It seems like everything is moving to the cloud — from data to infrastructure — as companies seek to cut costs and scale their operations.
In financial services, that means bringing new products and payments to new markets and users as new ecosystems take shape, especially as artificial intelligence gains prominence.
It was a topic of conversation between AWS Head of Payment Networks Paul Chang and TSYS Chief Growth Officer Kelley Knutson. Both executives told PYMNTS’ Karen Webster that migrating critical business functions to the cloud is not simply a matter of opening the proverbial pipes and throwing data to software and servers over the internet. Expanding into new markets means innovating responsibly, ensuring that the complex web being woven between different stakeholders is secure and interoperable, and that the customer-facing applications around account originations, loan servicing and risk management are built in a scalable and compliant manner.
“There’s definitely more data within the payment ecosystem,” Chang said. “We’re scaling to petabytes of data and beyond, and into more value-added services.”
Banks are focused on delivering hyper-personalization, fraud prevention and credit-decisioning to their end consumers and businesses, he said.
“The things that we are doing in terms of AI, ML, fraud prevention … they have not been done before,” he said. “And it’s exciting times when you think about payments, and even going beyond payments into embedded finance.”
But no matter the use case, “the integrity of the ecosystem refers to the seamless, secure and compliant functioning of the interconnection between all players — banks, processors, the [payment] schemes, cloud providers and new entrants,” Knutson said.
That integrity is essential to maintaining customers’ trust while remaining in compliance with the regulatory environment, he said.
“It’s important to think about the cloud,” he said, but “more importantly, banks must think about their entire end-to-end operating model to protect their business and also protect their end customer. It’s their data, and it’s what’s important to them.”
As such, the self-examination entails a refresh and modernization of banks’ back-end processes, he said.
To help speed that refresh, TSYS has partnered with AWS to use the latter’s managed services to help banks migrate to the cloud without doing it all on their own.
As Knutson told Webster of his firm’s efforts with AWS, “we’ve got a lot of years of experience, a lot of data, and now we’re trying to figure out ways we can put that to use to differentiate ourselves on top of the investments we’re making in the cloud, as well as the investments we’re doing in AI.”
Some banks are in the process of moving to the cloud, others are stretching their initiatives out through a horizon of more than five years.
“It depends on how much legacy technology our clients have,” Knutson said.
The stretched-out timeframes come as executives are focused not on the results that come with the cloud migration as they still maintain some operations on site, he said.
“It’s not an easy ordeal, and it’s not an inexpensive ordeal,” Knutson said. Banks are proving to be successful with a hybrid approach, which lets them “modernize around their core” while keeping at least some functions on-premises.
“We want to move as fast as the banks are comfortable moving,” said Chang.
Echoed Knutson: “We try to strike the balance between what should be operated on-premise and what should be in the cloud … this migration, when you map it out, looks simple. But when you get into it, it’s more complicated.”
Many banks are developing their front end in the cloud, while some of the back end still runs on mainframes, Chang said. AWS is working with system integrators to help banks and payment customers modernize their mainframe stack to cloud services while retaining high scalability, high throughput and low latency.
The AWS/TSYS partnership helps financial institutions (FIs) tokenize data before it gets to the cloud to meet PCI DSS requirements. It also helps automate compliance with market-by-market, country-by-country resilience and cybersecurity mandates.
“Within AWS for financial services, we have a team of compliance specialists within each market, and we help our customers leverage that team as part of their decisions to expand to a certain market,” Chang said.
Modern cloud technology also helps client firms such as TSYS “auto scale” into new services and capabilities as needed for its own banking clients, he said.
Knutson told Webster that as it offers issuer/processing services and an ever-broadening set of solutions to FIs, “the cloud is one of the vehicles that we believe will help us to maintain our position and grow it. We’re investing a significant amount of money to rethink how we bring solutions and capabilities to the end clients … what AWS does for us is not only help us get into markets faster but do it in a way so that we can understand those local regulations and abide by those regulations.”
TSYS, for its part, is working with AWS through a phased approach that tests new systems to ensure they deliver similar or better output as the original systems.
“It’s about breaking down the monolith into microservices, but at the same time being able to sync that mainframe data to the cloud,” Chang said. “It’s important that there’s still a period of time where the data will reside both on-premise and in the cloud.”
However, the data is best in the cloud to take advantage of the latest AWS technology for AI/machine learning, generative AI and GPU processing acceleration.
“Scalability (measured in transactions per second), resiliency and availability (measured in the number of nines) and low latency (measured in milliseconds) are critical parts of payment processing,” said Chang, adding that “it’s the lifeblood of payments.”
Part of innovating responsibly involves creating a data framework that meets regulatory requirements, using transactional data lakes and open table formats so that it’s a streamlined effort to track where the data came from, how the data is permissioned and how it’s flowing to firms to generate insights and reports, Chang said. Customers are using AWS Glue, AWS Lake Formation and Amazon DataZone to assist with the data governance and data lineage. That data framework takes into account that some information will need to flow in real time and other processes won’t need to be quite so instant.
“There’s absolutely an opportunity for on-demand, real-time [flows] for things like fraud prevention, but for things like clearing and settlement, we’ll get there, but it’s an evolution,” Chang said.
The evolution, he said, is underway, as the data for hyper-personalization, fraud prevention and credit-decisioning is already moving to the cloud, as are AI and machine learning models using Amazon Sagemaker, he said. There will be a period where the data accumulates in the cloud while applications are modernized.
Financial services innovation also demands a pivot away from screen scraping toward standardized APIs that help increase interoperability so that companies can scale globally, Chang said.
“Similar to TSYS, we work at a global scale,” Chang said, adding the payments industry uses standards to drive interoperability for cross-border payments and other types of use cases.
As front-end experiences are revamped, trust must always be front and center, Knutson said.
“When trust is broken and security issues happen, the customer does not really care about that seamless experience or the user interface,” he said. “They’re more worried about the funds that people have access to and identity theft.”
Banks are going to have to live up to those expectations, he said.
If that trust is cemented, there’s potential to change money movement not just within consumer use cases but in the B2B realm, too, he said.
Chang said that although technology has done a “good job” of bringing a consumer-grade experience to eCommerce, that fluid experience has been sorely lacking with B2B. Commercial payments are still mired in paper checks, and AWS/TSYS are working together to create a digital payments experience for B2B.
“That’s the next frontier of the work that we’ll be doing together,” he said.
As Knutson summed up: “When we look at this cloud journey, it is not just about technology and the finance team deciding if it makes economic sense. It’s an enterprise-wide engagement with different parts of the business that do change the operating model, do change the mindset about the client and how we collectively and individually deliver solutions and products to the marketplace.”
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