Scaling and expanding operations is never an easy task, and for firms in today’s payments landscape various challenges present themselves. A significant obstacle is outdated technology, which often struggles to keep pace with the demands of growth.
Several emerging technologies, like AI, offer potential solutions for these challenges, but still come with issues, such as trust concerns and a lack of full regulatory and technological maturity. In contrast, cloud technology stands out as a proven and reliable option that has already demonstrated its ability to address these problems effectively.
At Money20/20 Europe earlier this year, Mick Fennell, Business Line Director of Payments at Temenos, discussed with Payment Expert the benefits of cloud technology in the payments industry.
Fennell emphasised that one of the key advantages of cloud technology is its scalability and performance. He remarked, “What Cloud has done, first of all, is take some of those challenges out of their hands. But it’s given us the opportunity to deliver more value to the banks.”
Founded in 1993 and based in Geneva, Switzerland, Temenos specialises in providing enterprise software solutions for banks and financial services, with offerings such as core banking, digital banking, payments and fund administration systems. With a global reach, Temenos serves over 3,000 financial institutions across 145 countries, including 41 of the top 50 banks worldwide.
Bridging the gap between tradition and innovation
Outdated technology often hampers the growth of traditional banks and is a key factor behind the rapid expansion of challenger banks like Monzo and Starling in recent years.
For instance, Starling Bank’s core banking system, which was developed in-house, plays a crucial role in its operations. This custom-built system provides the bank with exceptional flexibility and control, enabling it to quickly adapt to customer needs and market changes.
However, many traditional banks lack the resources or expertise to develop their own systems from the ground up.
Fennell asserts that with cloud ‘we can then add these new services pretty quickly’, within Software-as-a-Service offerings.
The attractiveness of cloud technology lies in its customisability. Cloud-based software can be easily updated and modified as new services and technologies emerge.
Fennell elaborated: “With the new cloud infrastructures, a lot of work is required to create an architecture that accommodates each institution’s unique needs. As we provide them with payment processing, we need to manage the ability to evolve, allowing them to leverage new services and technologies… and compete.”
The lack of resources affects not only the development of software but also its ongoing management and operation. According to Fennell, this support from Temenos has strengthened its connection with clients.
He added: “It’s not just about good software, it’s about us helping people to run their business and be part of that day-to-day ecosystem.”
Beyond equipping institutions with advanced tools, cloud technology is also pivotal in navigating the regulatory landscape. The upcoming Payment Services Directive 3 (PSD3) exemplifies this, as it will play a significant role in shaping the future of electronic payments and financial services.
Building on PSD2, PSD3 aims to enhance security, efficiency and transparency by introducing stricter requirements for Strong Customer Authentication (SCA), better consumer protection, and more defined guidelines for accessing payment systems and account information.
The directive will further support Open Banking principles by promoting the secure exchange of financial data between banks and third-party providers. PSD3 is expected to be finalised in 2024, with full implementation planned for 2026.
Temenos has been proactive in preparing for upcoming regulatory changes. In April, the fintech partnered with SurePay to launch its solutions on the cloud-based Temenos Exchange.
This integration allows banks to deploy SurePay’s Verification of Payee (EU), Confirmation of Payee (UK), and SWIFT Beneficiary Account Validation (BAV) solutions directly on their Temenos core banking systems.
Fennell highlighted this as a key example, noting: “This represents another significant shift driven by regulatory changes. With our cloud infrastructure and continuous update approach, implementing these changes becomes much easier and more efficient.”
Although he shares the opinion of many experts that the cloud will become the default for the industry, there are still some challenges to its adoption. It is also important to note that Cloud is not the only technology being adopted and promoted in the payments sector.
The aforementioned giant of AI, as well as Open Banking and ever-present blockchain, are also being touted as redefining payments, and the competition between these tech fields for influence in payments will heat up over the coming years.
He explained: “In many countries, regulatory constraints still prevent us from fully transitioning certain aspects of our processing to the cloud, including payment processing. While major markets in Europe, the US, and parts of Asia have already embraced these changes, other regions have yet to pass the necessary laws. Ultimately, we anticipate that cloud adoption will become ubiquitous”
Cloud’s environmental impact
In addition to addressing regulatory and operational challenges, Temenos is deeply committed to sustainability. The company has significantly reduced the carbon impact of its software by over 50% from a 2021 baseline, as validated by GoCodeGreen. This reduction was achieved through an extensive effort to improve code efficiency and optimise architecture, resulting in lower infrastructure demands, reduced energy consumption, and a smaller carbon footprint.
Temenos’ partnership with major cloud providers like Microsoft Azure, AWS and Google Cloud has been instrumental in this effort. By leveraging these hyperscalers’ sustainable operations and continuously investing in its cloud-native platform, Temenos ensures that its solutions not only meet the highest performance standards but also contribute to a more sustainable future for the banking industry.
Fennell further elaborated, “We did an enormous exercise over the last few years to make our code much more efficient in how it uses power services, which drives electricity consumption. This effort has been a key part of our strategy to reduce the environmental impact of our software.”
Looking forward
Temenos is poised to embrace a broad spectrum of innovations that are reshaping the payments industry. Fennell noted, the company is integrating emerging technologies like cryptocurrencies, AI, and tokenisation into their solutions. These advancements aim to enhance not just regulatory compliance but also customer experience, making payments more efficient and adaptable.
Temenos is also investing in advanced user interfaces to ensure that banks can interact with systems more dynamically, improving both operational efficiency and user satisfaction.
To sum up this challenge, he said: “We’ve got to try to keep all those dishes spinning.”