practices for development and operation approaches.”

This infrastructure decision also allows the society to scale its payments architecture up or down, depending on need.

“We don’t expect the growth of annual transactions to continue at the same rate as it has in recent years, particularly during the pandemic, where more people moved away from using cheques and cash,” Benz tells bobsguide.

“However, it is unlikely that online payments growth will plateau entirely. For us, the way forward for this project is to further improve resiliency and decrease downtime.”

This prediction is backed by statistics from the UK’s retail payments operator and standards body, Pay.UK. In 2021, According to the organisation, the Faster Payments System enjoyed a record-breaking 12 months, processing 3.4 billion transactions with a value of £2.6 trillion.

This represented a year-on-year volume increase of 568 million payments, or 20%, and a 24% jump in values (up from £2.1 trillion in 2020). The rise in uptake during the previous year was similarly rapid, likely due to the pandemic, with Faster payments transactions increasing by 383m during the 12 months.

Project timeline:

2018/2019: Internal analysis of project requirements and scope in 2018/2019

2018: Procurement launched for a locally hosted payments infrastructure provider, with several industry-leading participants.

2019: Pivot away from locally hosted to cloud-native.

Q1 2020: Selection of Form3 completed.

February 2021: First stage of migration completed – transition of Vocalink PayPort gateway

Ongoing: 18-month transition away from in-house infrastructure/BizTalk adapters to Form3 (Microsoft will end support for BizTalk on April 11, 2028)

Explainer: PayPort by Vocalink is a managed service gateway that offers immediate, secure, round-the-clock access to the Faster Payments service for payment service providers as directly connected settling and non-settling participants

 

Provider selection

Form3, a privately-owned, cloud-based connectivity, payment processing, clearing and settlement service provider, was founded in 2016 by Michael Mueller. The fintech is based in London and has so far received $217m in funding across several rounds. Nationwide participated in the fintech’s Series C raise in 2020, leading to expanded opportunities for collaboration.

The firm has also received investments from other leading UK and global financial institutions, including Lloyds Banking Group and Barclays. Mastercard, Goldman Sachs Asset Management and Molten Ventures (previously Draper Esprit) are lead investors in the company.

“For Form3, this was a well-trodden path, as we’ve worked with several large UK institutions in the past,” Mueller tells bobsguide of the Nationwide project.

“After the partnership was announced and the scope defined, the next step was to confirm a live date with the central infrastructure and work backwards to determine the integration requirements and testing schedules.”

External vendors and concentration risk

Besides Form3, other vendors involved in the project included AWS as the cloud infrastructure provider, Accenture as the systems integrator, as well as external software testing providers, engaged by Form3.

Form3 itself is an Advanced Technology Partner of AWS and currently deploys its services on the Amazon cloud. However, concentration risk has not gone unacknowledged by Mueller and the wider team. A key hindrance to the resiliency of the UK’s financial infrastructure, concentration risk has also been singled out by the Bank of England.

In order to mitigate concentration risk and ensure an “unkillable” infrastructure, the firm is currently working on spinning out a Kubernetes cluster with each cloud vendor, with Google Cloud Platform (GCP) being first on the list.

Metrics of success

Outside of being cloud-native and extending the shelf life of Nationwide’s payment infrastructure, Benz cites the resiliency of the Form3 platform as a key criterion for selection. To this end, the key performance indicators that Benz and his team report at the board level, and which are regularly communicated to Nationwide members, include uptime and payments response time across the society’s three digital payments channels.

Uptime

  • Average internet bank payments uptime, April-June 2022: 99.877%
  • Average mobile payments uptime, April-June 2022: 99.9%
  • Average open banking payments uptime, April-June 2022: 99.982%

Payments response time

  • Average PRS, internet bank(April-June 2022): 4835ms
  • Average PRS, mobile app (April-June 2022): 623.6484ms
  • Average PRS, open banking (April-June 2022): 1096.484ms

Benz notes that in July, the most recent full month at time of writing, the building society had no unplanned outages, with the only downtime being for planned maintenance.

Scale and further development

Over the course of the next year, the building society will migrate Faster Payments over to the new, Form3 platform. At the same time, the team will work to ensure the system is ready for the changes required to support Pay.UK’s New Payments Architecture.

Once these changes are made, Nationwide will re-assess their position and plan the next phases of work, which are likely to include BACS, CHAPS & international payments, according to Benz.

More: Nationwide uses Open Banking to address financially squeezed consumers

Categories:

Resources

Evolving APIs | NXTsoft Connectors For 40+ Banking Core Systems

Best Practice | Banking Evolving APIs | NXTsoft Connectors For 40+ Banking Core Systems

NXTsoft
Banks have real opportunity in FX hedging for SMEs

Other | Banking Banks have real opportunity in FX hedging for SMEs

Hedgebook
How Does NXTsoft OmniConnect Work for Partners?

Video | Banking How Does NXTsoft OmniConnect Work for Partners?

NXTsoft
Castlepoint Systems pioneers world-first regulation technology solution

Case Study | Banking Castlepoint Systems pioneers world-first regulation technology solution

Austrade