Stability has long since been treasured in finance but now we see disruption everywhere. Regulation, fast-moving technology and customer demands are driving a bow wave of change and payments processing, alongside all financial services, is onboard. Real-time, convenience and seamless are the watchwords of the day.
Accordingly, we see cloud adoption accelerating, especially among financial technology (fintech) providers and modern payment service providers (PSPs), who use it to scale and develop and support new products and services.
Vice President for Enterprise Payments at Fiserv.
All types of payments get processed in the cloud: bank-based instant, automated clearing house (ACH) and cross-border, card payments, mobile wallets, peer to peer and cryptocurrency. Cloud-native payment orchestration systems support real-time payments, which are growing at a compound annual growth rate of over 35%.
In my experience, every new project now looks at cloud as the first step; all new builds are cloud-based and existing service providers are leaning towards the move. No wonder then, that cloud-based solutions contributed over 61% to the $144 billion+ payments processing solutions market in 2024, according to Precedence Research.
Why go cloud-first for payments processing?
Cloud is an obvious choice for companies striving to cut costs. It offers a subscription-based model allowing dynamic resource allocation based on transaction volume, and reduces infrastructure spend – both upfront outlay and maintenance.
Costs are more easily managed with pay-as-you-go pricing models. The cloud makes companies agile to scale payments as they need to, matching capacity demands whether they go up or down, to support growth.
Similarly, companies can deploy new payment features and services faster when processing is in the cloud. When deployment is simpler, financial institutions can free up experts’ time to focus more on operations and product offerings and less on the mechanics of making services work.
Cloud providers offer global infrastructure, so companies can expand their reach whilst also localizing payment experiences and meeting regional regulations, not least through data centers located to meet data residency requirements.
Switching from on-premises to the cloud has infrastructure benefits. It resolves the challenge of legacy, which so many financial organizations grapple with, reducing interaction to the interface with the cloud and not across multiple internal systems, no doubt built up over considerable time.
With infrastructure as a service (IaaS), companies can lean on the development roadmap, and resilience, of the provider.
Security is a big driver of the cloud. Cloud providers offer built-in features, such as encryption and identity management, for easier alignment with global compliance standards such as PCI-DSS and ISO.
Cloud companies are geared up to respond to vulnerabilities and the need to patch security, giving their customers the reassurance they need and alleviating in-house security demands.
Three pitfalls to avoid when going cloud-first
There are many benefits to a cloud-first strategy, but the transition comes with a medium level of complexity. Just how complex, will depend on the connectivity from the application and the technology stack. These are common pitfalls to avoid:
1. Security
Stricter cybersecurity is now mandated through legislation and NIS2 makes it clear this applies as much to a company’s service providers as it does their own business.
Cloud providers know the importance of stringent security measures, but every company contracting for such cloud services must ensure their expectations are met, with a high emphasis on software security practices.
Data protection must extend from the point of collection, through transit, to storage and processing in the cloud.
Companies should look for encryption or tokenization of sensitive information. Payments processing information is among the most sensitive there is and, being prized by cybercriminals, will always be at high risk.
2. Performance
Payments have modernised to meet modern-day demands for speed, convenience and seamlessness. Therefore, performance service level agreements with service providers, including those offering cloud-based processing, are critical for financial institutions to remain competitive in the payments sector.
Cloud-based systems depend on internet connectivity, so latency, availability and the risk of outages are a disruptive threat to payment flows. Careful distribution of services is important, as is scalability management because poor architecture can lead to bottlenecks during peak loads.
3. Compliance
As already outlined, cloud services can be helpful in meeting compliance demands around security, data management and more but there is also specific financial, and payments sector, legislation to abide by.
A significant pitfall to avoid when selecting a cloud service provider is non-compliance with regulations specific to payments processing, such as PCI-DSS.
How to take payments processing into the cloud
The ideal transition to cloud-first is to streamline payments processing for all payment types and clearing schemes on one centralized platform. However, start by evaluating the technology stack before partnering with a cloud-native payments provider and migrating non-core systems.
Only begin the gradual transition of payment functions when confidence has grown and controls are in place and even then, stagger the rollout.
A cloud-first architecture enables a modular approach, tailoring, adapting and enhancing the offering with optional plug-ins as needs dictate. These can include spend controls, real-time alerts and monitoring, biometrics, reporting and data analytics.
That way, cloud-first payments processing can grow with the business, adapting as the payments market continues to evolve.
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