How SaaS integration drives payment modernisation

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How SaaS integration drives payment modernisation


This content is contributed or sourced from third parties but has been subject to Finextra editorial review.

Our latest Finextra webinar, ‘SaaS migration: Why outsourcing to multiple providers is the key to SaaS’, hosted in association with Bottomline, explored the current challenges and benefits of moving to SaaS-based solutions in the race for digital payments transformation.

Panellists Edward Ireland, joint head of commercial product management of financial messaging at Bottomline, and Paul Sweeney, solution architect at Engine by Starling, additionally discussed how financial institutions are integrating SaaS strategies into their operations and what banks burdened by legacy infrastructure and those looking to be considered innovators should be prioritising in their digital transformation journey.

What’s the role of SaaS in the modernisation of payments?

Both panellists pointed out that, while we have started to see a higher degree of SaaS acceptance over the last couple of years, the initial drive for adoption stemmed from new regulatory requirements. Ireland observed that banks increasingly need to build out new solutions in order to meet regulatory requirements, which proved impossible to do entirely on their own. He gave the UK Confirmation of Pay (CoP) initiative as an example of how a SaaS model helped financial institutions successfully tackle these problems.

“The way that the Confirmation of Pay programme works, is that everybody has to produce the same results,” Ireland explained. “And so therefore it's perfectly set for shared services solution. If you look at the number of institutions that need to come on board with that, there's only one way that that can happen: the solution being provided by SaaS providers, rather than each individual institution developing their own. And it's a very good example of an industry driver, a regulatory driver. The SaaS model gives institutions the opportunity to selectively engage, without having to rip and replace  their core payment system, to take on a SaaS product to support a business need.”

Sweeney concurred that regulatory requirements have helped companies over the tipping point of SaaS adoption, and considered the last five years to have been crucial in helping businesses build the confidence in the reliability, resilience and the regulatory standardisation abilities of SaaS solutions. He added that he currently sees three business opportunities in payments optimisation:

  1. The first is the greenfield site of banks and clients wanting to build new digital offerings that are separate from any of their existing estates and so don’t have any legacy structures to be migrated.
  2. The second opportunity are institutions that want to launch new digital initiatives specifically built on SaaS solutions, while still able to integrate with their existing estate.
  3. And thirdly, there are the clients that are looking for a complete core renewal.

Sweeney highlighted that many institutions are realising that their technology has passed its sell-by date, which makes it not only harder to integrate with newer solutions but also harder to maintain and repair as the required expertise becomes increasingly hard to obtain.

A poll to the webinar’s audience revealed that indeed, 78% of respondents see their legacy systems as the key issue their financial institution faces. This was followed by limited in-house IT resource (61%) and interoperability between internal systems (52%) as additional issues. Commenting on the results of the poll, Sweeney highlighted how precarious it can be to rely on legacy systems. “They're often compared to a Jenga tower. They're balanced very precariously on top of one another, and, while effective and working, there's always a risk that if something breaks, does it have a severe knock-on effect? Touching on the ability to be ready for failure and to be suitably resilient and fault tolerant, we don't always have that luxury with some of the legacy systems. And consequently, there's a growing desire to be able to—if not completely move off them—at least become far less dependent on them on a day-to-day basis. And that's where a lot of the SaaS providers now come in.”

What SaaS integration strategies are companies drawing from?

In terms of integration strategies, both panellists agreed that incremental change is the preferred strategy for most companies, as long as it’s feasible and the underlying system supports it. Ireland added that having an internal digital transformation framework is crucial for businesses wanting to implement meaningful change. If a company still relies on outdated systems or systems that are built in-house and have lost the required expertise, incremental change digs a deeper hole instead of helping and more foundational change is needed.

“I'm in favour of incremental change as long as it's possible, but you need to be practical about it. You need to have systems that are open to adding additional services. It’s very difficult to put in a massive project, you could get over-delayed and it would take too long, whereas if you do incremental change, you can see benefits immediately. You can learn from these small changes that you make, and you can keep on that journey,” Ireland commented.

What’s crucial to remember, Ireland pointed out, is that digital transformation and SaaS adoption doesn’t just affect one area of business. Each change that is made should be considered from a business-wide perspective and the decision-making process has to involve all parties. Driving SaaS integration with a top-down approach or change being led by one department is a tremendous mistake companies potentially make.

Because transformation affects the whole business, it’s also crucial to not put all your eggs in one basket. Ireland adds that the beauty of SaaS is that companies can draw from the expertise of multiple providers. “I don't think you should depend on one supplier. You should look to be able to take the best in class. Be prepared to mix and match capabilities from the right places where you think that you're going to get the best service and the best products.”

What drives SaaS integration?

The webinar panellists identified three factors that motivate companies to increase their SaaS adoption and integration. The first continues to be regulatory change, and this seems to be the case for companies that heavily rely on old infrastructure and are reluctant to change. Ireland commented: “That's why sometimes you do need regulation, because in an institution where you're not ready, you bury this because it's going to be too difficult for you to do. And then regulation will come along and just impose change on you, and that's when you have to do what is in fact going to be good for you in the long term.”

On the other hand, as SaaS integration continues to accelerate, more and more change is being driven by other demands, high among them changing customer demands. “We're definitely seeing that desire for better customer service, or more appropriate customer service, in line with expectation,” Sweeney highlighted.

“The traditional product itself may not change usually, but how to answer the customer is significant. From a SaaS perspective, there is a desire to take an existing product or a new product and launch that with a completely new or completely upgraded customer experience. And then when we open the book to see what's involved in that, we suddenly see all the other benefits that SaaS can give us around things like resilience from a large provider, the shared capability, the scalability, that ability to continuously change,” Sweeney continued.

A third factor driving SaaS integration is changing technology. “Real time is key. It’s an expectation going forward that we're seeing all the time now. The days of t-1 and batch processing I think are days passed,” Sweeney highlighted.

Ireland concurred with Sweeney: “There's been a lot of putting off of upgrades and payment systems over time, so that upgrading to the next version of the payment system software has never quite made it to the top of the list for a number of years for a lot of institutions. I think that's reached a tipping point now where that just doesn't work. It's got to happen now.” Speaking about real-time payments, he added: “There are so many domestic initiatives going on at the moment. Real-time payments and then new payments architecture coming to the UK. And it's not just the technology that you've got to adopt. You've got to change your whole business practice. It’s a 24/7 operation, so it's a huge change.”

A second poll asked participants about the top priorities on their product roadmap over the next 12 months. The results showed that both mitigating payment fraud risk and replacing legacy infrastructure to improve operational efficiency were the top priorities for participants, both polling at 77%, followed by adopting new payment rails such as real-time payments (65%).

Commenting on the results of the poll, Ireland said: “Interestingly, mitigating payment fraud risk is right up there. I think there's been a real step change in the way that people have viewed painful risk. There's no risk acceptance anymore. I think people looked at the operational cost and thought maybe it's manageable. It's not manageable, and it also takes no account of the trauma and upset and loss of faith in electronic payments that it causes. So, I'm really glad that people are seeing that there are a lot more solutions out there that are now available to resolve that.”

What do banks look for when assessing SaaS partners?

Lastly, the conversation turned toward the elements that banks are assessing when choosing one or multiple SaaS partners. Both panellists agreed that the most important factor was that the relationship between bank and provider was a partnership that would allow both parties to grow.

“What we're increasingly seeing with our clients is that what they're also after is expertise and understanding of the market. You want to have a SaaS partner that is going to be able to understand the market, understand the regulation, understand the requirements, understand the customer experience. What you're going to be buying is that expertise and future proofing of the solution,” Ireland commented.

Sweeney concurred. “It's not just the technology, it's also that expertise, which we have and can share with our clients, that has proven to be hugely important. I think it very much differentiates Engine by Starling from some of the pure tech players out there.”

Learn more by watching our full webinar, ‘ SaaS migration: Why outsourcing to multiple providers is the key to SaaS’, hosted in association with Bottomline.


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This content is contributed or sourced from third parties but has been subject to Finextra editorial review.