Keeping pace in the evolving MEA payments market
This is, in part, due to the number of new disruptive players entering the market. According to the State of Fintech report, the number of fintech start-ups in the MEA region increased from 46 to 103 between 2013 and 2015 – this figure is expected to reach 250 by 2020.
The region’s young, educated and more demanding demographic, coupled with the limited number of services currently available, make it the perfect environment for fintechs seeking to compete with traditional financial institutions (FIs) as they bring new innovative products and services to the market. With over 80% of large financial institutions globally fearing their business is at risk from fintechs, according to a PwC survey, and the sheer volume of them entering the MEA region, FIs need to step up and keep pace with the rapidly evolving industry.
However, the disadvantage for many FIs in the region is that they have issues with legacy infrastructure which was not built to fare the pressures of today, so competing with fintechs by adapting quickly and expanding their offering with innovative products and services is somewhat limited by their systems.
A recent survey conducted by Fraedom found that almost half (46%) of bankers across the globe perceived legacy systems to be the most significant barriers to the growth of banks, with 44% expecting to invest in updating legacy systems, and 26% in new technology, in 2019. With technology playing such a crucial role in the evolution of the payments industry, this makes sense.
Making changes to ageing legacy systems and embracing new technologies can be challenging for traditional FIs though. The cost, risk, time (not necessarily for implementation, but certainly to retrain end-users), size and complexity of these projects have led many FIs to continue with their stable, tried-and-tested systems, or at the very least, to look for alternative solutions whilst keeping these systems at the core. While some FIs may consider a complete overhaul of their payments infrastructure extreme, as new players eat into their market share it is clear that something needs to be done to future-proof these existing systems, and soon.
It seems that FIs around the world, including the MEA region, are recognising this as there has been a sea change recently, with many major FIs beginning to invest heavily in new technologies, and not simply in terms of ‘enhancing’ legacy systems, but, for some, complete system replacement. The keys factors tipping the balance in favour of system replacement are scalability, functionality, and maintenance costs: as legacy systems age, they are no longer scalable enough to cope with large increases in transaction loads, they are not agile enough to truly drive innovation, they are costly to maintain and, as time goes on, they are at risk of, and more prone to, high profile crashes.
While some FIs have implemented an integration layer to prolong the life of their legacy system, the fundamental constraints of legacy still apply; from communications through to security. Integration may be easier, but there is a new layer of complexity to contend with. FIs that want to truly compete with the new disruptive players in the market need a future-proof system that can drive innovation. It needs to offer them the flexibility to truly differentiate their business by bringing new innovative products and services to market quickly, as well as dealing with the unknown future advancements of the payments industry.
The key issue here is not necessarily the age of the platform per se, though it certainly plays an important role, the issue is the ideology: whether or not the technology supports the business model of the bank.
Unfortunately these days, the chances are that it doesn’t. With the emergence of alternative payments, to say that FIs running on these older systems are overstretched is a colossal understatement. Financial institutions in this predicament appear to deal with impending innovation in one of two ways: to either stretch systems beyond their initial purpose and capability, or to attempt to integrate the virtually unintegratable system.
In the Middle East and Africa, FIs need to transform to be able to keep up with innovative new entrants. If the platform isn’t supporting the business model it is doing more harm than good and banks may find themselves in a cycle of perpetually increasing maintenance costs to support limited and fragmented innovation.
About the author
Alexey Osipov is the EVP & Managing Director, MEA of Compass Plus. Born in Magnitogorsk, Russia, Alexey Osipov graduated from Magnitogorsk State Technical University with a qualification in Electrical and Electronic Engineering; and Moscow State University of Economics, Statistics and Informatics with a qualification in Economics. He has a PhD in Technical Science and has been at Compass Plus since 2002. In 2013, Alexey became Executive VP and Compass Plus MEA Managing Director.
About Compass Plus
Compass Plus provides comprehensive, fully integrated and flexible payments software and services that help financial institutions and payment service providers meet rapidly changing market demands. Our diverse customer base spans retail banks, processing centres, national switches and personalisation centres in countries across Europe, Asia, Africa, the Middle East, North and South America. With 30 years’ experience, Compass Plus helps build and manage all-scale electronic payment systems that generate new revenues and improve profits for its customers.