Banking in the cloud might have once been a nice-to-have, but over time has become critical to enabling the changes that banks are trying to enact across the payments landscape.
But despite the value financial institutions (FIs) can capture through cloud migration, moving and outsourcing cloud computing to a smaller third-party provider is still a daunting endeavor for some, said Dave Scola, CEO-U.S. at Form3.
“There is this inherent and understandable concern that this is such a core critical part of a bank’s obligation to its clients [and] it’s something they can’t afford to get wrong,” Scola said in an interview as part of a PYMNTS Executive Series on “The One Thing.”
Getting it right is even more critical in today’s instant FedNow environment, he added, as having to deal with liquidity, fraud and compliance processing in mere seconds can be “a lot to bear.”
This is where embracing the cloud offers great value, he explained, by helping banks gain the flexibility and real-time payments speed and security necessary to keep up with the demands of a rapidly evolving payments landscape.
“It’s very difficult for any single bank to make the investment required to achieve those levels of speed and processing power on their own premises,” Scola pointed out. “This is why the cloud makes a lot of sense.”
According to Scola, the rollout of FedNow has intensified the need for a revamped and modernized payment landscape capable of addressing technical hurdles created by the instant payment environment.
In fact, it has led to a massive overhaul of individual banks’ payments ecosystem and the broader payments landscape, Scola noted, creating a downstream effect on banks looking to holistically replace their entire payments infrastructure.
And it’s not just for instant payments, he argued, but also for other schemes like ACH, Fedwire and CHIPS. “There are very few banks that don’t have a program already in effect or are planning to increase investment in their payments environment in 2024,” he said.
Meanwhile, for clients who are keen to replace their core banking platforms but have concerns around the lack of secured connectivity to the other payment schemes like the Fed and TCH in the U.S., Scola said Form3 is helping them come up with strategies to insulate themselves from exposure to that last-mile connectivity.
Comparing the U.S. and U.K. faster payment landscapes, Scola acknowledged that the U.S. is years behind in the instant payment race, unlike the U.K., which is now looking to upgrade its instant payment system to incorporate a modern ISO 20022-compliant architecture under its New Payment Architecture (NPA) program.
The U.K. is also not the only one far ahead of the U.S. when it comes to faster payments. As Scola pointed out, “we’re behind … even to much newer comers like India and Brazil who’ve recently rolled out very effective, very ubiquitous platforms.”
On the upside, however, he noted that the U.S. system is designed to encourage healthy competition between payment schemes, boosting competition which in turn breeds growth and effective pricing, among other things.
“The U.S. doesn’t allow for an initiative like SEPA [Single Euro Payments Area], for instance, to mandate the usage of any particular system. The schemes need to make their cases on their own merit rather than banks being forced to use them,” he said.
That said, the new FedNow initiative still has to prove its case on ubiquity and accessibility, a task that involves ramping up bank adoption in a relatively short amount of time. “Ultimately, that’s what we need in the U.S. — a mechanism to reach as many end customers as possible through an instant payment platform that is as ubiquitous as possible,” Scola said.
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