The pace of the digital economy is accelerating, changing how merchants, consumers and businesses interact. Demand for personalized experiences is shifting the classic payment transaction to a digital process based on open collaboration.
Financial Institutions (FIs) and Payment companies implementing digital strategies, are faced with the expanding steps in payment processing while simultaneously meeting customer expectations for faster execution. Traditional architectures based on centralized control are unable to cost-effectively scale, respond flexibly to new requirements or offer the controls needed to meet regional compliance.
To effectively compete in digital commerce, Financial Institutions need a distributed, digital-edge architecture that gives them proximity to dispersed customers and partners across the world. With a platform that provides global location coverage, private interconnection within a rich partner ecosystem and the ability to integrate and simplify controls, these companies have the infrastructure they need to transform for digital.
To further discuss colocation and other current trends in banking and payments infrastructure, Payments Journal sat down with Lance Homer, Global Head of Digital Payments and Banking Ecosystem at Equinix, and Tim Sloane, VP of Payments Innovation and the Director of the Emerging Technologies Advisory Service at Mercator Advisory Group.
Who is Equinix?
Equinix, the global digital infrastructure company, is a trusted platform to unite and interconnect its digital services and provide users with world-class experiences. Equinix has more than 230 data centers around the world that are made up of approximately 10,000 customers globally, approximately 1,250 of which are financial service customers; 350 are banks, and about 250 are payment companies.
Equinix offers the experience, ecosystems, global footprint and robust access to interconnection that Financial Institutions and digital payments companies need to adapt and compete. Equinix has spent two decades building a global interconnection platform that takes FI and payment companies everywhere they need to be, right out to the digital edge. Equinix’s platform, combined with an Interconnection Oriented Architecture strategy, connects the range of industry ecosystems needed to execute a financial transaction or digital payment (such as financial, e-commerce, mobile and internet, cloud etc.) in one place. That gives our customers a choice of partners, and the proximity to those partners that enables the low latency and superior performance needed for instant interactions. And because interconnection is by its nature direct data exchange, firms that collaborate on transactions or make their APIs open at Equinix are doing so in a private, well-protected space.
“Equinix really gets to see what the leading companies in this industry are doing from an infrastructure perspective,” said Homer. “We have a really unique position where we get to advise these companies as they’re building out new projects. And we were able to see ahead in the future of what’s going to happen out there in the payments and banking industry before companies may publicly announce a new product or a new market that they’re going into.”
There are two sides of the market: fintechs, who rely on core processing services; and cloud providers, who have their own financial services and create marketplaces within their clouds. “It just seems natural that the right place for the connectivity, the security, and the management of all this comes from somebody like Equinix that can be in the middle and participate in all of those different networks and help [the] financial community connect to anyone,” added Sloane.
“Infrastructure,” “Edge,” and “Exchange”
There are six key trends driving infrastructure strategy. Equinix has grouped these into three categories: Infrastructure, Edge, and Exchange.
The first category is Infrastructure. “These are typically deployments that need to be next to a cloud service provider, and they’re driven by low latency to that cloud service provider. It’s because the applications are very reliant upon running in a hybrid cloud environment,” explained Homer.
With the ever continuing digitization of the payments space, this dependency on cloud service providers comes as no surprise. For instance, cloud computing in banking and financial services may come with outdated software that is not picking up all the banking infrastructure it needs in order to run properly on the cloud. This is where colocations come into play. The software will sit inside a colocation data center to ensure that the application can run smoothly.
The second category, Edge, is “typically where a customer needs to deploy in a particular market, not because they need to be adjacent to a cloud service provider, [but] because that country or location has either data sovereignty requirements or latency requirements or connectivity requirements that require a deployment in market,” remarked Homer. This might include digital banking, local payment processing, or real-time and domestic payment schemes.
The final category is Exchange. “This is where you’re coming into a data center colocation provider to deploy infrastructure to be able to take advantage of being able to connect to the other participants that are in there,” informed Homer. These participants share protocols and standardized messaging formats. The connection of participants can happen in two ways: one individual company connects to many endpoints, or all of the endpoints connect to the same thing.
“Most financial institutions are going to be playing in all of those different environments, for different connections that they have [and] for different business purposes that they have,” added Sloane.
Getting to where you want to be
Cloud and as-a-Service models, the increasing importance of ecosystems and data exchange, and the building and managing of a more distributed infrastructure globally are not mutually exclusive. Some companies may do all these things at once, while others may only do some. Oftentimes, these companies will have different branches within the system, and one branch does not know the operations that the other performs.
“We see that quite often at Equinix, in my role. I have to help and say, ‘Are you aware that you’ve got a project for real-time payments, going into this market, and [while] you’re trying to solve an open banking problem in that same market, you could actually solve this problem at a lower cost if you guys got together, worked on this, put in a payment service in that location, and use a common infrastructure?’”
Homer advised that it is important for businesses to begin with the end in mind. Do they want cheap connectivity or space, or are they looking for a solution to a long term problem? With an ever-changing market, companies must position themselves in a way that allows for the flexibility to switch partners and not get stuck with one single solution.
Homer noted that clients are going to want to have the ability to respond to customers’ needs in an efficient manner, so it’s essential to pick a location that allows them to serve a regional hub and spoke model. Equinix is “known primarily for providing space and power and connecting the digital infrastructure that runs today’s modern economies,” added Homer.
Equinix has recently launched Equinix Fabricä, a software-defined interconnection service that allows any business to connect between its own distributed infrastructure and any other company’s infrastructure on Platform Equinix. Equinix Fabric, enables customers to tap into Equinix’s rich digital ecosystems and seamlessly connect with other physical or virtual services available on the trusted Platform EquinixÒ. It has also launched Equinix Metal, a bare metal service that can be used to deploy in a market where there may not be any customers or revenue, but proof of concepts with potential customers are required. Additionally, Equinix has a router firewall called Network Edge Services, which is optimized for immediate deployment and interconnection of network services.
The importance of partnerships in solving payment infrastructure challenges
In order to properly execute infrastructure bill outs, it is crucial for banks and payment companies to be able to choose from a variety of partners in the payments space. Similar to a subcontractor, this allows the bank to choose the right partner for each specific task.
“There certainly are a variety of system integrators out there who can be a general contractor and help put these pieces together, but one cloud provider is not a solution for everybody,” elaborated Homer. For example, one cloud provider may have better ingress and egress charges, and these lower cost prices are suitable for the company seeking this connection because it is moving a substantial amount of data.
Some FIs may choose to store pieces of data outside of the public cloud but don’t want to overload their own storage, so partnerships are a smart strategic move to securely outsource this task to artificial intelligence (AI) and machine learning (ML) providers. “Trust in and security is so important for this industry, [which is] constantly under attack by cyber criminals, so this is a case where you may not want to distrust your own cybersecurity team, but hire best practices within a data center who can manage to keep the firewalls up to date and have it managed globally,” concluded Homer.