Over the past few years, technological advances, regulatory changes and the introduction of a range of new market participants has driven efficiencies and opportunities across the payments world, but the fast-changing nature of the industry has created the need for systematic, forward planning. That’s according to Eleni Coldrey, business development director, EMEA, Equinix, and lead for innovation in financial services.
“From the consumer perspective new players are bringing us new ideas and new choices of how we can manage our finances,” she says. “In terms of the competitive landscape, there are clearly new challenges to the established banks and fintech. On the IT side there are complexities that have become standard with Open Banking and open APIs, such as extracting value from legacy siloed data sets, and integrating multiple new end-points as the ecosystem grows.”
Policies such as Open Banking and Europe’s second payments directive (PSD2), as well as the technological opportunities they have encouraged, have forced payments markets participants to consider how can reap the rewards of the new world.
“Many of the new players are cloud-based, which also represents a new dynamic in the market in terms of connecting the old and new worlds together,” says Coldrey. “So there are challenges within IT departments in banks around how to secure customer data, whilst at the same time creating integrated systems across the new partners. How to allow the innovation to flow whilst remaining secure.”
Equinix – which operates across 52 markets – operates data centres and interconnection services for businesses and financial services – has seen a surge in activity across the payments world thanks to regulation and technological innovation. As well as PSD2, there are areas in which the new payments agenda and legacy technology are meeting, says Coldrey.
“There are pockets of activity around payments and open APIs in numerous markets – UK, Singapore, Australia for example. And interestingly we see growth in markets such as Turkey, Indonesia and China - which can be complex for non-local firms to do business in - we see a number of projects where companies are looking to house data onshore to meet local regulatory demands, whilst maintaining access to the global markets and the technology players that are part of the wider ecosystem,” she says.
Regardless of geography, any business with a payments infrastructure of any size will have its own goals in terms of what it wants to offer its customers, as well as the way in which is secures margin. However, given how quickly the market’s conditions are changing, says Coldrey, firms must keep one eye on their infrastructure to maintain the balance between managing their cost base whilst preparing to scale and seize new opportunities.
“From an infrastructure point of view it’s about considering how you can efficiently ramp up your connections because the partners that you have today are going to evolve over the next twelve to eighteen months,” she say. “We’re moving from a world where traditional networks have been fairly static to a highly competitive environment where we need to rapidly test and onboard multiple partners, and many of those partners happen to be in public clouds – we can’t wait three or even six months to get that connection going.”
From a security point of view, hackers and cyber criminals continue to target payments networks for vulnerabilities – no matter how sound a business believes its infrastructure hygiene to be. A breach can be catastrophic for a firm, which can find itself dealing with a short term financial shock and long term brand damage. From a technological perspective, many solutions have been put forth, an appetite has grown to remove the infrastructure from open internet connections and onto secure, private lines.
“When transactions and data are taken completely off internet and onto secure interconnection, you have reduced your hackable surface, minimised network entry points and you’re much more secure,” says Coldrey. “Clearly you still need to encrypt your data and have protocols around access management, but there are simple strategies we see our customers doing to take more control and some significant shifts in the way they’re considering network architecture and security control frameworks.”
While the payments ecosystem is changing beyond all recognition – with new issuers, acquirers, payment service providers, card schemes, and the growing variety of fintech solutions – and the retail and ecommerce sector transforming digitally, the need to connect multiple players efficiently is becoming ever-more important. Equinix brings together over 1,250 financial services firms on its global platform, enabling them to interconnect and exchange data between themselves seamlessly, privately and securely.
The next stage of the payments revolution could well be within real time payments – which many have recognised as having opportunities from both a B2B and consumer market angle. While challenges still exist – such as the shortening of the transaction validation window – a huge amount of innovation is occurring in the space. With merchants and others sitting up to work out how to take advantage of real time payments, but pulling all the players together to make it happen will be crucial.
“There are innovative players out there that are building real-time payment platforms and services, and they are facing a number of critical challenges that basic infrastructure improvements can solve: time pressure to act upon distributed data sets across the payment chain. Consider real-time fraud detection as an example, it demands big compute delivered in milliseconds. Physics tells us that data cannot travel faster than the speed of light, so to get faster you must shorten each and every link in the chain of a transaction. Bringing together your ecosystem allows real time to happen seamlessly and it also relieves pressure on your network and security teams. This requires a deeper understanding of where your entire ecosystem and its data lives.” says Coldrey.