By Csilla Kocsis & Jalal Jafari
Technology and payments have always evolved hand in hand as businesses and banks find new ways to make moving money more convenient, secure and flexible. The modern, digital payment landscape has continued to evolve – even though the changes may seem more subtle, European payment systems are now at a turning point.
Digital payments today are more connected than ever, with new, flexible APIs transforming what is possible, from integrating new partners to monitoring security in real time. As legacy systems built in the early days of digital payments reach maturity, European payment schemes face the prospect of upgrading their technology, which brings new challenges and new opportunities.
Connectivity is a basic functionality for all payment systems – their purpose is to move funds from one system to another according to a set schema, involving banks, PSPs, merchants and intermediaries. The key difference today is the sheer number of stakeholders to consider. Following PSD2, the payment market has opened up to include third-party integrations, non-licensed institutions and a range of payment-adjacent services, all demanding data and access.
For legacy systems, their payment schemas are defined with the assumptions of their time – ones that are now increasingly out of date. The architecture, technology and service levels of these systems are increasingly out of step with the new demands of the market, creating new challenges for legacy providers:
Reduced agility: Payments increasingly operate as part of a larger value chain, with providers integrating with additional services to enhance the payment experience such as ID solutions, proxy services or loyalty schemes. These depend on the ability to easily exchange access and data with external systems, but legacy platforms can be slow and expensive to integrate with other parties. This makes it harder for these providers to add new functionality to their products, putting them at a disadvantage when it comes to competing with rivals who can offer additional value to customers.
Higher costs: All systems require maintenance and updates as they scale and age, but legacy systems pose additional problems. While newer platforms can outsource more of their system management to software tools, legacy systems depend on manual updates from a dwindling talent pool. Many are built on earlier forms of system architecture which have fallen out of common usage, meaning there are fewer developers with the necessary technical expertise to maintain them, which increases costs.
Limited scalability: With the rise of e-commerce and digital retail, payments are now increasingly international, forcing domestic schemes to expand beyond native markets. However, for platforms built for certain local specifications or markets, adding new connections for new issuing or accepting partners can be time-consuming and expensive, making it harder to grow and retain customer-bases.
Earlier generations of systems were developed, built, launched and improved for specific environments – this enabled payment providers to retain customers within walled gardens and provide value within a controlled space. Modern system architecture, however, is open-first. In today’s market it’s not just about what your system can offer, but also what other systems you can offer connections to.
In this new world, payment stakeholders succeed together as much as they succeed individually. Payconiq has put this approach at the heart of our development – an approach that has been tested and proven in our work with a range of European payment leaders to put API connectivity at the heart of their functionality.
With APIs playing such a huge role in modern payment functionality, developing the right approach is an essential first step. This involves three principles:
Robustness: A key part of being flexible is making it easy for partners to connect to systems – similar to being a welcoming host and a polite guest. Our systems can receive a wide variety of data inputs, while also minimising what we send to save our partners having to apply too many rules on received information.
Compatibility policies: We design APIs following industry standard backward and forward compatibility policies to ensure that it can integrate with the maximum number of systems and minimise risk of failure from making a change.
Consistent versioning: We manage multiple ongoing versions of our APIs, in accordance with new changes made. This means that if we have a new feature that could cause compatibility issues, we have alternative versions to support clients until they migrate.
With these pillars in place, we can iterate and develop our features more quickly and with minimal risk, enabling our clients to continually improve their functionality.
Banks, PSPs and schemes are understandably cautious about system transformation. Payments play an essential role in business and any disruption can have serious consequences. Any approach to migration, therefore, must move customers from one platform to another with as little service disruption as possible. In practice, this requires a staged migration, with a phase running the previous system and the new platform simultaneously to maintain service for all parties.
For example, in our work with a major European payment scheme, our team created a dedicated transition hub to ensure continuous uptime – the Bridge. This enables a seamless transfer between legacy and new solutions, leveraging existing connections and networks, through a single access source, to reduce the impact of scheme innovations and changes for issuers and acquirers. Old connections remain fully functional, with entry points now directed through the Bridge to their destination, ready for full transfer to the new processing platform.
Moving to an API-first platform opens up a range of benefits for banks, PSPs and merchants, including:
Advanced customisation: With all API access points for payment flows standardised, our partners can develop new services on top of this more stable foundation, from customer profiles to bespoke loyalty schemes.
Enhanced Security: Our platform updates keep users ahead on compliance, fraud and legislative changes, while adhering to robust security best practices.
End-to-end payment integrity: Digital signatures enable payment journeys to be tracked and audited for full transparency.
As EU schemes look to standardise approaches to create a cross-border standard, such as EMPSA, the most successful schemes will be those most able to adapt and integrate with new systems. Eventually, all payment schemes will need to consider system upgrades, but while the technology to be added is fairly consistent, the approaches from different providers can vary greatly.
The challenge for payment providers is that any move to comply with flexible APIs must prioritise core usability, customer experience, security and consistency throughout the migration process and beyond. In these circumstances it pays to have a trusted partner on your side. Payconiq systems are already in use by leaders across the EU payments space, handling the highest payment volumes on the continent while maintaining a consistent standard of customer experience.
To find out more about how you can get your business ready for an open future, you can book a call with one of our payment experts today.