It might be the case that 2019 takes shape as a watershed year for payments regulation, marked by PSD2 and GDPR. Stakeholders in the financial services and payments arenas are navigating new rules about how data is collected, stored and shared.
However, the way payments innovation is pursued — and becomes reality — is changing, too. The rise of Open Banking is helping to open up payment ecosystems, encouraging collaboration between traditional financial firms and smaller, tech-focused upstarts. Part of that collaborative movement involves working with open source technology, where, generally speaking, software is made (freely and publicly) available for users to develop and modify as they see fit.
Most have heard of application programming interfaces (APIs), no doubt — and new offerings rolled out on a (seemingly) daily basis that, for example, let consumers manage all their far-flung accounts across a single interface, with “plug and play” functionality allowing banks to implement new software on top of existing tech infrastructures.
As Red Hat’s Global Director of Financial Services Richard Feldmann explained, the heart of the embrace and appeal of open source technology is the need for speed, and to evolve use cases for end users (consumers and enterprises) in a more robust and secure fashion. Furthermore, the lines between financial services, FinTech firms, payment providers and even open source “communities” continue to blur as collaboration takes shape.
As the executive stated, “Banks, financial institutions and payment companies are making choices about who they want to partner with” in the drive to payments innovation. Speaking of his own firm’s capabilities, he said its position within the hybrid cloud space is well-suited for fostering DevOps, which marries software development and information technology (IT) operations to shorten product development and updates.
By way of example, Feldmann mentioned cloud-based initiatives that include mobile-enabled ATMs, where authentication takes place before the user even gets to the machine itself, and speeds up transactions (while, of course, reducing the steps needed to get cash in hand).
Making Old ATMs New(ish)
Expanding upon the way open source can transform an “older” use case in payments (again, focusing on the ATM), Feldmann noted that the 3.5 million machines that span the globe have run on Windows operating systems. Yet, in the shift to digital banking, he stated that the ATM 2020 initiative, tied to a consortium of more than 200 companies, is focused on redefining the way applications are built and used in the machines themselves.
Of particular interest to Red Hat, Feldmann said, is the move to the Linux operating system. He noted that the lifecycle of the Intel motherboards and the Microsoft operating system are shortening from five years to three years.
“That means,” according to Feldmann, banks can spend “hundreds of millions, even billions, of dollars” across an ATM’s 15-year lifespan to grapple with infrastructure needs and load self-service capabilities that are increasingly attractive to consumers.
Red Hat has been working with KAL ATM Software, which leverages a process known as virtualization that uses technology to uncouple hardware from the ATM’s operating environment. “You don’t have to redefine all of your APIs,” said Feldmann, as the APIs will work through the 15-year ATM cycle. In the meantime, the bank sidesteps the three-year infrastructure upgrades, and, for “pennies on the dollar,” subscriptions to virtualization can save hundreds of millions of dollars in tech investments.
The ability to protect assets in place and layer new functionality as needed offers flexibility, said Feldmann. In financial services, Red Hat has seen that “a lot of the requests that come today … have a different angle” than might have been seen five years ago.
It should come as no surprise that real-time payments remain a focal point. “We’ve had some success around the world helping real-time [payment] providers leverage our [open source] technology to launch new services and capabilities,” Feldmann said. There’s particular interest in using real-time payments for peer-to-peer transactions, he added.
Within the real-time payments space, one option among the faster payment initiatives gaining traction around the globe centers on blockchain, of course.
“Red Hat has delivered real-time [payment] solutions to many of our customers. A lot of our early conversations that were in the blockchain space were about ‘how do I build a community that will sustain itself, and how do I take the community that comes out of it?’” said Feldmann. “And ‘what’s the right commercial and licensing model, and how do I make this thing work?’”
Looking toward blockchain as an infrastructure to help underpin payment systems, Feldmann said, “I think in the permissioned context, where use cases are being developed by banks, supply chains, [the] public sector and healthcare (the Big Four, in my mind), they are hybrid blockchains. They are more ‘is there a way I can digitize this asset and use some of the aspects of the consensus model for the blockchain,’ as opposed to ‘I am taking the protocol for bitcoin and I am going to internalize it.’”
Speaking more generally about open source technology, Feldmann told Webster, “We find, in financial services, it resonates very well,” adding that everybody recognizes open source is the right model, not proprietary technology. “If you were to ask me if I see financial services moving to the cloud, the answer is ‘you bet.’”