Three myths: moving payment switches to the cloud

The migration doesn’t have to be intimidating if you’re working with an experienced partner.

Payment switches are the unsung heroes of card-based transactions. These software hubs, which connect various payment methods to financial institutions, are reliable workhorses; most companies’ switch applications have been on the job for 20 years or more.

So it’s understandable that modernizing them makes payments players nervous. Why fix something that still works? As a result, myths have emerged around what it takes to upgrade payment switches. As we talk to clients and prospects, we regularly encounter misconceptions about the challenges.

Here are the top three myths and how companies can avoid them to find a path forward to upgrade this crucial system and keep it performing as reliably as always. 

Myth 1: “No problem, we’ll migrate the payment switch over to the cloud”

Not so fast. For one thing, although cloud’s advantages are winning over payment providers, migration demands careful planning and organizational focus. More important is the challenge of cloud-based hardware security modules (cloud HSMs). These devices play a key role in a payment switch cloud migration by generating, protecting, and managing the keys used to encrypt data. Yet cloud HSMs are a new wrinkle in technology, and few companies fully understand their importance in cryptographic processes.

Great precaution must be taken regarding remote access to the cloud HSM, especially the remote loading of keys inside the HSM and its remote administration. As a result, it’s important for financial institutions to choose a cloud HSM provider that provides a secure environment. The downside: If no cloud HSM is available, migrating the switch to the cloud can cause huge latency for transactions. 

Myth 2: “Card-based payments are passe”

Not quite. Card-based payments aren’t going anywhere in coming decades. Look for the market size to show a compound annual growth rate of 9.2% for the next several years due to the rise of mobile payments, the expansion of open banking initiatives, and the continued growth of e-commerce.

What’s more, each year brings new alternate payment methods—pay-by-bank, push-to-card, and others—that the switches of the world gear up to support. The upshot is that modern switching applications will power card-based payments with the engine they need to be efficient and drive revenue to capitalize on the profitable years ahead. 

Myth 3: “We don’t have the bandwidth for a multi-year, multimillion-dollar modernization”

Put simply, switch migration is more flexible and easier than it used to be. Enterprises can opt to modernize components of a payment switch or the entire switch. Moreover, availability of pre-built, fault-tolerant, multi-platform switches with high-volume processing capability and high availability make modernization faster and more affordable.

In addition, a careful strategy and roadmap makes the journey much easier. For example, we’ve partnered with clients to migrate logical chunks of functionality—like the on-us/not-on-us acquiring traffic or the issuing traffic—to the virtualized cloud-native switch using strategies like maintaining a host-ISO bridge between the old and new switches during the coexistence phase.

Modernizing switch applications doesn’t have to be the headache many financial institutions foresee. With a clear understanding of the task and careful planning, providers can manage the upgrade and keep it performing as reliably as ever.