Key Trends in Payments and Banking Infrastructure

Conclusion Payments White Paper 1

White Paper Payments

Key trends in payments and banking infrastructure

The modernization of banking Introduction and payment systems is seeing the The future of banking and payments is instant, open deployment of hybrid public and and everywhere. These trends have evolved based private cloud architectures, often on the developments of newer business models and backed by technical infrastructure that increasingly linked back to the old legacy systems, features greater connectivity, responsiveness, reliability dispensing with which is just too hard and security. This can be seen in industry use cases in many cases. This paper looks at six such as emergence of: use cases for these newly architected § Banking as a Service systems and how they can bring § Core banking modernization efficiency, security, speed and cost § Local processing of banking and payments savings to financial services companies § Real-time domestic payments and their customers. § Open banking § Cross-border payment rails Each of these is explored in more detail below.

Digital infrastructure is a hybrid-distributed architecture

Legacy payments infrastructure Modernized payment infrastructure § Centralized § Distributed at the edge § Siloed § Interconnected to ecosystems § Rigid and slow § Agile and elastic

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Key Trends

Payments/Banking Local payment processing Open banking/apps and as a Service or digital banking platform ecosystem

Core banking and Real-time and domestic Payment rails hybrid IT modernization payment schemes credit/debit & cross border

Infrastructure Edge Exchange Infrastructure that is Infrastructure that needs to Infrastructure that benefits by increasingly dependent upon be in a particular country or being adjacent to a large number cloud service providers with region due to local partnerships, of ecosystem participants that robust choices of low-latency data sovereignty or latency share standardized messaging connections to cloud providers. requirements. formats and protocols.

The emergence of jurisdictions in which it operates and to ensure that all prudential regulatory requirements are met. Banking as a Service Sitting above this layer is the technical banking Banking has traditionally been a hard industry for new platform. This includes the core banking systems, entrants. To operate and legally call yourself a “bank” payment hubs, customer and account management in many jurisdictions requires holding some form of tools, risk management systems and other banking banking license issued by the prudential regulators infrastructure, which together allow a bank to take within that locale. Regulators have required a certain deposits, originate credit and facilitate payments. level of trustworthiness and governance that are supported by significant amounts of capital held The final part is the front-end interface. This is the most as reserves, as well as significant investment in the prominent part of the BaaS bank, and is where the end technical infrastructure to ensure reliable and stable customer interacts with their banking products. Front- operation. In many countries, these requirements are end companies include tech companies and non-bank important to protect tax payers’ funds, as often the financial services institutions, but also other companies first tranche of dollars (AUD250,000 in Australia; that are not traditionally finance related (and non- GBP85,000 in the U.K.) in each consumer deposit holders of banking licenses). The integration between account is government guaranteed—regardless of the front-end and platform layers is achieved through the bank’s eventual capability to repay it. APIs, which connect the user interface with the API- driven banking platform. Between the platform and With Banking as a Service (BaaS), a new alternative front-end layers is where third-party providers reside. business model has emerged which, in theory, offers These look to offer value-added services that are new companies an easier, faster and cheaper (mainly ancillary to the banking experience for either or both in terms of up-front capital investments) route to offer the bank and the end customer. bank-like services to the market. This integration requires a fast, but robust, level of The BaaS business model consists of three main parts. connectivity between the various systems in the At the very base of the model sits the bank. This is the BaaS value chain. Part or all of the BaaS stack may entity that holds all of the relevant licenses that enable be deployed in the cloud, as seen with the general it to carry out and offer banking services within the modernization trends of core banking platforms. Fast,

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because consumers expect low latency between taking Modernization of core action on their banking apps and the time that the banking platforms underlying banking platform takes to respond to those actions. Such connections need to be reliable and Traditional banking systems have relied, and been secure to ensure maximum availability and resilience. developed, on large, mainframe systems that have dated back to machines developed in the 1960s. It is interesting to note that many digital neo banks These computers were cutting edge for their time, around the world have chosen not to adopt the BaaS and banks wholeheartedly adopted them due to the model, despite the time and cost involved in gaining significant increase in capability offered over older a full banking license (or even a restricted license). As systems. Furthermore, these systems were monolithic, a key proposition of neobanks tends to be their front were expected to encompass all of the core functions end, delivering a more user-friendly interface to their required by a bank to operate, and were hosted within customers, one might have thought that focussing their a bank’s own IT data centers. investment efforts solely on this piece of the banking infrastructure might have lowered risk and cost. Today, however, the picture is very different. As time has progressed, it is now clear that many of these Implications: traditional core banking systems have left incumbent § Banking as a Service provides a new revenue banks with a technological debt. opportunity for fully licensed banking institutions.

§ Banking as a Service has the potential to grow as it becomes easier to separate the component parts of a bank, allowing new entrants to pick and choose the Around 85% of IT budgets at banks are services that they need. aimed at maintaining the status quo. § Gaining a full banking license in many jurisdictions Ciaran Chu, Head of Cloud at ACI can be an onerous and costly exercise. Banking as a Service allows neo banks to focus their investments on their key differentiator, the customer interface, and not licensing obligations.

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In October 2020 in Australia, Westpac announced a partnership with Afterpay, one of the world’s leading Buy Now, Pay Later brands, to provide deposit accounts as part of its new Banking as a Service strategy, commencing in Q1 2021.

The agreement makes Afterpay the first third-party fintech to be launched on Westpac’s cloud-native “10X” digital banking platform, which is provided by Future Technologies. The move is part of Westpac’s new digital strategy to engage and work with fintech partners through the 10X platform, a system that is operated separately from the main Westpac banking system.

As part of the agreement, Afterpay’s 3.3 million Australian customers will be able to open transaction and savings accounts with Afterpay and undertake transactions without needing an external bank. Afterpay would then have access to all of the spending data from the deposit accounts, from which it plans “to assist them [their deposit account holders] in budgeting more effectively and avoiding debt traps” through the provision of budgeting and spending tools. The data could also potentially be used in the credit-decisioning process for future Afterpay credit/loan products.

Although Afterpay does not hold a banking license in Australia, it is able to use Westpac’s own license as part of the BaaS arrangement. Therefore, Afterpay deposit account holders would be covered for up to AUD250,000 as part of the Australian Government’s deposit guarantee scheme.

According to Ciaran Chu, Head of Cloud at ACI, around not as robust as the security found in traditional data 85% of IT budgets at banks are aimed at maintaining centers. This idea is beginning to change as more banks the status quo. All in all, the main disadvantages of firstly adopt the cloud for less critical systems. A 2017 these legacy systems are that they burden their banks IDC survey found that 60% of U.S. banks had already with increased costs, slow down the deployment deployed some form of cloud-based software.2 of new banking products and features, hamper regulatory compliance (which is occurring at an Smaller banks, and especially the new wave of increasing frequency) and are not suited to neobanks, have been the most enthusiastic about the integration with external third-party providers, who adoption of cloud-based core banking systems such as provide access to digital marketplaces that are Mambu, 10X and FinXact; while traditional core banking becoming increasingly important. system vendors like Oracle, SAP and Temenos also now offer cloud-based systems. The benefits of a next-generation core banking system are clear. As such, many incumbent banks are looking to Cloud-based core banking systems offer a number of upgrade their systems, but changing the core banking advantages over traditional mainframes: system whilst seamlessly servicing your customers in an “always on” environment is not so straightforward. § System resources can be scaled up and down rapidly to meet the demands of the bank as and when A 2019 McKinsey survey of 37 senior banking executives required, rather than needing to invest in system found that 70% of banks were reviewing their core capacities that are only utilised during a few peak banking platforms.1 As these banks upgrade, their periods. Indeed, ACI talks about Equinix’s “elastic CTOs face the decision of what kind of deployment computing on demand,” and Microsoft notes that “the model is most appropriate for their organization. While growth rate of real-time payments is unpredictable, so traditional banking systems have been on-premises you want to flex rather than over invest.” deployments, today cloud-based or cloud-ready systems have emerged as alternatives; especially § Cloud computing requires less up-front expenditure as cloud-based computing becomes more broadly in infrastructure costs, saving banks from having to adopted by IT departments in other industries and maintain their own data centers. sectors. Cloud-based computing, however, brings along § Cloud-based banking systems can be deployed its own set of challenges, especially as the perception quicker, with ACI having had clients go live in as among banking executives and financial regulators has little as seven months, instead of years as per more been that data security in public cloud computing is traditional deployments, using a collaborative

1 Mckinsey.com/industries/financial-services/our-insights/banking-matters/next-generation-core-banking-platforms-a-golden-ticket

2 Vmware.com/content/dam/digitalmarketing/vmware/en/pdf/company/vmw-idc-banking-it-modernization.pdf

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approach with Equinix and Microsoft to enable away, so a hybrid strategy of legacy for old and cloud the deployment. for new, but with the two integrated via APIs, can help.” But many regulators are still hesitant to see banks move § Cloud providers have also strongly invested in into the cloud, with the European Central Bank issuing building their cloud infrastructure with a strong focus warnings in 2019 about the risks of migrating into the on security that rivals traditional architectures, and is cloud and the membership rules of some card schemes also more resilient, with services like AWS promising forbid the use of public clouds.3 With a hybrid cloud 99.99% uptime. approach, banks can run some of their core banking systems and other critical processes on their own § Cloud-based core banking systems are built from the private clouds, while other applications and services ground up to be more flexible. Different functions are deployed on public cloud infrastructure. are modular rather than being integrated as part of a single monolithic piece of software. Implications: § Support for microservices allows for new functionality § Monolithic banking architectures do not meet today’s to be integrated, either from the first-party vendor requirements for flexibility and extensibility, and tend or from external third parties, and deployed out into to become an ever-increasing cost burden. the market much more quickly. Interoperability is Predicting transaction volumes is becoming more achieved through the use of APIs that link the various § difficult, especially for newly launched services, so components together. elastic computing can provide a solution. Banks are reticent to move to a completely public Having a proper (private, public or hybrid) cloud cloud-based approach, however, and hybrid cloud § strategy is essential, and infrastructure adjacency to architectures may offer an alternative that still has cloud providers and strategic partners is a critical much of the scalability and efficiency. Rupert Nicolay, consideration when modernizing banking platforms. Worldwide Financial Services Industry Solutions Lead at Microsoft, notes that “old payment systems don’t go

3 Bloomberg.com/news/articles/2019-08-19/ecb-says-the-next-european-bank-hack-is-just-a-matter-of-time

A regulatory view of cloud-based banking In late September 2018, the Australian Prudential Regulation Authority (APRA), the main regulator of Australian banks, released updated guidance on the use of cloud-based computing within the banking sector. In the updated guidance, APRA noted the increased “potential for substantial benefits and opportunities” as cloud technology matured. This was in contrast to its position in 2015, when it was not convinced that Australian banks and cloud technology providers could manage the risks associated with performing functions in the cloud.

In the three years between 2015 and 2018, it was the view of APRA that “APRA recognises that, generally, cloud service providers have strengthened their control environments, increased transparency regarding the nature of the controls in place and improved their customers’ ability to monitor their environments. APRA-regulated entities have also improved their management capability and processes for assessing and overseeing the cloud services provided.”

As part of the updated guidance, APRA looked to classify the use of cloud-based computing into three different risk profiles, depending upon what type of activities and functions are being carried out. For activities perceived as low inherent risk, APRA would not need to be consulted on the use of cloud services. For heightened risk activities, a bank would conduct its own internal governance and risk assessment processes, prior to a consultation with APRA. Finally, for extreme inherent risk arrangements, banks would be expected to consult with APRA from the very beginning and throughout the deployment.

This oversight and supervision of cloud banking deployment by APRA has been seen with the launch of a number of digital neobanks in Australia using cloud-based core banking systems. “Up Bank,” a new digital entrant, worked with APRA to demonstrate the reliability and security of its Google cloud-based banking system. As part of its commitment to manage risks appropriately, Up Bank uses a Forseti system to conduct real time-auditing of system risks, claiming it to be superior to manual audits conducted at traditional bank data centers. As part of its data recovery, the entire banking system can be rolled over to Google’s Singaporean servers in 90 minutes if needed in the event of a catastrophic failure or natural disaster in Australia, while still complying with APRA’s guidelines. Equinix.com Local processing for banking and payments Payments White Paper 6

also stated that “The data should be deleted from the Local processing for banking systems abroad and brought back to India not later and payments than one business day or 24 hours from the payment processing, whichever is earlier.” In the era of cloud-based computing and greater interconnectivity between countries, the possibility Therefore, many banking software and payment of running a banking or payments processing processing providers are still expanding their global system offshore has become more feasible from footprint by deploying localized hubs within each a technological point of view. There are certain market. Doing so not only allows them to comply advantages that come from the economies of scale in with local regulations, such as data sovereignty, but processing if it could all occur in one place; however, also reduce latency for customers in the market. much banking and payments processing still occurs Strategically placed hubs may also serve to act within local markets. For example, at least one of the as regional aggregation hubs, serving multiple Australian neobanks is using the card platform of countries that permit it; Ciaran Chu at ACI specifically Global Processing Services (GPS) located in Europe, commented on the “low latency communications and to date have had no issues with latency on the routes deployed between the Equinix hubs.” authorization and processing of transactions despite the physical distance between the locations. Ultimately Even with local processing rules in place for payments though, when volume has built, having their critical and banking, banks still require multiple intraregional partner adjacent to them in a colocation facility in deployments to ensure high availability and reliance Australia would reduce risk of network outage or of services. Traditionally this may have required each issues caused by latency. bank to build and house multiple data centers in different geographical locations to serve as backup in Privacy and cybersecurity concerns, however, mean case one falls offline and to also reduce latency caused that restrictions by regulators on where data can be by distance. Instead, it is now possible to use private processed and held, together with the associated cloud infrastructure to quickly gain high availability and latency requirements, mean that local processing still reliance of services and at a lower cost. A bank can remains important. deploy multiple instances of its payments and banking platforms onto their private cloud and have its provider Certain markets are particularly strict about having manage the different instances and the low-latency domestic banking and payment card transactions telecommunication routes between various sites. processed locally. Some countries, like Malaysia, require all transactions on domestically issued payment cards Implications: acquired at domestic merchants to be processed onshore. When the requirement was enacted in 2018, § Payment hubs in local markets can be critical Bank Negara Malaysia (the Central Bank) noted: “The for performance with partners and to meet local Bank wishes to emphasise that the requirement for requirements for data processing and sovereignty. onshore processing of inter-bank and inter-scheme A global partner for cloud and colocation, with the credit transfer transactions is a prudential requirement § knowledge and reach, can enable easier access to to ensure that the Bank is able to practically achieve your target markets. and maintain effective oversight to maintain the safety and integrity of credit transfer systems, and to ensure the integrity and stability of the financial system.” The international card schemes were not particularly pleased by this move, but complied.

Data sovereignty (and meeting privacy regulations) is also a concern for banks and processors in different markets. Local authorities may mandate that data must be held onshore in order to guarantee that they can easily access it for purposes such as law enforcement, while also keeping domestic data out of reach of foreign authorities. In response to the growing number of e-wallets proliferating in India, the Reserve Bank of India stated in 2019 that “The entire payment data shall be stored in systems located only in India.” While not banning the processing of transactions offshore, it

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Real-time and domestic payments Real-time payments (RTP) systems continue to proliferate across many countries and markets, with 56 live as of 2020 according to FIS’s “Flavors of Fast” report.4 Many systems have already been deployed and are becoming more mature, as users start to adapt and develop new business models that can take advantage of the real-time nature of payments. Other markets are still in the process of developing and rolling out their own real-time payment infrastructure.

4 Fisglobal.com/en/flavors-of-fast

Live Under development

Americas Hungary Asia-Pacific Canada Bulgaria-SCT Inst Vietnam United States-RTP Croatia-SCT Inst India-IMPS Mexico-SPEI Czech Republic-RTPE Sri Lanka-CEFTS Peru Poland-Express EXIXIR Malaysia-RPP Brazil-SITRAF Romania-Plăti Instant Sigapore-FAST Chili-Transferencias en Línea Turkey-RPS China-IBPS Bahrain-Fawri+ -HOFINET EMEA Republic of Korea Saudi Arabia-Unknown Japan-Zengin Europe-SCT Hong Kong-FPS Sweden-BIR Africa Taiwan-CIFS Denmark-Straksclearingen Ghana-GIP Thailand-PromptPay Norway-Straksbetalinger Nigeria-NIBSS Philippines-Instapay Iceland-Greidsluveitan South Africa- Real Time Clearing (RTC) Indonesia United Kingdom- UK Faster Payments Kenya-PesaLInk Australia-NPP Switzerland-SIC New Zealand

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While the rollout of real-time or instant payment products that will attract business activity and users schemes appears to be progressing rapidly, the willing to pay (which consumers are not). emergence of value-added services and new products that take advantage of faster payments remain fairly In nearly all instances, the processing of real-time limited outside of P2P use cases. Products that may payments occurs within the jurisdiction in which the provide new revenue streams to banks using RTPs RTP network resides. This is important due to the have been conceptualized, such as “Request to Pay” fast response times required by the network and the and electronic invoices directly sent through the RTP risk of timeouts if processing were to occur offshore. network, but remain in development or have yet to Additionally, as noted above, rules by local regulators see significant adoption. Nonetheless there remains a may also require domestic processing to ensure focus to commercialize instant payments by developing data sovereignty.

There are, however, some notable RTP success stories, seen mainly in European countries. The Swish app in Sweden is a real-time overlay service that uses Sweden’s BIR real-time payments scheme, and it operated initially only as a mobile wallet app. Swish was created in 2012 by a consortium of six large Swedish banks, the Central Bank of Sweden and Bankgirot (the Swedish bank clearing system).

Initially designed for P2P payments, Swish became increasingly popular for small payments received by ad hoc merchants, such as market stalls in local flea markets, collections at church services, at sports clubs and other small events, where the lack of fees made it an attractive alternative to cards terminals.

Since then, Swish has evolved to be able to make/take payments both online, as well as officially supporting merchants at point of sale. Merchants, who need to sign a “Swish for Merchants” agreement with a participating bank, pay the equivalent of about 2 SEK per transaction. For e-commerce merchants, Swish is available as a plug-in within shopping cart services such as Magento. Payments made to merchants via Swish occur primarily via QR codes.

As of October 2020, there were over 7.7 million private users of Swish (Sweden only has a population of 10 million), with more than 260,000 merchants accepting payments via Swish.5

2014 2016 2018

100 93 93 93 100 87 79 80 80

61 62 60 60 52

40 40

20 20 10

0 0 Cash Debit card Swish

5 Swish.nu/about-swish Source: Riksbanken 2018, The payment behavior of the Swedish population

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As more banks connect up to real-time payment Open banking networks, they also face new challenges that were previously not present with batch payment networks. As at the end of 2020, the state of open banking is The immediacy of initiation and settlement of funds such that it is here and available (depending on which on RTPs means that banks have to deal immediately market you are in), but the promise of open banking with financial crime, such as fraudulent transactions has yet to be fulfilled. From its conception, when it when criminals gain unauthorized access to customer was mandated by the EU in the PSD2 regulations in bank accounts or unintended transfers when a 2018, authorities in a number of different countries customer unwittingly authorizes a real-time transfer like Australia, Hong Kong, Mexico and Singapore have to a fraudulent account as a result of falling for a scam made moves to force banks to adopt open banking. or makes a genuine mistake. Knowledge and learnings Open banking has been championed hard, especially by from other real-time payment systems like card fintechs, in the hope that it would allow new entrants transactions have been used to assist; however, they (including non-bank lenders) to break the monopoly still need to be adapted to fit RTP systems. that major banks appear to have on consumer financial data. AML and CTF is also another difficult area of financial crime for banks to handle with RTPs. Ordinarily, a There are still many challenges hampering the rollout bank may only see the immediate source and the of open banking. On a conceptual level, many banks immediate destination of funds. For fraudsters and are hesitant to share their own data (really it is the money launderers, using RTP means that they can customer’s data), which they see as having significant quickly transfer funds between a string of mule bank value; in addition, they do not wish to be held liable accounts to obfuscate the true source and nature for releasing private data into the wrong hands. For of funds. The instant nature of payments means these and other reasons, there has been little progress that these transactions quickly become lost in the made on business models that effectively monetize the background of legitimate ones. To combat this, a data. But credit providers see that electronic access to more holistic approach to AML and CFT monitoring is all of an applicant’s inbound and outbound payments required. Transaction Monitoring Netherlands (TMNL) via open banking will improve credit assessments and is an initiative of five Dutch banks (ABN AMRO, ING, speed up the approval process—so monetization may Rabobank, Triodos Bank and de Volksbank) set to begin come through cost savings and earlier/more revenue. in 2021. Under the initiative, the banks will share their RTP information between the members to collectively The technical implementation of open banking has also monitor transactions for money laundering and other stymied its rollout, especially for banks still running on criminal activity while continuing their own AML and legacy core banking systems, which find it difficult to CTF efforts. build and implement a set of APIs that conform to open banking standards. Some banks have turned toward Implications: middleware companies, such as Plaid and Teller, that § Real-time payment systems are proliferating across can assist in the integration of APIs by inserting their the world and countries are realizing the critical value software between the existing core banking platform to they bring to local payment systems. enable API access. Finally, ensuring that customer data remains safe and secure, and that it cannot be misused, § Overlay services can enhance the value and utility is an important focus. In Australia, the open banking of real-time payment systems by introducing new data regime intends that access is to be limited to only innovations, but need secure and easy access the companies certified as accredited data recipients RTP network. by APRA.

§ Real-time payment systems are more technically How the various participants connect to each other will and operationally demanding than traditional also be of concern to banks—especially for banks that batch payments and require more resilient network still use traditional networks and data centers. infrastructure to handle the flow and monitoring The most common type of connection in open banking of transactions. may be over public networks, and this may face challenges, including:6

§ Timeouts: For example, cloud-based payment initiation service providers (PISPs) connecting to

6 Blog.equinix.com/blog/2019/05/06/open-banking-for-a-competitive-advantage/

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banks and payment rails over the public internet are up and down to match the dynamic demand. With experiencing transaction timeouts; an incomplete right-sizing hard to predict, companies sometimes transaction frustrates the would-be buyer and is lost overspend to make sure they are prepared. revenue for all involved in the transaction. § DDoS: Open banking infrastructure will be an obvious § Lack of monitoring and control: The public internet target for cybercrime. The sensitivity and criticality of lacks the quality of monitoring that is required the data involved demands the security and reliability for production applications, and you cannot fix a of private connectivity, rather than the public internet. performance problem you have not yet recognized. Unprotected infrastructures are vulnerable to distributed denial of service (DDoS) attacks and other § Bandwidth: Workloads are constantly changing. security threats. This is critical national infrastructure, For example, requests typically spike in and around and customers need access to banking services 24/7. payday and daily commuting times. Companies need reliable and scalable connections to ensure business uptime. Ideally, bandwidth requirements should flex

Approaches to open banking regulation (i)

Regulatory requirements Regulation under Facilitating role (e.g., Industry initiatives or in force development coordination, guidelines regulatory interest

EU India Mexico USA Hong Kong PSD2 Unified Payments Fintech law 2018 CFPB principles Open API 2018/19 Interface, 2016 (API launch 2020-21) UST report 2019 Framework (2020 +)

UK Australia Turkey Japan Singapore “Open Banking Consumer Data Right Payments law Banking act 2017 API playbook + register implementation (API launch 2020) 2020 (API launch 2020) Portability rules Entity” 2018

Equinix.com Source: Bbva.com/en/open-banking-regulation-around-the-world/ Confidential Cross-border payment rails Payments White Paper 11

Implications: Other global payment networks are also in development, with a number of them piggybacking off § Open banking is being imposed on banks by a the growth of domestic real-time payment systems. combination of regulatory and consumer demand. SWIFT has its Global Payments Initiative (gpi) Instant § Banks and fintechs need to have their commercial network to enable faster cross-border payments; gpi (e.g., use cases) and technology (e.g., API linkages) Instant works by integrating and joining together strategies in place in order to take advantage of open domestic real-time payment networks. In July 2019, banking opportunities. SWIFT launched a trial involving seven different countries: Australia, China, Canada, Luxembourg, The Netherlands, Singapore and Thailand, to send and settle payments between 17 different banks within Cross-border payment rails these countries. The results from the trial showed that the fastest transaction took just 13 seconds to process Payment rails like Visa, Mastercard and SWIFT operate from the NPP in Australia to FAST in Singapore. On the their own private payment networks on an international other hand, the slowest transactions were also quick, level. Within their own environment, they operate a taking just 25 seconds to complete over the gpi Instant trusted, centralized network, but at the edges, they network. SWIFT is also looking to expand services into are connected to a vast array of participants like banks, the low-value cross-border payments market, focused payment processors, mobile wallets and merchants. on SMEs and consumers. Card transaction volumes conducted over the major Interoperability is also set to become more card networks grew by almost 20% in 2019 to 441 commonplace with the near universal adoption of billion purchase transactions. Of these, Visa was the the ISO 20022 messaging standard for payments most dominant scheme, followed by UnionPay globally. The adoption means that more information and Mastercard. can be sent with each payment and formatted in a common standard. Global network cards in 2019 More regional, real-time, cross-border networks are also in development. P277 is a plan by a number of banks Purchase transactions (Billion) in 2019 within Denmark, Finland and Sweden to establish a Visa pan-Nordic payment infrastructure for domestic and 185.5 cross-border payments in the Nordic currencies and the Euro. P27 is expected to cover real-time, batch, Unionpay domestic and cross-border payments, while keeping 131.2 transaction costs low for consumers and businesses within the Nordic region. The network is to be operated Mastercard by Mastercard, which previously acquired Vocalink 108.4 (which runs Faster Payments, the RTP system in the U.K.), giving it experience in building bank account American Express real-time payments infrastructures. P27 is expected to 8.8 launch its cross-border RTP functionality across the Nordics in 2021. JCB 4.2 Implications: Diners/Discover § Fast and reliable interconnectivity is important for 3.0 cross-border payments, especially as they begin linking with domestic real-time payment systems.

Source: Nilson Report, Issue 1178, June 2020 § Interoperability through the adoption of common standards should allow for a greater growth of the cross-border ecosystem.

7 “27” stands for the population of 27 million people who will be covered by the system.

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Key Trends

Payments/Banking Local payment processing Open banking/apps and as a Service or digital banking platform ecosystem

Core banking and Real-time and domestic Payment rails hybrid IT modernization payment schemes credit/debit & cross border

Conclusion Open banking and cross-border payments benefit from infrastructure providers that can offer global These six trends are not occurring in a vacuum; the access, with standard operating procedures to interconnectivity between banks, service providers, reduce contractual delays and on-board partners fintechs and others involved in the ecosystem is faster by offering access to an array of services that a crucial element in their enablement. Therefore, communicate in a common standard. For service when it comes to decisions on infrastructure and providers and service users, colocation offers many the deployment of servers and networks, where benefits that make the exchange and transmission of that infrastructure will be located and how it will be data easier, faster and more secure. connected are important questions for CIOs and IT admins.

For Banking as a Service and core banking modernization, infrastructure providers that can enable robust, low-latency connections are important, especially as such services become more dependent on cloud-based software and the linking together of the various cloud platforms. Local payment processing and domestic real-time payment schemes require localized infrastructure providers to meet both data sovereignty and latency requirements.

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Payments and banking hubs

STOCKHOLM LONDON AMSTERDAM TORONTO FRANKFURT

SILICON VALLEY WASHINGTON, DALLAS D.C.

HONG KONG DUBAI MUMBAI

SINGAPORE

SÃO PAULO JOHANNESBURG SYDNEY

About Equinix About Initiatives Group Equinix is the world’s digital infrastructure company™. The Initiatives Group is a specialist payments Digital leaders harness our trusted platform to consultancy that helps participants across the bring together and interconnect the foundational payments sector to generate more value from their infrastructure that powers their success. We enable our markets and customers. The consulting team at The customers to access all the right places, partners and Initiatives Group has advised participants in the possibilities they need to accelerate advantage. With payments market since the 1990s—including issuers, Equinix, they can scale with agility, speed the launch acquirers, third-party processors, technology providers of digital services, deliver world-class experiences and and associations. We help solve many of the financial multiply their value. industry’s most significant issues, such as payments strategies, customer profitability and retention, credit Equinix.com and fraud risk, leveraging new technologies, and assessing new market and product opportunities.

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