As one of the most highly regulated industries, finance and the payments companies that operate within it are constantly having to pivot to comply with changing legislation.
Since the financial crisis in 2007-2008, there has been a significant focus on transforming financial regulation to make it more robust and enable the finance industry to respond to and take advantage of the latest technological advancements. The UK’s Financial Services Future Regulatory Framework Review, for example, states that an optimally designed framework should “ensure that policy and regulatory requirements are agile, adapting dynamically to changing circumstances and supporting innovation”.
This is important because, just like legislation, technology is constantly changing. In fact, technological advancements are so fast that the infrastructure on which payments companies sit is generally no longer fit for purpose within three to four years.
Payments companies can spend hundreds of thousands of dollars and many months putting infrastructure in place. It’s a huge investment. To have to go through that cycle again just three years later is a significant drain on resources - both financial and people.
There is an alternative. Rather than building their own infrastructure or managing a co-location environment, this blog will look at the benefits of working with a third party to provide and host the infrastructure. Starting with how a payments infrastructure hosting partnership works.
Rather than building your own data center to house your own servers, hosting companies do it all for you. They have fintech data centers in key locations around the world that offer bare metal dedicated fintech servers, as well as cloud servers for private cloud services.
These data centers are certified for PCI DSS compliance, provide networking and power redundancy with automatic switching and guarantee imperceptible latency.
The latter is crucial for payments companies to provide super-fast responses to payment requests. A recent piece by Forbes flagged the paradox that “as financial markets have become interconnected and sophisticated, payment delays became the norm”, which is why real-time payments (RTP) is an accelerating business. It “removes [the] technical bottlenecks and creates an environment where consumers, merchants, and financial institutions can pay friends and customers, settle bills, and transfer money immediately, 24/7”.
Importantly, as technology evolves, hosting providers ensure that their data centers offer the latest generation of fintech servers. They also help protect their customers from the growing cyber threat with compliant fintech data centers that are incredibly secure.
In summary, they take all of the hassle of managing and updating infrastructure away so that customers can focus on innovations and strategy that will allow them to become more competitive.
Checkout, Adyen and Stripe are three of the biggest names in payments in the world. They are all now valued in the billions, with infrastructure to match.
A big reason these companies have been so successful is that they have not only kept up with, but they have led the way - harnessing innovations in technology and changing consumer behavior.
But to go from a payment company of 10-20 people to a 100 person organization, and then even perhaps the size of Checkout or Stripe, puts pressure on payments infrastructure as the customer base increases.
Growth also leads to different payment methods with rising payment volumes and evolving payment solutions. This is in addition to security issues such as fraud prevention and user authentication, which become even more pressing as companies grow.
This is a lot of change that requires significant upgrades in payments infrastructure. Working with a hosting provider that has its own fintech data centers makes this transition much simpler, cleaner, more efficient and less costly.
Firstly, they can help with scale. Hosting companies offer dedicated fintech servers that can manage resource-heavy tasks. Payments companies get full access to the dedicated servers and their computational resources. This means that they can use the full capacity of fintech servers and easily scale up to add more servers as needed.
Unlike an owned and managed data center where adding a new server could take time, depending on supply, working with a payments infrastructure hosting provider means that new servers can be added within hours, if not minutes.
Secondly, hosting providers can help manage the impact of any regulatory changes related to infrastructure, particularly around security which is key for payments companies. They face hefty fines if they don’t meet the PCI DSS standard for EU and US markets, so it’s important to choose a hosting company that has data centers with PCI DSS certification.
Thirdly, hosting companies can offer flexibility. As your infrastructure needs change to comply with new legislation, developing regulations, technological advancements or consumer demands, a good hosting provider adapts with you.
Importantly, all of this can be done without payments companies needing to hire additional headcount to upgrade infrastructure when the time comes.
As well as reduced overheads, working with a hosting provider also makes any future growth easier and more seamless. And growth in this industry is certainly there for the taking.
In Accenture’s recent ‘Growth in Payments’ report, it outlines three disruptive forces that are driving change and creating opportunities for growth in the payments industry - “the launch of central bank digital currencies (CBDCs), changing customer behaviors and expectations (largely due to the pandemic) and the adoption of new, emerging digital technologies like artificial intelligence and cloud computing”.
Digital payments. Open banking. Digital wallets. A decline in cash. QR codes. PayByFace. They are all disrupting the payments industry and offering opportunities to diversify services.
To take advantage of these disruptive forces, payments companies need to make smart decisions about where they develop partnerships to help lower overheads while also adding value.
In its Payments 2025 & beyond: Navigating the payments matrix report, PWC reported that “86% agreed that traditional payments providers will collaborate with fintechs and technology providers as one of their main sources of innovation”. Hosting providers are a key element of these technology providers and can make taking advantage of new opportunities much more attainable without requiring significant investment every three to four years.
To find out more about dedicated fintech server hosting, visit our industry page.