Constant Stream of Transactions Challenges Payment Companies to Adapt

Constant Stream of Transactions Challenges Payment Companies to Adapt

Constant Stream of Transactions Challenges Payment Companies to Adapt

Lynne Baldwin

Lynne Baldwin

Lynne Baldwin is president of Baldwin Hackett & Meeks, Inc. (BHMI), a leading provider of product-based software solutions focused on the back-office processing of electronic payment transactions.

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With commerce increasingly being conducted through online and mobile channels, the payment networks — financial institutions and merchant processors — must adapt to these changes in order to remain successful in an evolving business environment.

With new competition from fintechs and non-banks, and with consumers rapidly adopting digital options like person-to-person (P2P) payments, overall non-cash transaction volume currently stands at an all-time high. In fact, the 2018 World Payments Report from Capgemini reports that globally, non-cash transaction volumes continue to grow annually at double-digit rates.

A significant portion of this increased volume is being driven by smaller transaction amounts, or micropayments, with everything from music, gaming, movies and mobile apps available at the push of a button. This trend is shaping the industry by pushing companies to develop methods to cost-effectively support this constant stream of transactions.

What's more, as the marketplace becomes more globalized, the uptick in cross-border transactions is adding another level of complexity. Now more than ever, it is important to understand not only where the industry is heading, but how it will get there.

Innovations in payments

In many ways, transaction processing is evolving specifically to support today's digital business environment. Some of the industry's major milestones include innovations like P2P payments, contactless cards, mobile phone payments and prepaid cards.

The shift in the demographics of card users has also impacted the industry. With each younger generation being more tech-savvy than its predecessor, today's millennials and Gen Z consumers have been instrumental in driving card-not-present transactions more toward the mainstream. 

This rise of P2P payments is a good example of the need for increased flexibility in addressing market change. Today's networks, processors and payments companies must be able to readily support these types of payments even though the actual transaction processing may be very different from traditional, card-based transactions. Because P2P does not follow the traditional issuer/acquirer model, but rather a creditor/debtor model, it requires a shift in mindset, and the adoption of processing systems that can support these differences.

As with many things, new capabilities often present new opportunities for risk. The payments industry's adoption and implementation of PCI DSS (Payment Card Industry Data Security Standard) has not only changed the way that transactions are processed, but its continuous updates are helping to ensure that today's systems maintain a rigorous compliance standard. The ongoing risk of fraud has convinced most of today's leading companies to make security and compliance a priority.

With each younger generation being more tech-savvy than its predecessor, today's millennials and Gen Z consumers have been instrumental in driving card-not-present transactions more toward the mainstream.

With more consumers using P2P services, such as Venmo, PayPal and Zelle, few may know that they actually provide little to no fraud protection for buyers and sellers. And scammers are taking advantage of consumers' trust in these networks. While current P2P platforms are working to create better security measures, and many financial institutions focus on educating their customers on the risks and best practices, much of the onus is still on consumers.

Looking beyond P2P, as the global marketplace continues to grow, the capability to support numerous foreign currencies and exchanges becomes vitally important. These systems must be equipped to handle different international regulations for each national government. These regulations not only vary (often significantly) from nation to nation, but are also prone to rapid, significant change on a global scale.

Processing challenges

Today, the hard reality is that the sheer volume of transactions is outpacing our industry's ability to process it all. While the push for faster payments is part of the answer on the front end, all those transactions will still ultimately need to be processed on the back end. So how do we solve this problem?

Utilizing scalable software that is specifically designed to respond favorably to these increased transaction loads is crucial to relieving this issue. Specifically, adopting tools like virtualization to meet the increased capacity requirement is a good first step. Essentially, this will allow the creation of multiple processing environments within a single physical platform to better utilize the hardware's capacity, effectively turning one physical machine into four or five virtual machines.

Additionally, there is a need for flexible systems that can easily support new transaction types while also changing and adapting in a real-time manner. Currently, most legacy applications are based on batch processing, allowing data to come in bulk only at specified times during the day, which slows the entire process. By moving to a faster, continuous processing application standard, the data can be processed in near-real time, creating a system that is not only faster, but ultimately more efficient and with more overall capacity.

As the number of account-based transactions increases and replaces traditional card-based transactions, we will also see an increase in the number of merchants willing to accept these payments for their customers. By implementing more forward-thinking, rules-based applications and partnering with experienced companies deeply rooted in the industry, today's transactions companies can better lay the groundwork for an evolving future.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Lynne

Lynne Baldwin

Lynne Baldwin is president of Baldwin Hackett & Meeks, Inc. (BHMI), a leading provider of product-based software solutions focused on the back-office processing of electronic payment transactions.

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