The digital transformation that hit financial institutions globally after the COVID-19 has continued unabated. As a result, many financial institutions have been under pressure to move with the fast pace of these digital transformations in the global financial service sector. One of the primary drivers of this pressure is the need to meet the increasing demands and challenges of digital payment solutions.
In the face of this challenge, major financial institutions are beginning to revamp their payment infrastructure to meet the accelerated volume of digital payment demands among individual and corporate clients. One of the solutions being explored to meet this demand is cloud-native payment technologies.
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The recent acquisition of the cloud-native payment technology firm Renovite Technologies by J.P. Morgan is a prime example. Since J.P. Morgan announced the acquisition, many questions have been raised regarding what this new business move portends for the financial institution and cloud-based payment technology.
Why did J.P. Morgan acquire Renovite?
Although the financial terms of this acquisition have not been disclosed, one key factor behind the push is that J.P. Morgan is moving to further improve, modernize and expand its payment platform.
“We are excited to acquire Renovite and accelerate our roadmap for helping our clients stay at the cutting-edge of payments innovation,” said Max Neukirchen, global head of commerce solutions at J.P. Morgan. “This acquisition will help us achieve our goal to develop the next-generation payments processing platform globally.”
But why Renovite? Renovite has been a major contributor to cloud-native payment technology in the United States, India and United Kingdom. The company has developed cloud-based payment solutions for several clients over the years. Some of their solutions, such as payment-token agnostic and cloud-agnostic products, have modernized payment infrastructure. Before this acquisition, Renovite partnered with several payment platforms such as Cennox, Altron, Lifetech and Modata to help them authorize, switch and route transactions.
With this new development, J.P. Morgan has followed in the footsteps of other top financial institutions that have made similar acquisitions of cloud-native payment technology platforms. For example, in September 2021, FortisPay announced its acquisition of OmniFund, another cloud payment solution. A few months into 2022, another acquisition hit the news when Fiserv, a global payments and financial services technology provider, announced the acquisition of Finxact. This cloud-native payment solution has powered digital transformation throughout the financial services sector for over a decade.
Why the rise of cloud payments in the banking sector?
Financial institutions across the globe are beginning to realize the need for speed in carrying out financial transactions as well as the place of cloud technologies in lowering the cost of aligning and managing other lines of business in the industry. Factors pushing financial institutions to acquire cloud-based payment platforms include:
Rising costs associated with legacy technologies
Financial institutions once relied on legacy technologies to process banking transactions. In legacy technologies, payment systems were deployed using on-premise data center models. Apart from the fact that these legacy technologies lacked the capacity to scale rapidly, they were costly to maintain.
In contrast, cloud-based technologies offer cost-friendly solutions to financial institutions and support innovation. Hence more banks and other fintech start-ups are expected to adopt cloud-based payment solutions.
Growing customer expectations
With more innovations in how customers experience digital transactions, there will only be more demand for better payment solutions. As a result, more financial institutions will be looking for ways to meet core customer expectations. Since cloud payment technologies offer the right infrastructure for meeting the provisions of digital payment transformation, there will be more adoption of cloud solutions.
Rapid adoption of digital payments
According to a recent study by The Insight Partners, the digital payment market size is expected to grow from $89.04 billion in 2021 to $243.42 billion by 2028, offering a CAGR of 15.4% during that time period. This volume of global digital payment cuts across many payment methods like mobile wallets, P2P mobile payments and real-time payments, and they’re mostly powered by cloud-based payment systems.
These forms of payment are critical to big financial institutions as they aim to incorporate global payment trends into their business offering.
Connectivity across global banking systems
The connectivity among banks across the globe is constantly pushing the banks into accepting new payment paradigms and regulations. For instance, to handle real-time payments, banks now have to deal with The Clearing House in the U.S., Faster Payments in the U.K., the New Payments Platform in Australia and the Single Euro Payments Area in Europe.
To process these different tiers of transactions, banks may need to leverage cloud-based payment technology solutions to have enough processing resources and efficient payment gateways.