Why orchestration is a key driver in payment modernisation

Blog· 3min May 24, 2024

Payment modernisation has become a very important topic for banks over the last few years. For a long time, payment infrastructures in the UK, Europe and the US wasn’t a priority for investment. As long as the infrastructure was able to keep things ticking over, there seemed to be little reason to upgrade it.  

At the same time, banks' technology estates were growing larger as they acquired other banks, integrated new technology providers, and extending the capabilities of their backend systems. A lot of the time they didn't have the budget for technology simplification, meaning they were left with incredibly complex, interconnected systems – if you drew a diagram of this infrastructure it would look like Spaghetti Junction. These backends were not only expensive to maintain, but moving away from them would have been costly and complicated.  

Drivers of payment modernisation

In the last few years, though, we've seen some new market drivers that have brought the concept of payment modernisation to the fore. First of all, regulators are much more focused on payment provision, not just in terms of resilience and scalability, but also the ability of banks to protect and provide new functionality to end users when making payments. 

The arrival of open banking and PSD2 acted as a catalyst for a greater focus on payment modernisation and the momentum has continued with the introduction of new standards such as ISO20022. Regulators also want to see greater customer protections for payments, meaning banks have had to invest in their payments technology to support these objectives. There are also competitive pressures for banks to undergo payment modernisation, it reduces the long term run and change cost profiles for their technology estate whilst offering the potential to develop differentiated offerings to both attract and retain customers. The upshot of all this is that overhauling legacy systems and embracing payment modernisation is now necessary for banks.  

The challenge of payment modernisation

With the growth in account-to-account payments in not just the UK, Europe and the US, but actually across the globe, we are seeing that end users prefer instant payments. Older systems were never designed to handle these payment volumes at such a scale. Central payments infrastructures are also changing due to greater customer demand for instant payments; that's why we're seeing new schemes such as RTP and FedNow in the US. This means the banks have to be able to support and connect with these payment central infrastructures, while also improving their volume handling, resilience, functionality and end user protections e.g. reducing the impact of fraud in account-to-account payments. 

Just making some changes/upgrades here and there to existing technology estates isn’t going to be enough anymore. For a start, even making a simple change to one payment flow in these interconnected systems could impact multiple other services; it would require planning, downtime, reconfiguration, testing and other necessary but costly and time-consuming processes. Undertaking a payment modernisation journey means moving away from these legacy systems and embracing cloud native platforms to guarantee the scalability, resilience and flexibility required to build and run modern-day payment services.    

Advice on how to move to a new architecture 

Banks must consider how they create a new payment technology estate that can handle payment flows end-to-end, giving them a clear line of sight and visibility of everything happening within the system. They need to know that any issues that arise during any of those stages can be flagged and dealt with quickly. Individual services within each payment flow need to be tested and changed easily without impacting other functions or flows. To move towards this technology estate, banks need to invest in an event-driven microservices architecture with payment orchestration solutions being a key enabler of moving towards this end state architecture.  

Payment orchestration solutions are the enabler that will support banks in embracing payment modernisation. What orchestration does is effectively create an event-driven framework that connects with and interacts with all of the systems necessary to manage payment flows end to end. For every single input, output or decision it creates an event giving the bank complete visibility and control over everything happening within the entire payment flow. Once payment orchestration has been implemented, the ability to make changes to payment flows is much more seamless; therefore the speed and cost of that change is massively reduced.   

The benefits of orchestration to shape payment modernisation

Payment orchestration solutions give banks flexibility and control around what happens for each payment type they handle. The bank could have hundreds of different workflows that all have multiple different steps and decisions, and payment orchestration solutions give them oversight of how these all work, as well as the flexibility they need to innovate and create new flows for new propositions.  

Payment orchestration also enables banks to approach planning and payment modernisation much more effectively. Once the bank has defined its new workflows and set up an integration for each workflow, every microservice or function within that workflow can now be upgraded or swapped out independently of each other. So instead of having to work out how they're going to change giant parts of their infrastructure in one go, banks can do it incrementally, reducing the cost, complexity and risk of these changes.  

Examples of how orchestration can drive payment modernisation

There are many instances where orchestration solutions can drive banks’ payment modernisation projects. For example, if a bank is using multiple ledger systems but wants to simplify its ledger estate it can use payment orchestration across all of its payment flows and then reduce the number of ledger systems involved in their payment flows in a safe and timely manner. Banks can also use orchestration solutions to run a new version of a payment flow alongside their old version so that it can be tested with lower volumes, allowing them to run various test scenarios to ensure  it's going to work the way they want. This de-risks the process of migrating away from legacy capabilities or outdated payment flows, by separating these modernisation changes out into easily digestible and deliverable bites.  

Payment orchestration is not only a scalable solution that can help banks handle large volumes in terms of TPS (transactions per second), but also enable them to handle a suite of different bespoke flows. Banks can utilise payment orchestration to change their risk profiles for certain payment flows, allowing them to easily apply new checks to certain payment types or payment amounts in order to reduce risk.  

And when it comes to future regulatory changes, banks will have the speed and flexibility to make upgrades in order to adhere to any new legislation. For example, in the UK, there's currently no legal requirement to conduct fraud checks on inbound payments. If there was a new regulation which mandated those checks to crack down on APP fraud, then orchestration solutions give banks the power to integrate their fraud system check on the inbound payment flow quickly and easily. 

Takeaway: Why orchestration solutions are a key driver in payment modernisation

While every bank should understand the importance of payment modernisation, they must have a clear view of where they want to be and how they get there. Effective payment modernisation requires banks to adopt a test and learn approach, both in terms of reimagining existing payment flows to support their existing customers, but also to fuel innovation so they can develop new propositions. Moving away from legacy infrastructure is necessary, and by choosing the right technology partners banks can utilise payment orchestration solutions to help them take the first steps on this journey.

Written by

Scott Galley Head of Product - Transaction Management