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The evolution of payments infrastructure: A strategic imperative

Ramon Villarreal
Ramon Villarreal
Payments Industry Lead, Red Hat

Ramon is a recent guest on our Elevate podcast and a guest contributor to our blog.

In this article, I will explore how technical debt impacts system performance, discuss the evolving regulatory landscape, and discuss modern approaches to building resilient payment systems that can adapt to future needs.

Understanding today’s payments landscape

Multiple forces are reshaping how payments are processed and delivered today. Through my work across tier-one banks, central banks, payment service providers, and acquirers – I’ve observed that each member of the payment industry ecosystem faces unique challenges in modernizing their infrastructure.

Large financial institutions, particularly tier-one banks, face significant hurdles with technical debt – the accumulated cost of maintaining legacy systems and postponed upgrades. This technical debt isn’t just a financial burden; it directly impacts their ability to compete with new market entrants who aren’t constrained by legacy infrastructure. These newer players are typically more agile and can deploy new capabilities more efficiently.

Meanwhile, customer expectations continue to evolve. Today’s consumers demand instant transactions, real-time reporting, and immediate fraud detection capabilities. These expectations, combined with competitive pressures from fintech companies and a continually changing regulatory landscape (explored next) create a compelling case for modernization.

The regulatory imperative

Regulatory compliance has become increasingly complex, with new requirements emerging across different regions. One significant development is the Digital Operational Resiliency Act (DORA) in Europe, which has become a focal point in many of my conversations with CIOs. DORA introduces comprehensive requirements around system health, operational resilience, and cloud infrastructure risk management.

While DORA is a European regulation, its influence extends beyond the EU’s borders. Similar to GDPR’s impact on data protection globally, DORA is becoming a blueprint for operational resilience regulations in other regions, including Latin America, North America, and Asia. This regulatory evolution coincides with other important changes, such as the transition to ISO 20022 for cross-border payments and domestic clearing systems.

These new requirements and customer needs are driving the industry to support payments in new, more flexible ways.

Evolution of payment solutions

The traditional approach to payments infrastructure typically involves a straightforward choice between building in-house solutions or buying from vendors. However, this binary decision-making process is becoming obsolete. Modern organizations are increasingly adopting a hybrid approach, leveraging modular frameworks that combine custom-built components with vendor solutions.

Cloud technology has emerged as a key enabler of this transformation. However, the adoption of cloud-based solutions, particularly Payments as a Service (PaaS), varies by institution size. While tier-two and tier-three banks might opt for comprehensive PaaS solutions, larger institutions often take a more targeted approach, implementing cloud-based services for specific business areas while maintaining control over their core payment infrastructure.

Key considerations for successful modernization

Based on my experience working with numerous financial institutions, I’ve learned that successful payments modernization requires more than just selecting the right technology. It demands a comprehensive approach that considers multiple factors:

  1. It’s crucial to recognize that implementing a new payments system is not a simple project but a complex endeavor requiring experienced teams. Success often depends on having personnel who understand both the technical and business aspects of payments.
  2. While feature functionality is important, organizations must look beyond it to consider how they will maintain business continuity, ensure performance, and enable rapid change. Non-functional requirements such as system resilience and scalability should be addressed from the outset rather than treated as afterthoughts.
  3. Organizations need to embrace modern testing approaches that enable the rapid evolution of their systems. This includes implementing methodologies like blue-green testing, which allows for controlled rollout of new features to selected user groups, enabling quick iteration and validation of capabilities before full deployment.

As financial institutions continue their modernization journeys, one key to their success is taking a holistic view of their infrastructure needs. This means considering not just the immediate functional requirements but also long-term sustainability, operational resilience, and the ability to adapt to future changes in payments. Organizations should start by assessing their current technical debt, mapping out regulatory requirements, and developing a clear roadmap for transformation. Regular reviews and adjustments of this roadmap, combined with investment in skilled teams and modern technologies, will help ensure that payment systems remain robust and future-ready.

Listen to our Elevate podcast for more on the evolution of payments infrastructure.

Ramon Villarreal
Ramon Villarreal
Payments Industry Lead, Red Hat

Ramon brings over two decades of banking industry experience to his role as payments industry lead at Red Hat, where he has spent the last five years guiding financial institutions through their modernization journeys. His unique perspective comes from working across the entire payments ecosystem - from central banks to infrastructure providers, and from traditional banks to innovative fintechs.

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