Although the technology has come a long way in a short period of time, it’s not like an organization can hit a switch and migrate to the cloud. Not yet, anyway. Migrating to the cloud can be a complex undertaking, particularly for banks with legacy systems and intricate regulatory requirements. The process involves not only a technological shift, but also a rethinking of operational models and risk management strategies. Data security and compliance considerations are paramount, especially when dealing with sensitive financial information.
But the upside for financial institutions is huge, as migrating to the cloud brings lower costs, higher efficiencies and the ability to scale up and down depending on transaction volume and data complexities.
“It’s an interesting time in the in banking and the payments industry,” said Michael Lozanoff, managing director, global head of merchant services for J.P. Morgan Payments. “Many of the systems we ran for decades have reached their shelf life. And one of the things we have done is learn from the past so we can build for the future. We have the unique opportunity to reinvent (banking infrastructure) and build it new — as if we started from scratch. As a result, that may require you to take really large systems and break them down into smaller pieces. Doing this allows you to then really understand which capabilities need to be the most scalable, resilient and fastest and figure out how to distribute them across the globe.”
Part of that reinvention is the cloud, and as Lozanoff’s comments indicate, it wasn’t long ago that the cloud was considered the future of banking infrastructure. That phase has been settled with estimates ranging from 83% to 91% of banks now operating in the cloud. The issue is now about the future of the cloud in the context of payments modernization. It was the topic of a recent PYMNTS panel discussion between Lozanoff and AWS Head of Payments Mark Smith.
As Smith sees it, the cloud’s value proposition for banking has evolved from the basic “scalability and efficiency” phase to a richer, more complex set of advantages.
“Ultimately creating some cost efficiencies has been a key virtue of customers running processing platforms on AWS for more than a decade now,” Smith told PYMNTS. “More and more of our customers are working backwards from their customers and building in a microservices architecture in an uncoupled or loosely coupled way. And in that way, they’re able to offer services and capabilities a la carte, not in a one-size-fits-all or all-or-nothing platform, which their end customers seem to be really appreciating.”
J.P. Morgan Payments welcomed that approach, Lozanoff said, and recognized the need to modernize its payments platform to stay ahead in a competitive market. According to Lozanoff, one of the primary goals was to focus on the business capabilities that clients need, rather than on the underlying infrastructure. “What J.P. Morgan Payments does in the cloud is focused on, ‘How are we going to leverage the cloud provider as the runtime environment and give the engineers the time to focus on their service and business capability?’” he said.
Selecting AWS as a cloud partner was a critical decision. AWS’s capability to provide scalable and reliable infrastructure, along with a robust control plane, allowed the payments business to offload much of the infrastructure management, Lozanoff said. “[Our collaboration with] AWS is allowing us to focus on what our [more pressing] business and client needs are,” he said. This relationship has enabled J.P. Morgan Payments to scale its operations and introduce innovative payment solutions more efficiently.
Smith echoed these sentiments, highlighting the importance of scalability in today’s payment environment. “Customers love the fact that they don’t have to predict their success. They can test something, and if it works, scale it up. If it doesn’t, they can deprecate it without the significant costs that existed 15 or 20 years ago,” he said. This flexibility has been particularly useful for J.P. Morgan Payments, which must continuously innovate to stay competitive.
One of the most significant advantages of cloud-based payments platforms is the ability to manage and utilize vast amounts of data. Both J.P. Morgan Payments and AWS are leveraging cloud infrastructure to enhance data usage, ultimately delivering better outcomes for clients. Lozanoff highlighted how they continue to build new products and capabilities that power large-scale retailers such as Amazon.com, leveraging AWS.
For Smith, the ability to manage and extract value from large datasets is one of the most exciting aspects of payments modernization. “Payments are chock-full of data, and payment companies are continuing to find new and innovative ways to use that data,” he said. AWS customers are using large data sets to drive business insights, manage fraud, and improve customer experiences. “More and more, our customers are using our services to manage large amounts of data, enabling them to share business value with their clients,” Smith said.
Both executives see even more potential for data sharing. “I look forward to a day where there’s even more collaboration across data lakes globally, allowing clients to use new technologies to share data without having to physically move it,” Lozanoff said. This kind of innovation could significantly reduce costs and improve data governance for financial institutions.
Artificial intelligence (AI) is poised to play a transformative role in payments modernization, particularly in fraud prevention and customer experience. Smith highlighted how generative AI is already being used in various capacities within the payments space. “Payments is similar to other industries where things like generative AI are making an immediate impact in areas like staff augmentation and customer experience,” he said. AI-driven tools, such as chatbots and call center augmentations, are helping payment companies deliver faster, more personalized service, he said.
Fraud prevention is another area where AI is making strides. “A payment-specific example that we’re really excited about is using generative AI around fraud prevention,” Smith said. AWS is working with payment companies to implement AI models that not only detect fraud but also offer recommendations for improving algorithms, making fraud detection more efficient. While these are still early days, the potential for AI to enhance the security and efficiency of payment processing is clear.
Looking ahead, both Smith and Lozanoff see the intersection of cloud technology and payments continuing to evolve, bringing faster, more secure, and more cost-efficient solutions to market. Lozanoff noted that the role of payment processors is evolving. “Previously, payments teams focused on bulk money movement. Now, the leaders are those offering value-added services that reduce fraud, lower costs, and support global expansion,” he said. As payment solutions become more integrated into client software, the demand for cloud-based infrastructure will increase. “We’re witnessing greater integration between payment systems and client software, with the cloud at the forefront of this evolution.”
Smith agreed, emphasizing the importance of automation and innovation in shaping the future of payments. “The intersection of cloud and payments will provide faster, more reliable, and more secure payments, with a lot more automation,” he said. Manual processes that have traditionally burdened payment customers will become increasingly automated, freeing up resources for innovation. “The future is bold, and we’re excited to be on this journey with organizations like J.P. Morgan Payments,” Smith said.
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