How Cloud Technology Can Future-proof Digital Payments

The days when digital payments were used only for online shopping are gone. In the last few years, there has been a steady increase in digital payments even in brick and mortar shops and pavement shops. Digital payment is becoming a new norm even for common money transfers between two parties.

With the restrictions in mobility imposed by the pandemic in the last year, brick and mortar businesses have taken a big hit in customer footfall. This has also indirectly reduced a lot of cash transactions that typically happen in the shops and has directly helped in the increase of digital payments and transfers.

The availability of touch-free QR code payment scanners, literally in every corner shop has directly helped in increasing the volume and turnover of digital payments.

As per the RBI report, dated August 25, 2020, the volume of digital payments and transfers grew by 44% to 3,43,455 Lakhs in 2019-20. This tells the speed at which the digital payment industry is growing.

Earlier, only financial institutions that include banks and NBFCs invested in digital payment infrastructure that was typically integrated with their online banking software and their core banking software. In the last few years, there is a clear surge in the non-banking payment providers like GPay, Paytm, Phonepe, Apple Pay, Samsung Pay, etc. in India alone. With so many new players in the market, there is an exponential increase in digital payments. With this, the number of frauds and failures has also increased substantially.

This phenomenon has forced the fintechs that provide digital payment platforms to look for innovative and futuristic ways to scale up their infrastructure to meet the ever-increasing demand. This is where cloud technology plays a game-changer.

Cloud Technology Benefits in Digital Payments Ecosystem

Seemingly almost every industry that relies on computer technology has adopted to cloud to different degrees. The digital payment industry is no exception. Now cloud-based e-commerce applications provide the potential to scale up services and customer experience as well. This has directly increased the number of digital payments.

Below are the key driving factors that enable cloud technology to future proof digital payments industry.

1. Scale-up on the fly:

Cloud technology gives the horsepower to scale up the infrastructure dynamically. Digital payment systems typically have a cluster of servers in the cloud behind load balancers. The load balancers take care of diverting the traffic to the servers that have enough bandwidth to serve the request. Also, cloud service providers can add new servers on the fly to the existing infrastructure to meet the increasing demand from any application.

2. Reach the destination faster:

Traditional online payment and transfer systems are notoriously slow, mainly due to an intermediary system called a correspondence bank, which requires a direct link between the banks in the sending and receiving countries. Since all the banks in the world cannot have a direct link with each other, most of the banks depend on correspondence banks for international transfers.

As a result, it makes the money transfer trail longer. With the adoption of cloud technology by the global payments network SWIFT, the correspondence banking model is fading away. This also removes the need for the Financial Institutes that have adopted SWIFT to go away with their onsite payment technologies. This trend only augments the prominence of cloud-based digital payment providers.

3. In-Built Security:

Cloud technology providers like AWS, Microsoft Azure, Google Cloud, IBM Cloud, VMware, etc., have their inbuilt security services. This makes the cloud infrastructure a virtual digital fortress. These service providers also keep upgrading their security systems to keep up with the increasing vulnerabilities. This helps the Financial Institutions and Digital Payment providers to focus only on their core functional needs and leave the security aspects to the experts.

4. Sophisticated Monitoring and Alerting

The cloud service providers used by the digital payment systems have their own inbuilt, sophisticated monitoring systems, that keep a tab on the payment system usage constantly and take any preventive or corrective action as needed. For instance, as soon as the monitoring tool senses that the CPU utilisation has touched 70%, it prompts the cloud system to add more CPUs on the fly. This way a major downtime is averted.

5. Interesting Dashboards and Reports:

For any digital payment system, statistical analysis of their performance in many dimensions is vital for their improvement.

Typically, statistics that represent the functional aspect of the digital payment system like, volume of transactions, net value, success rate, geography wise direction, etc, are developed as reports by the digital payment providers themselves.

In addition to these functional reports, cloud technology provides a lot of inbuilt dashboards and reports from a hardware perspective. This helps the FIs assess how strong their digital payments infrastructure is and take any preventive or corrective action.

The payment as a Service Model:

With the digital payment services products built-in cloud technology, it is easy to expose these as services to banks and nonbanks. This payment as a service model works well for either party since the cloud technology has a lot of advantages like:

Shorter time to market
On-demand scale up and scale down of the infrastructure
Pay per usage rather than fixed pay
Enhanced security
Provide the best in class payment services per the industry need

Financial Institutions (FIs) that have outsourced their payment systems to off-site third-party payment systems that reside in the cloud can save a lot in maintaining and keeping the payment systems up to date. This frees up a major bandwidth for the FIs and enables them to focus on their core business rather than maintaining the digital payment systems. So from the banks’ point of view, there is a single point of entry to access the payment system.

The idea of Banks and NBFCs managing the hardware and the environment of their banking software on-premises is steadily fading away. With the cloud, providing endless scope for scaling up with top-notch security and cost benefits, in the years to come, having the digital payments systems on the cloud will be the new norm. With cloud technology evolving at a rocket speed to match the demands of the Fintechs’ needs, the future is exciting for the digital payment systems that reside on the cloud.

Finezza is a loan management system that can optimise your lending process from start to finish and enable an efficient digital payment system for the collection of debt. With a secured cloud platform the all-in-one solution empowers financial institutions to leverage modern cloud technology and make smarter decisions to manage and monitor loans.