The Payments ecosystem is growing fast with many non-traditional Fintech players influencing the competition parameters with their agility by birth. To stay relevant in this rapidly evolving ecosystem, it is essential for traditional merchant acquirers to build strategic digital capabilities. And migrating their core applications to a cloud-native environment is a key step in building these capabilities to achieve the much-desired efficiency as well as an effective strategy to level the playing fields to their advantage.
Let us see how strategic cloud migration plays a key role in solving old and new challenges traditional merchant acquirers are facing.
Key challenges faced by traditional merchant acquirers
Cost and margin pressures, as well as other challenges faced by merchant acquirers, especially the ‘traditional’ merchant acquirers, are well known and comprehensively discussed. Apart from these operational challenges, traditional merchant acquirers are facing rising competition from relatively recent born-digital entrants to the Payments landscape who have been altering the game with Fintech style innovation, lower operations costs, and rapid enablement of support for newer payment methods and processes. A case in point is the significant difference in the merchant onboarding experience for traditional acquirers compared to the Fintech style acquirers.
Most of the traditional acquirers realize the importance of building and enhancing their digital capabilities. Most of these organizations have considered digital transformation as well as cloud adoption as they aim to keep pace with the innovation in the Payments Processing industry. However, in most cases, these efforts tend to manifest as disjointed solutions instead of a strategic move. For example, in case of digital, the focus is more on exposing certain services across channels. Likewise, with cloud, the focus is on measures such as migration of data to cloud or even lifting and shifting applications to cloud.
While these measures certainly benefit the business, the fruits of such labor are limited. Apart from the limited reduction in costs and marginal improvement in reliability and scalability, migrating data to the cloud without the larger cloud strategy has limited strategic benefits in terms of providing new capabilities like supporting new payment types and/or more customer-oriented processes. Likewise, migrating existing applications to cloud “as-is” is primarily aimed at reducing IT operating costs with limited business benefits or little to no value-addition from a customer proposition point of view.
Strategic Cloud Migration is the Way Forward
The true value of the move to cloud can only be realized when merchant acquirers can successfully leverage it to re-imagine their product proposition and service delivery. This may include identifying and re-architecting the critical capabilities and services for the digital and cloud era. However, it is vital to consider this as more than just a technology exercise.
Adopting customer centricity as a core pillar and applying leading methods such as design thinking and customer journeys for internal and external customers will be a fundamental requirement of re-imagining value proposition.
Should the organization launch into such an initiative without a strategic approach, it may consume the energies of the IT and business teams, leaving limited budget and bandwidth for other BAU initiatives which are also essential.
A more measured approach is to embark on this journey iteratively, rather than ripping and replacing the entire technology landscape in one go. For example, a merchant acquirer, after due consideration for the product and service proposition going forward, can carefully evaluate and identify certain key capabilities for cloud migration which can be candidates for the initial iterations. In arriving at this decision, the following factors may be considered:
- Can these candidates independently provide business value and test out the hypothesis for the related part of the product/service proposition?
- The risk profile of the candidate “capabilities” for the initial iterations – will these expose the acquirer to unnecessary risk at the outset itself.
- Technological complexity – nothing is gained by taking technically simple or very complex challenges.
- Does it provide all-round exposure in terms of technology/tooling/methods for both the business and technology teams that can be built upon in subsequent iterations?
Let’s examine one of the critical capabilities essential to merchant acquirers: Dispute handling. Dispute management was long relegated to being labeled a back-office support application and not considered a major service differentiator. Recent industry trends have challenged this wisdom. An efficient dispute management capability is now a key service differentiator. Delays in interactions with the merchants around disputed transactions and subsequent delays in the resolution more often than not result in financial losses to merchants and, at times, acquirers too, leading to merchant attrition.
Traditionally, merchant acquirers had either a home-grown or a packaged solution for managing disputes. These dispute applications were built on legacy technologies or on even relatively modern frameworks. Such implementations typically suffer from some of the following limitations:
- High TCO – a substantial portion of the cost may go towards the underlying framework IP and yet incur significant customization costs.
- Lock-in to some of the technology components used in the framework – in most cases, acquirers are paying for technology features which are unlikely to be fully utilized.
- Lack of agility since most business-related changes will need code modification of some form.
Rather than migrating the current dispute capabilities as-is to the cloud, it would be opportune for traditional merchant acquirers to apply design thinking and customer-centric principles to reimagine their current dispute management capabilities while migrating to cloud.
In addition to overall lower TCO, potential benefits include:
- Remove redundant/duplicated activities, help improve automation levels and reduce turnaround times for the acquirer as well as the merchant.
- Empower the merchants by providing timely updates about disputes and the ability to interact through the channel of their choice (paper, portal, API, etc.) depending on the merchant’s scope and capabilities. In fact, multi-channel capabilities and a consistent interface for dispute management can help acquirers swing large global merchants their way and can be the difference in clinching the deal. And if all of these can be achieved in a consistent manner with reusable components, it reduces the overall support costs.
- Improved management of disputes, applying past learnings to improve utilization of limited operations resources.
There are no easy options, yet, as clichéd as it may sound, doing nothing is not an option. A strategic approach to cloud migration will serve traditional acquirers well and not only keep them in the fight to stay relevant but empower them to forge ahead.
During the cloud migration initiatives, apart from a strategic approach, it is crucial for merchant acquirers to bring in deep expertise in cloud and extensive knowledge of the Payments landscape to anticipate the challenges and pitfalls in execution, well in advance. Doing so will help remove the possibilities of bottlenecks and ensure the holistic success of cloud migration initiatives, realizing the optimal ROI and paving the path for greater evolution.