Outdated back-end systems hinder contemporary front-end payments: the inefficacy of modern front-ends when the back-office operates on DOS.
In the rapidly evolving world of payments, Germany is witnessing significant changes. Many banks in the country are engaging with hyperscalers like AWS, Microsoft, and Google, as they navigate the digital transformation of their payment systems.
One area of growth is the use of smartphone payments, which has tripled between 2021 and 2023. Institutions in Germany are exploring alternative paths, such as setting up separate units specifically for retail banking. However, many are investing in their own peer-to-peer offerings like "Pay by Bank" or Instant Payments, but these initiatives often focus solely on frontend processes, leaving backend and middle-office systems untouched.
Applications and complex system architectures that have grown over decades present problems in the context of digital real-time processes. Third-party providers like Apple Pay, Venmo, or Alipay are pushing into the customer interface, risking banks losing visibility and valuable data.
Synthetic identity fraud (SIF) is an emerging threat in the context of digital real-time processes. Banks often only check for SIF during onboarding, which is insufficient. A shift to dynamic analysis, connected data, and proactive resilience is needed.
Real-time transfers and new payment platforms are gaining significant traction. New providers offer seamless digital wallets with real-time functionality, while established banks often struggle to react with similar agility. The increasing complexity of the provider landscape is a sign of a technological push.
Sanjay Bollmann, a leading expert, highlights several key technological strategies for modernizing payment infrastructures.
- Adoption of Open APIs: Implementing open application programming interfaces (APIs) enables banks and payment providers to create more integrated, flexible payment systems that can easily connect with third-party services, including digital wallets and fintech platforms.
- Cloud-Native Architectures: Moving payment infrastructure to cloud-native environments allows for greater scalability, resilience, and faster innovation cycles, which are crucial for supporting the high volumes and low-latency requirements of real-time payments.
- Real-Time Processing Capability: Designing systems capable of processing payments in real time with minimal latency is essential to meet customer expectations and compete with fintechs offering instant payment options.
- Enhanced Security and Compliance: Integrating advanced security measures such as tokenization, strong customer authentication (SCA), and AI-driven fraud detection to protect real-time transactions and comply with evolving regulatory requirements.
- Interoperability and Standardization: Ensuring payment systems support industry-wide standards and can interoperate across different platforms and geographic regions to facilitate seamless cross-border and multi-channel payments.
- Modular and Microservices-Based Design: Structuring payment platforms in modular components or microservices improves flexibility, allowing banks to quickly update or add features without overhauling the entire system.
- Data Analytics and AI Integration: Leveraging real-time data analytics and artificial intelligence to gain insights into payment behaviors, optimize routing, personalize services, prevent fraud, and enhance the overall customer experience.
- Collaboration with Ecosystem Partners: Engaging with fintechs, platform providers, and other stakeholders in the payments ecosystem to co-develop innovative solutions and stay competitive against emerging players.
These strategies collectively aim to transform legacy payment infrastructures into agile, secure, and customer-centric platforms capable of thriving in a fast-evolving payments landscape dominated by real-time demands, digital wallets, and innovative entrants.
Digitalization in payments is a matter of strategic ability to shape change, and the time for this is now. As payment traffic shifts to digital real-time processes, systems must now execute, verify, and log payments in seconds. Strengthening internal competencies, such as establishing rapid response teams, flexible rule sets, and continuous learning cycles, is crucial. A complete renewal of core banking systems would be extremely costly with uncertain benefits. Modernizing payments requires a system approach, focusing on modularity and interoperability, AI-driven real-time analysis, data ethics & governance, and automated scaling & flexible rules.
- Businesses in Germany are exploring the application of advanced technologies, such as cloud-native architectures and open APIs, to modernize their payment infrastructures, as they strive to keep pace with the digital evolution in finance.
- In the realm of finance and technology, the adoption of solutions like real-time processing capability, enhanced security, and collaboration with ecosystem partners is critical for mainstream financial institutions to maintain their relevance and compete with driven digital-native competitors in the evolving payments landscape.
