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At a crossroad – staying with legacy or going modular?

​In a continuously developing payments industry, it can be challenging for issuers to keep up with consumer needs and digital expectations. European issuers are at a crossroad. Should they further develop their legacy IT infrastructure to accommodate the rapidly changing demands of their customers or r​ather opt for a more modular approach relying on an external provider​.

​The shift from cash to digital has accelerated dramatically, and Europe is going cashless at a rapid pace with people becoming familiar with the advantages of paying by card or smartphone, and most payments are now contactless (see figure).

E-commerce is on the rise with the online and in-store shopping​ experience increasingly merging and this has increased consumer demand for convenience. 

Consumers expect personalisation, control and immediacy across all channels, delivering integrated and uninterrupted paths to purchase.
As a result, we have seen the rise of Fintechs across Europe. What Fintechs have fundamentally done is to expose how things can be done differently to meet the consumer need for convenience.

We have seen mobile-first and mobile-only challenger banks offering point solutions in cards or payments in general that the consumers would like their banks to offer, and consumers then starting to use alternative providers instead. ​

A legacy of stability and safety
Unfortunately, many issuers are constrained by old and inflexible legacy platforms, which are hindering their ability to change and to develop at the speed required to meet evolving consumer demands for digital financial services. And the “technology debt” increases year on year. Therefore, many issuers are taking a close look at their technical setup and strategy and evaluate how to achieve a rapid step change. 

While this term may indicate the opposite, however, legacy systems have clearly had their advantages and have most often been running stable and secure for many years or even decades.

Therefore, the decision to switch from large, monolithic systems to a far more modern and cloud-based modular approach, even if the old systems are often unnecessarily complex and therefore also vulnerable, comes with concerns. These can be related to the cost of designing and the challenges of migrating data, securing backward compatibility, ensuring full documentation, avoiding vendor lock-in, and eliminating the risk of down-time. All relevant and necessary factors for banks to consider before making the call to change.

Using modular services to transform
One successful approach to solve these issues is to develop a modular ecosystem whereby products and services work together but are not dependent on each other – thereby allowing an issuer to make one change at a time. ​

​Author/source: {attribution}

​Brian Harris, Chief Product Officer of Issuer & eSecurity Services, has over 20 years of experience in brining winning solutions to the market in payments. With a customer-driven approach, he is passionate about making the complex world of global payments and digital products simple and intuitive, whilst ensuring a strong focus on sustainable growth. ​


​As such, payment ecosystem thinking is about realising the following: although issuers share many perspectives on payments, they differentiate on customer segments, markets, and products offerings; and no single vendor system can possibly deliver the best of all payment technology to all issuers meeting all consumer expectations. Buying into modular payment ecosystem thinking means that an issuer can freely choose payment technologies from different vendors and have these technologies collaborate in the most optimal way.
A modular approach and solution exposes banks to easy-to-implement modularised capabilities including transaction processing, PSD2 compliant authentication, fraud prevention tools, consumer finance, cardholder management (for consumers and corporates) and transaction dispute management APIs via our flexible, reliable, and scalable processing platform.
The result is a platform ecosystem that allows banks to mix-and-match the services they need from a provider, the bank directly, and/or additional third-party providers when they need it, and to design an operating model that improves speed-to-market for new products, differentiates on customer experience, and reduces cost-to-serve.
Creating a secure and seamless banking experience
With this modular approach, issuers can create a single and seamless customer experience across products such as debit card, credit card, supplementary card, virtual card, loans and instalment plans. Furthermore, gathering important data elements from front-end product modules can be used for effective real-time communication with the consumer. The result is a seamless, secure and digital- first mobile banking experience. ​


A customer journey based on modularity

As an example, a bank customer can receive approval for her card, instantly by receiving a virtual card and enrol that card in her preferred mobile wallet in order to start using the card immediately. She can then authenticate mobile transactions using a seamless digital experience integrated via APIs into the bank’s mobile banking app, turn fraud prevention and spending controls on or off using her mobile device, and convert debit card transaction to instalments - either during or after her purchase flow using consumer finance capabilities.

At the point of payment, the bank can interact directly with their customer via in-payment value-added experiences. In our above example, the shopper consumer could, for example, donate to her preferred non-profit organisation or support the green economy by adding a carbon offset to her payment to compensate for the carbon footprint of her purchase. These services can be tailored exactly to engage the bank’s customers according to their own preferences.​​

Issuers engaged in modular ecosystems will never lag behind
Highly modular landscapes offer clear divide-and-conquer advantages over the less modular, providing agility and faster time-to-market. In a truly modular landscape, each module can be independently developed, improved, or replaced. The modular ecosystem is hence future-proofed as it can be continuously improved without putting the overall ecosystem reliability and stability at risk. On the contrary, with legacy monoliths even small changes often have unintended side effects. 

Modular ecosystems enable issuers to compose tailored offerings based on best fit products and services, and issuers buy their ticket into the ecosystem by choosing the right vendors. Highly modular landscapes offer a completely different way to manage technology debt. Outsourcing allows the issuer to rightfully consider technical details to be the concern of the vendor. This allows the issuer to release their own potential to focus on business value and consumer experience.

​First steps towards a modular payment ecosystem

Understand the value of your own assets. Your own assets may have served you well in the past, and some of them are likely also key to your future success. Make sure to understand how these assets can be enabled in the broader digital ecosystem.

Realise the value of ecosystem thinking. The modular ecosystem approach is future-proofed and offers long-term flexibility without compromising reliability and stability.

Choose the right vendors and partners. You must evaluate vendors and partners on their ability to drive and support your payment ecosystem, so that costly legacy modernisation pitfalls can be avoided.​​

Get more in-depth insight into developing a modular platform ecosystem in the white paper “A modular ecosystem for payment services: The benefits of a modular payment platform for issuers to compete in a digital market of ever-increasing consumer demands” here​.