Outsourcing and payments: building a digital-first organisation

While outsourcing is nothing new, the trend is accelerating, forcing banks, PSPs, and regulators to adapt to a future where outsourcing and payments infrastructure go hand-in-hand.

Rapidly evolving technology and customer demands, not to mention increasing regulatory pressure, have unleashed seismic shifts in the banking and payments industries. Tech giants and fintech startups have also entered the marketplace, resulting in increased competition.

Payments industry reports indicate that the global revenue pool from payments will decrease substantially due to growth of digital payments and competition from non-banks.

However, a world where payments are instant, invisible and efficient can also present opportunities if banks and other players in the payments market are able to adopt a digital-first business model where outsourcing plays a central role.

Outsourcing has become a necessity

“There is a huge opportunity, but good infrastructure needs to be put in place, and building that infrastructure is extremely demanding,” says Mathilda Stjernberg, P27’s Head of Compliance.

“Outsourcing has become a necessity for developing a new generation of payments systems. And you’re seeing other players also going that way.”

In recent years, clearing houses have been exploring outsourcing payments as part of a broader drive for efficiency.

But the process isn’t always an easy one, due in part to the strategic nature of the payments function. Payments generate a lot of important data, for example, and are a critical part of the customer relationship.

Achieving synergies

According to Stjernberg, increasing technology and customer demands – as well as a shift toward more cross-border transactions – mean the outsourcing trend will likely accelerate.

“It’s hard to achieve the synergies across borders and coordinate with several currencies without an outsourcing model,” she explains.

But the trend creates a new set of organisational and compliance challenges for payments industry players.

“With so many stakeholders and regulators across different markets, you need a more flexible model that can adapt quickly,” says Stjernberg.

Currently, Stjernberg is neck-deep in preparing P27 for the planned launch of a new Nordic payments platform in 2021. The initiative has attracted a great deal of attention as a model for working together with banks and financial regulators in several countries.

However, P27’s ambition to launch the first cross-border, multi-currency payments platform has required rethinking how a traditional clearing and settlement organisation is built for the digital age.

Compliance challenges with outsourcing and payments

Rather than strive to create a large company with the full range of operational capacity in-house, P27 has instead opted for a more streamlined organisation. This approach makes it easier for the company to coordinate across borders and manage the wide range of accompanying compliance demands P27 faces.

“Don’t get me wrong, we still have plenty of competence in-house,” says Stjernberg. “We need to have highly competent people on our team in order to monitor and guide outsourcing partners and ensure the entire operation is compliant.”

She knows first-hand that managing compliance in an outsourced organisation presents new and difficult challenges. But it’s a learning curve that everyone in the industry – including regulators – need to travel along.

“The challenge is to build an organisation that can be a competent and skilled procurer of different niche services. This has required new thinking when it comes to what sort of rules make sense and what the right procedures are,” she explains.

‘You can’t outsource responsibility’

Planning to implement a digital-first structure, Stjernberg adds, allows P27 to remain nimble and adapt as needs and demands evolve while maintaining the highest standards of compliance, security, and transparency. This outlook applies to any payment provider or bank considering how to approach the question of outsourcing.

“You can’t simply outsource away your responsibility,” she says.

“You need to know what to outsource and be able to justify why. And most importantly, you need to have the competence and procedures in place to proactively monitor and make changes when necessary.”

NOTE: The official launch of P27 services is subject to regulatory approvals and therefore P27 will not conduct any business activities until required regulatory approvals are obtained.