When the
Levee Breaks
A Rallying Cry to Modernize Card Technology
Building a case for next-gen card technology
-
Most organizations, including banks, believe that digital transformation is essential to enhance agility, competitiveness, and efficiency. Yet, the path to it is anything but simple. As George Westerman from MIT Sloan says, somewhat tongue-in-cheek, “When digital transformation is done right, it’s like a caterpillar turning into a butterfly. But when done wrong, all you have is a really fast caterpillar”2. Today, there is a growing view that digital transformation is not a specific end-state but a continuous journey representing a shift in mindset and operating paradigms.
In banking, the scope of digital transformation touches many facets. A particularly thorny one is the replacement of legacy core banking and payment processing systems at the heart of most financial institutions. Until recently, there weren’t any viable alternatives for modernization, making core replacement a high-stakes decision.
In July 2022, McKinsey issued a rallying cry for bank modernization in its report titled ‘Should US banks be moving to next-generation core banking platforms?’3 The Aite-Novarica Group4 estimates that revenue at risk for retail banks that do not focus on modernization could be 10% to 15% of retail bank payments revenue annually, or $100 billion to $150 billion globally. Payment processing, in particular issuer processing technology, which controls the success of a bank’s card programs, has received somewhat lesser attention.
-
As a provider of next-gen issuer processing solutions across 8 countries for over 7 years, Zeta has been at the frontlines engaging with banks, consultants, and other experts in the domain. Our privileged conversations give us unique insights into the corrosive impact of legacy processing systems and the challenges banks face in making a viable case for the modernization of their card technology. Our experience with building and deploying next-gen processing systems to support card issuers globally, allows us to present successful strategies for the same.
This white paper integrates perspectives from domain experts and conversations with scores of banking leaders to help answer three important questions:
- What is Next-Gen Processing (NGP), and how is it different from Legacy Processing?
- How can banks derive real and tangible value from NGP?
- What does the processing stack of the future look like?
-
“With fast ideas comes faster innovation: 60% of Apple’s revenue comes from products that didn’t exist 4 years ago. That’s a blistering pace of innovation. Expect that to become the norm in most industries as the future accelerates, product life cycles collapse, and disruption disrupts.”¹
— Jim Carroll, Futurist
What is Next-Gen Processing?
-
The premise of next-generation processing is straightforward. It allows banks to transform into truly digital-native organizations that build stronger relationships with their customers and enhance revenue while significantly reducing their IT and operational costs in the process.
However, these benefits are achieved over time and require real commitment. Compared to legacy processing systems, which were deployed when cloud, mobiles, or even the internet did not exist, next-generation technology is inherently connected, scalable, and composable. Leveraging its benefits requires an overhaul of the operations model, thus going beyond a routine systems upgrade.
-
This makes a shift to next-gen processing stacks challenging but definitely possible to execute.
Table 1 identifies 10 key dimensions that differentiate a next-gen processing stack from most banks’ typical state of affairs today. It highlights how a next-gen processing system overcomes shortcomings of legacy systems across several dimensions including, architecture, resilience, scalability, configurability, and more.
-
The following section demonstrates how next-gen processing creates measurable value and why a move to such a system is important.
Table 1: Legacy Processing vs. Next-Gen Processing
