Evolution of the Payments Value Chain

New payment methods such as digital wallets and buy now, pay later (BNPL) are driving upgrades for payment service providers, financial institutions and merchants, AWS Head of Institutional Payments Market Development Nilesh Dusane observes in the new PYMNTS eBook, “What’s Your Plan? Payments Strategies for a Strong 2022 Finish.”

In the post-pandemic era, there is a unique alignment between how payment service providers, financial institutions and market infrastructures are upgrading their payment systems to meet the needs of their respective customers. AWS is enabling participants in all areas of the value chain to meet these needs.

One significant change in the landscape is that consumers and businesses increasingly access new payment methods such as buy now, pay later (BNPL), credit cards and embedded payments directly from merchants at the point of sale, or from non-bank service providers. Furthermore, the use of digital wallets is far outpacing the use of credit cards and checks as payment methods. According to a Global Payments Report published in April 2022, digital wallets (primarily offered by non-banks) accounted for nearly half (49%) of global eCommerce transaction value in 2021, while credit cards were in second place at 21%. Global payments anticipate digital wallets commanding a 50% share in 2022, approaching 53% by 2025.

Because of these trends, payment service providers and merchants relying on financial institutions for funds custody, credit underwriting and compliance with money transmission regulations need financial institutions to support API-based access, instant decisioning, and transparency in fees/speed for processing payments. In parallel, financial institutions must upgrade their payment systems to comply with ISO-20022 messaging standards and regulations such as PSD2, open banking mandated by regulators and market infrastructures. Financial institutions are therefore taking this opportunity to modernize their payment stack by building micro-services-based payment flows on AWS. Micro-services architecture provides flexibility, reduces processing dependency risk, and enables new services to be integrated quickly. For example, Standard Chartered bank built its global payments system SCPay on AWS to handle both high-value transactions and micropayments for the eCommerce world. As a result of the migration and the ability to scale vertically, the payment system’s performance went from 150 transactions per second to more than 2,500.

Further down the chain, market infrastructures are also upgrading their payment systems to meet the needs of their financial institution customers. As of June 2022, more than 70% of countries globally are live or plan to go live with real-time payment systems. AWS is working with market infrastructures to provide cloud connectivity to the real-time payment networks, reducing the onboarding time for network participants from several months to a few weeks. As Elena Whisler, senior vice president for sales and relationship management at The Clearing House (TCH), said at the AWS Financial Services Cloud Symposium this past May, “It’s really important for us to onboard a new participant … as quickly as possible.” Market infrastructures are also establishing bilateral connections to facilitate instant cross-border payments. EBA Clearing, SWIFT and TCH announced in April 2022 that they plan to launch a pilot service for immediate cross-border (IXB) payments with the support of banks from both sides of the Atlantic.

Finally, entities throughout the payments value chain are investing in technologies to derive value from in-house payment, customer data, and third-party data sources. AWS is working with customers to help them use artificial intelligence (AI) and machine learning for predicting payment failures, fraud detection, KYC, compliance and marketing. For instance, Capital One is enhancing fraud protection with machine learning on AWS, optimizing its models to provide customers with sufficient protection without too many false positives.