Unpredictable. Unexpected. The past few days have been no good, very bad days for a lot of people and, quite frankly, it sucks. Being prepared for anything and everything, no matter how unlikely the prospective event, is mandatory. There are tens of thousands of posts on Twitter, Medium, the WSJ, etc. discussing why the svb situation occurred. If you’re interested in the details, go read them.
Here, I want to focus on the tangible. Specifically payment orchestration and payout orchestration, since that is what we do at MassPay. I want to highlight the importance of assessing your banking infrastructure and identify a few critical steps you can take to be prepared going forward.
Let’s start at the beginning. The failure to execute payments on time can lead to financial losses, reputational damage, and legal liabilities, which will have serious consequences for businesses paying employees, suppliers, and partners. To mitigate these risks, it is essential to have a diverse banking infrastructure that can ensure reliable and timely payments, even in the face of unforeseen market events. This is where payment orchestration and payout orchestration come into play.
Payment orchestration and payout orchestration refer to the coordinated execution of multiple, complex processes that, taken together, comprise the totality of making or accepting payments.
Diversity refers to the availability of multiple options for critical components of a system to ensure that the system remains operational even in the event of a failure. In the case of banking infrastructure, diversity means having multiple systems and processes in place to ensure that payments can be made and received even if one system fails. This diversification is critical because banking systems are complex and interconnected and a failure in one part of the system can have cascading effects that impact the entire system ... Just as we’ve seen happen in the past few days.
To understand why diversification in banking infrastructure is critical, it is important to first understand the difference between banking and banking infrastructure. Banking refers to the financial services that a bank offers, such as deposit accounts, loans, and investment products. Banking infrastructure, on the other hand, refers to the technical systems and processes that enable banks to offer these services, such as core banking systems, payment processing systems, and fraud detection systems.
The distinction between banking and banking infrastructure is important because banking services can be provided by multiple banks, while banking infrastructure is typically owned and operated by a small number of large technology companies. For example, a company might have multiple bank accounts with different banks to handle its day-to-day banking needs, but it will likely rely on a single payment processing system to execute those payments.
This concentration of banking infrastructure creates a single point of failure that can have serious consequences if the system goes down. For example, if the payment processing system fails, a company may be unable to make any payments until the system is restored. This can result in missed payments to employees, suppliers, and partners, which can cause financial losses, damage to the company's reputation, and even legal liabilities.
Diversity in banking infrastructure is critical because it provides a safety net that ensures payments can be made even if one system fails. Diversification can take many forms, including duplicating systems, establishing backup systems, and distributing transactions across multiple systems.
One key example of diversification in banking infrastructure is the use of multiple payment processing systems. A company might use one payment processing system as its primary system, but also have backup systems in place to ensure that payments can be made even if the primary system fails. These backup systems might be operated by different technology companies to provide additional diversification.
Another example of diversification in banking infrastructure is the use of distributed transaction processing. Instead of relying on a single payment processing system, a company might distribute transactions across multiple systems to ensure that no single system is overloaded. This can help to prevent bottlenecks and reduce the risk of system failures.
The benefits of a diverse banking infrastructure are clear. By ensuring that payments can be made even in the event of a system failure, this diversity can help to reduce the risk of financial losses, reputational damage, and legal liabilities. Diversification can also help to improve the reliability and stability of banking systems, which can improve the overall efficiency of business operations.
Payment orchestration is a critical component in banking infrastructure as it also provides businesses with greater flexibility and choice. By having multiple systems in place, businesses can choose the systems that best meet their needs, rather than being limited to a single system. This can help to ensure that businesses have access to the latest technology and features, and can take advantage of new payment processing options as they become available.
Finally, payment orchestration in banking infrastructure can help to ensure that businesses are able to continue operating during unforeseen market events. Unforeseen market events can have significant impacts on banking infrastructure, such as system outages, network disruptions, and cyber attacks. These events can be caused by a variety of factors, including natural disasters, geopolitical events, and economic crises.
By recognizing the need for diversification of your banking infrastructure and pursuing a payment orchestration partnership, businesses can ensure that they are prepared for these events and can continue to operate even if their primary systems are impacted. For example, if a natural disaster or a run on a bank disrupts one payment processing system, processes can automatically switch to another system to ensure that payments continue to be made.
The ability to execute payments reliably and efficiently is critical to the success of every organization. By diversifying critical components of banking systems, businesses can ensure that they are prepared for unforeseen market events and can continue to operate even in the event of a system failure. Diversification in banking infrastructure can provide businesses with greater flexibility and choice, improve the reliability and stability of its banking systems, and reduce the risk of financial losses, reputational damage, and legal liabilities. This is where payment orchestration shines.
If you’d like to learn more about how payment orchestration can help diversify your banking infrastructure, let us know. We’re here to help.