A practical vision for payments platform rationalization – The Paypers

Winning in the payments industry increasingly depends on having high-quality, agile technology. As well, payments growth is often driven by M&As. Executing ongoing integration projects while maintaining high availability and reliability and avoiding platform fragmentation is a challenge even for the most seasoned payments companies.
Platform fragmentation can stifle product innovation and limit EBITDA (EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) potential. In the last five years, we observed a consensus vision emerge on how payments companies can rationalize platforms without disrupting business growth. We summarize this vision below, noting that this is a simplified, business-level perspective.
Many global payments companies are in the situation of having many acquired platforms as illustrated in Figure 1. Despite best intentions, most of these tech stacks remain in relative isolation for years. But having many siloed platforms is not sustainable – they block scale benefits, encourage technical debt, and often lead to negative customer impacts and satisfaction. 

An emerging industry consensus
The first step in effective platform rationalization is to establish a clear strategic vision, where we can see an emerging market consensus around orchestration (as simply illustrated in Figure 2).
A strategy to rapidly force-migrate everything onto a singular tech stack is impractical. Given the luxury of a complete business freeze, this vision could be achieved, but payments businesses are highly dynamic. Customer needs/impacts and revenue growth trump technical purity and operating efficiencies. Even with a strong rationalization strategy and execution, acquisitive payments companies never achieve platform singularity.
Ongoing support for siloed, acquired platforms is also clearly sub-optimal. Many companies will likely compromise here along the journey to full consistency. Other than being an acceptable interim vision, a siloed approach destroys value and is not long-term feasible. 
The consensus vision that we see in the market is one centred around orchestration, in which the various front-end integration layers and the various back-end services are integrated via common data and services hub. While we describe Figure 2 as alternatives, it is more practical to see these as rather milestones along a platform journey. In the first step on the journey, platforms stubbornly persist in silos. An achievable mid-point is orchestration. Finally, as a financial objective, a one platform vision can be a business wish. However, few businesses achieve this final state as the pressures of feature development and further acquisitions are brought to bear. Instead, a constant state of pruning redundant services as new ones are introduced becomes a pragmatic compromise. 
Figure 2: Platform rationalization alternatives

4. API based applications/services naturally lend themselves to being orchestrated.
Figure 3: Orchestration led platform rationalization

A journey towards platform rationalization
Stage 1
As an initial priority in rationalizing fragmented platforms, companies often prioritize quick wins, such as enabling product access across the platforms for improved customer offerings (e.g., the ability to access payment methods available on platform #2 from platform #1). Shared access to service does not need disruption of customer/partner interfaces. APIs can be layered using converters/emulators to ensure ongoing API compatibility, with recent developments in API gateways and innovations like GraphQL facilitating this.
Finally, but most importantly, we recommend establishing the target data infrastructure as soon as possible and then working to migrate data stores. Siloed data is a major roadblock to driving later stages of platform rationalization; conversely, data integration enables a consistent customer view, driving better, easier customer experiences. 
Stage 2
At this stage, we often see companies focus on moving to common accounting (and possibly billing) systems, improving customer experience and executive management of the business (measuring performance, etc.). Migrating to a common billing system can provide revenue upsides via broad execution of pricing strategy. Finally, migrating to a common hosting infrastructure often occurs in this stage given the natural cost savings; noting that migration from physical data centres can introduce roadblocks that extend this timing (for example, if the organization is not yet cloud-ready but where the target infrastructure is in the cloud).
Stage 3
Stage 3 of the journey often involves heavy lifting of the more challenging systems to move. For example, we might see migration of core processing (e.g., V/MC auth and clearing), which can offer significant cost savings. Also, at this stage of the journey, we often see migration to a common treasury and settlement infrastructure as well as migration to a common customer onboarding and compliance systems. Standardizing onboarding and compliance systems can be difficult if your business operates across many countries, but the fragmentation of this function creates compliance risk and fragmentation of onboarding services becomes expensive.
Stage 4
The final stage of the rationalization journey then involves the sunsetting of legacy customer interfaces and migration of payments connectivity. Interface migration impacts customers, which is why this tends to come late in the process. At this stage, companies can offer clear customer benefit through improved product functionality, helping to ease the burden of customers having to migrate to new interfaces, new data services, and new servicing environments. Payments connectivity migration is painful (driven principally by the need for recertification) and almost always comes last. In fact, it can even be practical to effectively never migrate connections, but rather to simple rebuild them in the natural course of the dreaded compliance or ‘card scheme mandatory’ releases.
A long journey
As a CEO or CFO, our vision for platform rationalization as a journey taking years can feel uncompelling. As illustrated in Figure 5, most of the cost synergies are delivered at the later stages of the journey. We view these backloading of cost savings as often unavoidable given their dependency on the retirement of systems which are also the most challenging to migrate. When formulating a platform rationalization strategy, we like to prioritize continuous progress and pace along the journey while also avoiding pitfalls such as customer disruption. Financial results always matter, but patience is required when delivering platform synergies. 
Figure 5: Value creation via platform rationalization

For payments companies fueling growth with M&A, platform fragmentation is an unavoidable challenge. Business leaders must attack this challenge head-on; platform fragmentation cannot be kicked down the road. Our vision for platform rationalization, informed by a growing market consensus on the topic, is centred around orchestration: a many-to-many architecture, wedded to a well-planned roadmap with steady, realistic execution progress, and underpinned by a coherent integration of people, teams, and culture.
About Joel Van Arsdale
Flagship Advisory Partners is a boutique strategy and M&A advisory firm focused exclusively on payments and fintech. Our advisors in Europe and the United States are trusted by leading fintechs and investors globally. Joel is the Managing Partner of Flagship with 23 years of experience in payments.  He is a recognized thought leader on strategy and value creation in digital payments and a trusted M&A advisor having advised clients on more than 100 M&A transactions globally. 

About Nick Telford-Reed
An award-winning technology innovator, communicator and leader, Nick has developed compelling visions of payments futures, building strategies and engaged, enthused, self-organised teams to develop and deliver products and services to customers. Joining Worldpay in 2001, he led engineering and product teams through divestments and acquisitions to cross the chasm from challenger organisation to incumbent world leader. In 2019, he set up Stormglass Consulting to help clients find their own way to the future in payments, identity and fintech. He chairs the W3C Web Payments Working Group, and is an invited expert in the European Working Group of the FIDO Alliance. 
About Flagship Advisory
Flagship Advisory Partners is a boutique consultancy and M&A advisory firm focused on payments. We provide strategy, delivery, and M&A support to financial institutions, PSPs, fintechs, technology providers, brands, and investors. We are based in Europe but also serve clients in North America, MEA, and elsewhere globally.
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