Long ago, former Secretary of Defense Donald Rumsfeld said that “There are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.”
So it is with payments and, more specifically, payments infrastructure.
We know what payment methods exist today and what the technological demands are. Yet the demands lie with what lies ahead, namely: How to design and plan for a future that lies over the horizon? How to lay the technological groundwork for what might not yet be imaginable?
With legacy systems in place — creaky ones, with processes decades-old — is it any wonder that financial institutions (FIs) and banks and other stakeholders in the payments ecosystem are struggling to keep pace with evolution?
And yet: The consumer wants what the consumer wants, chiefly, a frictionless and increasingly mobile experience. Merchant acquirers, processors and FIs must find ways to deliver. As new technologies take shape and jostle for share of mind and wallet (digital wallets too), businesses need to change. Companies must authorize and switch and route transactions in new ways, securely and with haste.
Consider it a roadmap of sorts, the known unknown for payments providers as they overlay what exists with complementary technology that seeks to embrace what has yet to exist.
In an interview with PYMNTS’ Karen Webster, Jim Tomaney, chief operating officer of Renovite Technologies, noted that many of the larger firms in the marketplace work with a 20th-century mindset, which has spilled over to the current day, with limitations apparent.
The years have traced a new payments arc from the days when everything was predicated on a plastic card, on ATMs and on terminals that appear quaint when seen through the rearview mirror.
In the 21st century, of course, “all of that went out the window,” he told Webster.
Now consumers are putting those legacy systems through their paces across commerce: eCommerce, mCommerce, no cards attached and real-time payments — these changes have come fast and furious. The rate of change is increasing too, which means that relying on legacy systems is unsustainable.
“What people do is that they cut corners,” he said, to keep the tried and true up and running. They make assumptions, especially about risk. The legacy systems are stable, at least for now.
People who launched a payments system around the turn of the century, said the Renovite COO, built broader versions of BASE24™ and addressed all the known unknowns. Tech experts and company executives knew they’d have to design systems and processes that could address new card schemes and alternative payment methods.
But how to allow for the Rumsfeldian unknown unknowns mentioned above?
Think of, for example, an Apple launch, where a payments scheme links directly to an account and not to a card, across payment actions that may or may not involve a traditional point-of-sale (POS) terminal. In a non-card environment, the executive said his firm posits that “not only should I not need to use a card scheme, I should be able to lay out the workflow,” organized by processes without modifying too much of what’s in place — in other words: not impact the existing workloads.
The company has built a payments workflow engine with this flexibility in place, he said. A firm may have a workflow, he said, “where, first of all, you need to challenge a customer for their password, then ask for this piece of information” and send it in a modular way. Such design and system integration validates the card and the authenticity of the terminal and the device, with the ability to change workflow and transaction paths that are appropriate to the geographic and hardware components of the transaction.
“Right at the beginning, all the available information from the transaction can be used to select the right workflow,” he told Webster, rather than every transaction moving through the same hard-coded process flow in the core system.
Optimized routing means that back-end systems execute using the operational components that are specified in that workflow, with a nod to change — say a token or Amazon’s reordering button for smart devices — creating a flat structure and saving costs measured in development time and money. None of the existing workflows can be compromised by that new transaction, he said, with products such as his own firm’s Reno-Switch.
“The impact of change in the system is minimized,” he said, noting that the way things stand otherwise, with all the existing architecture that’s out there, if transactions move faster (which, of course, they do), “you still modify core platforms every time you make change. You push more change into your core platform more often, more quickly as a result,” taking on more risk.
Over time, products such as those via Renovite, said Tomaney, replace the existing rails inside a bank or a processor. But for now, they expect to be deployed alongside existing rails to manage new transaction types. The competition is the payments system provider. “We see ourselves as a technology provider rather than a payments service provider.”
Turning to alternative payment methods (APMs), he said the legacy systems are very specific and manual in nature — which leads to special challenges in the APM channel. Platforms can go down, interrupting service as new functionality makes demands on infrastructure that was put in place almost 30 years ago. That slows down FIs and processors, which can boost margins if they can do more of what they’re already doing — and faster — whether traditional payments or APMs are being processed.
He called legacy systems the “sleeping dragon in the data center,” wherein, evoking the Tolkien model à la “Lord of the Rings,” “there’s a huge mountain with a huge store of gold in it, and sitting on top of that is this dragon that nobody wants to wake.”
The challenge is this: how to get the gold without waking the dragon tied to payments infrastructure. “If you wake the dragon, there is a 50-50 chance it will eat you,” he said. That’s especially true as the window of opportunity to make legacy systems more flexible by putting new infrastructure in place alongside the old systems, Tomaney said, “is closing.”