What’s The True Cost of Amazon’s Low Prices? The FTC and Congress Have Antitrust Concerns

This story is part of a Recode series about Big Tech and antitrust. Over the next few weeks, we’ll cover what’s happening with Apple, Amazon, Facebook, Google, and Microsoft.

On the heels of yet another year of record sales, Amazon is dealing with a couple of unwelcome updates in the new year. The Senate Judiciary Committee has announced it will soon be marking up the American Innovation and Choice Online Act, an antitrust bill targeting Amazon and other Big Tech companies. This follows reports that the Federal Trade Commission is ramping up its years-long antitrust investigation into Amazon’s cloud computing arm, Amazon Web Services, or AWS.

It’s clearer now than ever that Amazon, which was allowed to grow mostly unhindered for more than two decades, is caught in the middle of an international effort to check Big Tech’s power.

The Senate bill, one of several bipartisan antitrust bills in Congress, would prohibit Amazon from giving its products preferential treatment, among other things. It’s the bill that would affect the company the most, and the one it has been fighting hardest against. Meanwhile, the renewed scrutiny from the FTC about alleged anti-competitive behavior from AWS, which represents a significant and largely invisible source of Amazon’s profits, could threaten Amazon’s long-term dominance in a number of industries.

Just because a company is successful and dominates a market (or even several markets) doesn’t mean it’s violating any antitrust laws. But Amazon’s critics say it illegally uses its power to harm competition and consumers, particularly with its Marketplace, where outside, or third-party, businesses can sell their products to Amazon customers alongside Amazon’s own wares.

Amazon has been accused of copying popular products to sell under its own labels, using non-public seller data to inform its own decisions, and forcing sellers into agreements that essentially prohibit them from offering lower prices elsewhere. Amazon denies some of these allegations and says other actions are simply meant to provide the services its customers want at the best price.

Some of these complaints have been around a while, but 2022 may be the year that Amazon faces meaningful and real consequences for them. There are still caveats. State attorneys general are rumored to be looking into some of Amazon’s business practices, but only one has filed a lawsuit so far.

The FTC is still waiting for the confirmation of a fifth Democratic commissioner who would break up the deadlock of two Republican and two Democratic commissioners. And while antitrust bills are making progress in Congress, Democratic lawmakers currently seem focused on other initiatives ahead of the midterm elections — elections that could give Republicans a majority in one or both houses of Congress.

Amazon isn’t the only Big Tech company that’s been targeted, but it might have more reason than anyone else to worry about the FTC in particular. One of two federal agencies that enforce antitrust laws, the FTC is now run by Lina Khan, who basically built her career on research surrounding her 2017 Yale Law Journal paper, “Amazon’s Antitrust Paradox.”

The paper detailed how Amazon’s rise showed the flaws in antitrust laws and led to Khan becoming known as Amazon’s antitrust antagonist. Since her appointment to the FTC last June, it hasn’t seemed like the question is whether the agency will take on Amazon, but rather when and how. Amazon, meanwhile, has asked that Khan recuse herself from any antitrust matters involving the company.

Khan “is best suited to understand the various issues and problems with Amazon,” said Alex Harman, a competition policy advocate at Public Citizen, a consumer advocacy group. “And we are very excited that she will be able to bring a significant action against them.”

Khan has a lot to choose from. It’s hard to overstate Amazon’s role in the economy, or how many roles it has. It’s a technology company. It’s a delivery service. It’s an advertising platform. It powers about a third of the internet. It’s a movie studio and a streaming service. It’s a health care provider. It’s a surveillance machine and a data harvester. It’s one of the largest employers in the world and one of the most valuable companies. Also, it sells books.

In response to questions about whether its size and market share were too big in too many sectors, Amazon told Recode it faces “intense competition” in all of its lines of business. It says its expansion is part of a long-running strategy to make “big bets over the long term to reinvent the customer experience.”

Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly advocacy group, sees it differently: “Amazon leverages its power in one space to take over a new space, which is core to their business practice. They have the ability to combine the competitive advantages of different aspects of their business to take over new sectors of the economy.”

While the FTC, for now, seems interested in AWS (and Amazon’s attempt to buy MGM), most of the antitrust attention we’ve seen elsewhere is focused on Amazon’s retail business and how it treats the businesses that sell products through its Marketplace platform. Critics say Amazon uses its power to give its own wares an unfair advantage over third-party sellers, and effectively forces them to pay for extra services and make agreements that could inflate prices everywhere.

“That’s where there’s a lot of obvious harms, and where you have businesses who are unhappy with how they’re being treated,” Miller said.

Consumers may be paying more and missing out on new products, companies, and innovations that a more competitive retail space would have produced. And that may be a violation of the antitrust laws we have now, or those to come.

How Amazon’s power might lead to higher prices

Many antitrust complaints about Amazon’s practices are based on its position as both a platform and a seller on that platform. This gives Amazon a great deal of power over the companies it’s competing against, as well as an incentive to favor its products over theirs. About 60 percent of Amazon’s online sales come through Marketplace.

This can be a mutually beneficial relationship. Marketplace’s sellers — currently more than 2 million of them — get access to Amazon’s huge customer base, and Amazon gets a vastly expanded selection that has helped make it the first and only website many online shoppers visit.

This model brings in hundreds of billions of dollars in revenue every year for Amazon, which now has an estimated 40 percent share of the e-commerce market in the United States. The company with the second-largest e-commerce market share, Walmart, has just 7 percent.

At the same time, Amazon likes to say it has but a small sliver — 1 percent — of a competitive global retail market. But that’s online and offline combined, and it includes many industries in which Amazon doesn’t sell anything at all. Amazon is also on track to edge out Walmart and become the most dominant retailer, online and off, in the United States as soon as this year.

No company has the kind of ecosystem Amazon built around its retail business beyond Marketplace. Amazon collects tons of data about its shoppers — data it uses to optimize its services and to fuel its burgeoning and increasingly lucrative advertising business.

Meanwhile, Amazon Prime and its fast free shipping has not only created an intensely loyal customer base but also compelled Amazon to build up its own shipping and logistics arm, Fulfillment by Amazon, to reduce its reliance on outside services and give it more control over its sellers. Many of Amazon’s rival retailers — namely, Walmart and Target — do some or all of these things to a lesser extent, but they’re just playing catch-up.

Smaller companies simply don’t have the scale or money to offer such services. Amazon, which has turned itself from a bookstore to an “everything store” to an everything platform, is in a class by itself.

“There are dynamics in digital that are fundamentally different,” Andrew Lipsman, principal analyst at eMarketer, told Recode. “Access to data is fundamentally different than we’ve ever had before. And all the other things that has enabled — all these digital businesses that Amazon has spun off — are underpinned by completely different economics than traditional retail economics.”

Amazon is happy to tell you how good it’s been for the small- and medium-sized businesses making money using its platform and how proposed antitrust actions could harm them. Others argue that Amazon makes even more money off of third-party sellers who have to play by Amazon’s rules because their businesses wouldn’t survive without the e-commerce giant and its customer base. And those rules, they say, aren’t always fair.

Last May, the attorney general of Washington, DC, Karl Racine, sued Amazon for antitrust violations over its treatment of Marketplace sellers. In September, he amended that lawsuit to include the wholesalers, or first-party sellers, from which Amazon buys products before selling them to its customers.

Racine told Recode that he started to wonder what the price of Amazon’s much-touted “customer obsession” was, especially after seeing accusations that Amazon copied popular products on its platform and then sold its own similar products for a lower price. (Amazon says it’s standard practice for retailers to use data about customers’ interests to help determine what to make for their own private labels.)

“I found that offensive,” Racine told Recode. “I felt like Amazon was just a copycat and burying a creative source. They were not focused only on the customer. They were also focused on their bottom line.”

The DC attorney general’s office investigated and found that “Amazon, the dominant player, seeks to maximize its profits at the expense of consumers, third-party sellers, and wholesalers,” Racine said. “It’s kept prices for goods artificially high, hampered competition, stifled innovation, and illegally tilted the playing field, all in its favor.”

Racine’s suit echoes some of the issues raised in other lawsuits and investigations as well as those identified in a recent report from the Institute for Local Self-Reliance, a nonprofit that advocates for locally owned businesses.

The big sticking point is that Amazon’s policies can effectively force other companies to give Amazon the lowest price for their goods. This is due to Amazon’s “fair pricing” policy, which says it can downgrade or stop sales of third-party sellers’ products if they’re priced “significantly higher” on Amazon than at other outlets.

Meanwhile, wholesalers have to agree to give Amazon a certain cut of their products’ sales. But Amazon also sets the prices of those products. If it reduces them to price match another outlet, the wholesaler may end up eating the difference and even losing money. That keeps wholesalers from selling their wares to anyone else for less.

Amazon sees all this as looking out for its customers and making sure they’re getting the lowest prices. But Racine and those who have filed similar lawsuits believe sellers and wholesalers are being stopped from selling their products for lower prices in other stores.

Because of this, competitors can’t offer lower prices to get an advantage over Amazon, and customers end up paying Amazon’s prices even if they don’t shop at Amazon — and paying more. Sellers and wholesalers can choose not to sell to Amazon, but few of them have the size and brand recognition needed to survive in a world where so many shoppers do most, if not all, of their online shopping on Amazon.

“That’s the power of brands: Nike is able to say, ‘You know what, Amazon? We don’t need you,’” Lipsman said. “The more commoditized your product is, the more likely you have to sell through Amazon, and you’re dependent on that channel.”

Amazon has filed a motion to dismiss the DC attorney general’s lawsuit, arguing that it’s simply making sure its customers are getting the lowest prices. The policies don’t force sellers to offer the lowest price on Amazon, Amazon says; they simply discourage them from offering higher prices on Amazon than they do elsewhere. But this hasn’t always been the case.

Just a few years ago, Amazon had a price parity policy, which more explicitly said sellers couldn’t offer lower prices anywhere else. Amazon ended this practice in Europe years ago amid scrutiny there, and then did the same thing in the United States in 2019. Racine says the fair pricing policy that replaced it serves the same function and is similarly anti-competitive.

How Amazon uses its power over sellers to squeeze them for money and data

Even though one of Amazon’s selling points is its low prices, critics say those aren’t necessarily the lowest prices possible, in part due to the increasing costs to sell on Marketplace. Amazon charges sellers a referral fee, typically 15 percent, for items sold. Then it piles on optional services that many sellers feel compelled to buy if they want their businesses to survive, cutting into their margins and forcing some to raise their prices to maintain a profit.

Fulfillment by Amazon, or FBA, is one example of this. Amazon doesn’t require that its sellers use its fulfillment and shipping service, but doing so makes them eligible for Prime, and it’s exceedingly difficult to qualify for Prime if they don’t.

That recognizable Prime badge is important. There’s a higher likelihood that Amazon’s customers will buy Prime products, because the shipping is free for Prime members and because Amazon gives preference to Prime items when it assigns what’s known as the “Buy Box.” When multiple sellers offer the same product, the Buy Box winner is added to carts when customers click “buy.” More than 80 percent of an item’s sales go to the Buy Box winner, so sellers are very motivated to do everything possible to get it. That may include using FBA even if it costs them more than shipping items themselves.

This practice has already gotten Amazon into trouble abroad. In December, Italy’s antitrust regulators fined Amazon about $1.3 billion for giving sellers who use FBA benefits over those who don’t. Amazon says it’s planning to appeal the decision, but more trouble could be on the way: The company is facing a similar investigation from the European Union’s European Commission, and India is also investigating Amazon for violating its antitrust laws.

Sellers have also complained about ads, which give their items better placement in search results. Reports say that Amazon has increased the number of ads, upping its revenue and pushing organic results down even further — which, in turn, compels sellers to buy ads to regain the prominent placement they used to get for free. Amazon told Recode that sellers wouldn’t use FBA or buy ads if those services didn’t add value or come at the best price, as they can always use other fulfillment services and buy ads elsewhere.

But it’s not just fees that Amazon gets from its sellers. Critics say the company uses data it collects from third-party sellers to give itself a competitive advantage. This was the subject of a “statement of objections” from the European Union, and as the DC attorney general has made clear, Amazon is notorious for creating its own versions of popular products sold by third parties.

The company recently opened up some of its data to sellers, possibly in an effort to ward off some of this criticism, and says it prohibits the use of non-public data about individual sellers to develop its own products. But founder Jeff Bezos told Congress he couldn’t guarantee that policy has never been violated, and multiple press reports suggest that it has.

The company has also been accused of self-preferencing, or giving its products preferential treatment — and a competitive advantage — over those sold by third parties. This could take the form of giving its own products the Buy Box or prominent search rankings they didn’t earn. Amazon has total control over its platform, so the company can really do whatever it wants, and there isn’t much sellers can do about it.

Self-preferencing has become a catch-all term for many of Amazon’s alleged anti-competitive practices. It’s attracted the most attention from regulators so far. The company denies that it gives preference to its own items in search results and says the reports that it does are inaccurate. Many legislators aren’t buying that and have proposed bills forbidding self-preferencing, with Amazon specifically in mind.

How Amazon could be changed by new antitrust laws

Per its policies, the FTC has stayed mum on what, if anything, it’s investigating on Amazon. Congress, on the other hand, has been very public.

The House Judiciary Committee spent 16 months looking into competition and digital markets, focusing on Amazon as well as Apple, Google, and Facebook. Last year, a bipartisan and mostly bicameral group of lawmakers proposed a package of Big Tech-focused antitrust bills. The House’s bills made it through committee markup last June, but have yet to be put to a vote.

The American Innovation and Choice Online Act is the only Senate bill to be scheduled for markup so far. The House’s Ending Platform Monopolies Act, which still doesn’t have a Senate equivalent, is likely the most expansive of the bills in the antitrust package, forbidding dominant digital platforms from owning lines of business that incentivize them to give their own products and services preference over third parties. Should that bill become law, it could have a huge impact on Amazon, forcing it to split off its first-party store from its sales platform.

Amazon has fought back against the bills. It has sent emails to certain sellers and set up an informational website warning them about how the bills, if they become law, could negatively impact them. Amazon claims that it might have to shut down Marketplace or limit its ability to offer Prime services. The bills’ supporters say that companies would still be able to offer all of those services, but could finally compete on a level playing field.

“We urge Congress to consider these consequences instead of rushing through this ambiguously worded bill,” Brian Huseman, Amazon vice president of public policy, told Recode in a statement. He added that the bills should apply “to all retailers, not just one.”

While Amazon waits to see what the FTC and Congress do, its antitrust battles, real and potential, haven’t seemed to harm its bottom line. Business is good, growing, and disruptive. Amazon is even reportedly preparing to take on Shopify, a platform that helps businesses create their own online shops and has grown exponentially during the pandemic, with a similar offering that could come out as early as this year. If true (Amazon wouldn’t comment), it shows that Amazon isn’t afraid of going after potential threats even while under more scrutiny than it’s ever experienced.

That’s exactly the attitude Racine, the DC attorney general, takes issue with. “Amazon claims to be all about consumers,” he said. “What our evidence shows is that Amazon is all about more profit for Amazon, at the cost of competition and at the expense of consumers. And we’re looking forward to proving that in court.

Sara Morrison

Sara Morrison covers Big Tech and antitrust regulation, in addition to personal data and privacy. She previously covered technology’s impact on the world for Vocativ. Her work has also appeared in the Atlantic, Jezebel, Boston.com, Nieman Reports, and Columbia Journalism Review, among others.

Source: What’s the true cost of Amazon’s low prices? The FTC and Congress have antitrust concerns. – Vox

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Reducing Risk When Migrating Mission-Critical Applications To The Cloud

Over the last decade, significant strides have been made in cloud computing, and today’s enterprises have substantial data and application footprints in the cloud. Many organizations are moving toward implementing cloud-based operations for their most crucial business applications.

A cloud-first mindset is usually a given for new companies and continues to gain traction for established enterprises. Still, existing legacy infrastructures and large on-premise footprints that don’t map easily to cloud architectures are slowing and even blocking faster adoption.

Organizations are poised to prioritize cloud investments over the next five years, according to the results of IDC’s Future of Operations research. The appeal includes the potential for an improved experience for customers, employees and suppliers/partners, better development agility, improved time to market and increased operational efficiency across organizations.

Although a pivot to the cloud could complete the evolution of the business from an operational and capital perspective, significant barriers to broader adoption still exist.

Cloud spending is on track to surpass $1 trillion by 2024, partly due to urgent changes to business operations driven by the pandemic, which accelerated cloud adoption timelines for many companies. And the results of recent research find that optimizing cloud costs tops companies’ 2021 priorities for the fifth year in a row.

Increasingly ambitious migration timelines are driving important decisions about moving critical applications without fully understanding the risks. Organizations are addressing application and data migration with largely ineffective one-size-fits-all solutions that don’t always meet expectations, often causing more problems than they promise to solve.

Others are moving with extreme caution when deciding which applications to keep on-prem and which to move, migrate or refactor. Mission-critical apps remain on the legacy infrastructure to assure control over the foundational data and safely maintain business as usual.

Moving from massive, on-prem data centers to the cloud presents a future filled with possibilities but also a level of risk due to the various unknowns within this significant paradigm shift. After all, a mission-critical app can be essential to the immediate viability of an organization and fundamentally necessary for success.

Although moving to the cloud is the way forward for many modern companies, migration can prove time-consuming and highly challenging, often with incomplete or unacceptable results. Successful migration can further business opportunities, but the risk of failure is considerable, and the high visibility that accompanies these major initiatives increases the level of exposure and consequences of said failure.

Mission-critical initiatives often cross the length and breadth of organizations, across low-level operational groups up to the C-suite and beyond. But just as all data is not created equal, neither are clouds or migration strategies.

Data Mobility Matters

With increasing cloud investments comes a growing need for more accessible data mobility. As more data moves to the cloud and strategies expand to occasionally include multicloud environments, there’s an expectation that underlying cloud resources deliver about the same level of performance as on-prem. But, often, the required type and volume of cloud resources are not available and deployment is difficult or impossible.

Performance is instrumental in determining where a mission-critical application should live and drives myriad scaling considerations and challenges. Sometimes, particular features, functionality and capabilities are lacking.

Perhaps the data primarily resides in a private or hybrid cloud to engage in cloud bursting on the public cloud when capacity needs to balloon. Longtime legacy challenges of architecting for the peak versus the average persist. Still, cloud decisions have forced IT leaders to relinquish a level of control over the physical infrastructure, significantly increasing risk.

Managing data mobility is challenging. To increase success, plan an approach that minimizes workflow disruptions of critical processes while ensuring sufficient capacity to support expected workloads and providing enough scalability to handle unexpected workloads. Managing random workload fluctuations requires a solid plan and a scalable, flexible and agile architecture to avoid those black swan events that are all too threatening.

Cloud Migration Considerations

Successful migration is not easy, but for many applications, it’s pretty simple to migrate to a platform as a service (PaaS) or managed service and be up and running fairly quickly. But for those performance-sensitive vertical stack monolithic applications running on the most expensive hardware for decades, moving can prove challenging and even impossible.

Ideally, refactoring enhances an application without negatively modifying external behavior and improving the internal architecture, as well as perhaps gaining cost efficiencies, maintenance or performance. But not all mission-critical applications are a fit for a refactor. Complexity, cost and the risk of disrupting a mission-critical app that’s performing as expected are valid reasons to leave some apps on-prem.

Others are constrained by performance requirements that aren’t achievable in the cloud with current offerings. There are fundamental limitations to the types of applications and databases that can quickly move to the cloud, and overhauling those solutions introduces significant risk, possibly resulting in critical delays and higher costs.

Solving Migration Problems

The best plan to mitigate the risks and improve the odds for cloud migration is to eliminate silos between multiple clouds and on-prem — regardless of type or location — facilitating a free flow of information in a simple, resilient, well-understood fashion. The next truth can’t be overstated:

Data is the new oil and should be treated as such. Just as trained specialists are leveraged to find and extract oil, specialized experts should be utilized when performing high-risk, business-changing moves regarding mission-critical data and the application stacks that access it. Ideally, the team migrating mission-critical applications should be proficient in enabling data mobility across environments without refactoring to reduce risk.

The question of cloud migration in 2021 is often no longer “if” but “when and how.” The material risk of maintaining the status quo can be significant, and avoiding moving mission-critical applications to the cloud is often no longer an option. A wise man once said, “What’s dangerous is not to evolve,” and this truism fully applies to an organization’s journey to the cloud.

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Source: Reducing Risk When Migrating Mission-Critical Applications To The Cloud

Nasdaq To Move Markets to Amazon’s Cloud

Nasdaq Inc. said that next year it plans to begin moving its North American markets to Amazon. com Inc.’s Amazon Web Services cloud-computing platform.

The move, which will take a phased approach starting with Nasdaq MRX, a U.S. options market, involves turning over massive amounts of the exchange operator’s data to a third-party cloud service. Nasdaq didn’t disclose a timeline for moving its other markets.

Nasdaq’s ambition is to become “one hundred percent cloud-enabled,” Adena Friedman, the company’s chief executive, said in announcing the move Tuesday at an AWS industry conference in Las Vegas. “We will follow with more of our markets as we work closely with clients,” Ms. Friedman said.

Nasdaq has previously said that all of its more than 25 markets will be hosted in the cloud within the next decade.

They include six equity markets in North America, including the Nasdaq Stock Market, as well as six equity derivative markets, the Nasdaq Baltic and Nasdaq Nordic markets, and fixed-income and commodity markets.

The financial-services sector has been slower to adopt cloud computing than other industries, stemming in part from the tight regulatory oversight of banks and exchanges, as well as concerns over breaches of sensitive client data.

“To the extent that they don’t disintermediate their trading partners and investors, moving to the cloud gives exchanges greater flexibility, as well as enables more people to connect, enables people to connect easier,” said Larry Tabb, head of market-structure research at Bloomberg Intelligence.

Earlier this month, CME Group Inc. and Alphabet Inc.’s Google struck a deal to move CME’s core trading systems to the cloud.

Nasdaq already stores billions of transaction records in a data warehouse operated by AWS, including daily orders and quotes transmitted by traders. Over the years, the company has migrated a number of services to AWS, including its revenue management system for the U.S. and European markets. Its existing relationship with AWS is a big reason Nasdaq said it chose the Amazon.com unit to host its markets.

“We have had a longstanding relationship with them,” said Brad Peterson, Nasdaq’s chief technology and information officer.

Cloud systems and apps are hosted on data centers operated by third-party providers, including tech giants such as Amazon.com, Microsoft Corp. and Alphabet Inc.’s Google. The systems enable users to rapidly scale computing needs, based on demand, with far greater ease than in their own data centers.

Mr. Peterson has credited cloud systems for keeping Nasdaq from suspending trading in January, when a frenzy for shares of GameStop Corp. and a handful of other companies flooded popular online brokerages, caused a spike in market volatility and forced many operators to restrict access to trading.

He said moving markets to the cloud has the potential to provide the exchange with more security, greater reliability and better scalability, or the ability to quickly power up computing resources. Nasdaq and AWS could also create new cloud-based products and services for Nasdaq’s customers, Mr. Peterson said.

Scott Mullins, head of world-wide financial services business development at AWS, said Nasdaq’s growing use of cloud systems is driven by a need for elasticity and resilience to handle market volatility, along with hundreds of billions of trading events every day. “If you’re doing that on customized hardware, you’re going to have to guess what your capacity needs to be,” Mr. Mullins said.

The two companies have been working together to build out Nasdaq’s cloud-based capabilities since about 2012, Mr. Mullins said. “If you get a bill from Nasdaq today, it’s coming from a data lake sitting in AWS,” Mr. Mullins said.

“We’re only going to do it at a pace that works for us, AWS and our clients,” said Tal Cohen, executive vice president and head of North American markets at Nasdaq.

Ms. Friedman said the move announced Tuesday centers on the exchanges’ matching engines, systems that connect buyers and sellers and handle a vast number of price quotes and trades, many submitted by high-speed trading firms accustomed to having the exchange’s systems process orders in millionths of a second.

Mr. Peterson said that in the first phase of the move, Nasdaq’s primary data center for its U.S. equities and options markets in Carteret, N.J., will be expanded and AWS will install computing resources there. Traders will be allowed to connect their servers to AWS servers the same way they currently connect to Nasdaq’s servers, he said.

By: John McCormick & Angus Loten

Source: Nasdaq to Move Markets to Amazon’s Cloud – WSJ

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4 Missteps For Banks To Avoid When Migrating Payment Services To The Cloud

Banks and financial services providers can realize the efficiency and cost savings of cloud-based payments by taking proactive steps to guard against these common mistakes, notes Rustin Carpenter, a Global Payments Solution Leader for Cognizant’s Banking & Financial Services Industry Services Group.

The cloud’s lure of simplification is a powerful incentive for payment providers, as its role enabling modernization and permanently switching off legacy applications. Where banks struggle, however, is in shaping a strategy to get their payment services to the cloud. By understanding the common missteps, banks can create a plan for payment migration that maximizes benefits while minimizing risks.

The pandemic was a digital tipping point for banks, forcing them to implement in just a few months capabilities that otherwise would have taken several years. Research published in 2019 found that financial services firms lagged in adoption of public cloud infrastructure as a service (IaaS), with just 18% broadly implementing IaaS for production applications, compared to 25% of businesses overall.

Now many banking leaders we talk with are taking a serious look at cloud-based payment services, motivated by the age and complexity of their core payment applications as well as their business’s growing confidence in the security of cloud platforms such as Google Cloud, Microsoft Azure and Amazon Web Services (AWS). As banks contemplate migrating payment services to the cloud, here are some common mistakes to avoid that will ensure a smoother journey:

1. Assuming the cloud is cheaper.

Cloud-based services are indeed less expensive to run — once applications and services have been migrated. To manage a successful payments migration, be aware of the costs along the journey. The cloud can be a heavy lift. While banks and financial services providers often consider themselves proficient at consolidation and rationalization, the extensiveness required for cloud migration frequently far exceeds the effort of previous initiatives. For example, we helped a bank reduce its infrastructure footprint by 25% and lower its total cost of ownership by migrating its applications to the cloud.

That outcome, however, required careful analysis of the bank’s application source code and development of a migration strategy and cloud deployment architecture, as well as assessing and migrating more than 800 applications over three years. Cloud-based services are more streamlined and less expensive to operate, but accurately budgeting for the upfront time and resources of a cloud payment migration is challenging due to the many unknowns. Careful attention to planning is critical for a realistic cost assessment.

2. Underestimating the amount of prework.

The cloud promises to reduce complexity but getting to that point takes a thoughtful migration plan that’s complete and doesn’t skimp on details. What steps will be taken to ensure there’s no disruption to clients? Which applications make sense to retain and manage in-house, and which can be leveraged as payments as a service? For instance, fund disbursements for a retail consumer bank that administers 529 plans are typically a low-volume service for which cloud automation is a great fit, replacing paper checks with significantly less costly cloud-based payments.

But when it comes to payments as a service, managing risk and ensuring value also come into play. Wire transfers might appear to be good candidates for migration to cloud payments, but if most of the bank’s transfers are for high net worth individuals with equally high customer lifetime value, then the transfers may require levels of personalized service best handled with an on-premise platform rather than in the cloud. A well thought out strategy that addresses all impacts and value opportunities helps bank leaders avoid the unintended consequences that keep them awake at night.

3. Failure to prioritize.

A payments migration needs to be phased in a way that provides strategic competitive advantage. Setting priorities is key. For example, a bank may choose to align its payments migration with a specific strategy, such as a planned de-emphasis on branch offices. Another approach is to migrate the costliest payment applications first. Some banks may reserve cloud adoption for when they’re ready to add new payments capabilities.

Each bank’s path to cloud payments is nuanced, yet there’s often a feeling among banking leaders that moving to the cloud is an all-or-nothing proposition. That is, payments are either entirely cloud-based or all on premise. A more realistic goal is to craft a migration roadmap for a hybrid environment that accommodates both types of infrastructure for the near future, and to then prioritize and phase the payments migration in a way that makes strategic sense.

4. Testing in a dissimilar environment.

Replicating legacy operating environments for testing is expensive, so it’s not uncommon for banks to settle on environments that are similar but not identical — though the variation often leads to production environment errors that can derail cloud migration efforts. Performance falls short of expectations, typically due to the tangle of payment applications resulting from years of mergers and acquisitions.

For example, post-merger banking platforms often utilize more than one legacy payment hub, and there’s little chance that a bank’s current IT staff fully understands or can predict the unintended consequences for the hubs when making changes to the platform. Don’t fret over creating the perfect testing environment. Rather, build an environment that’s as close as possible.

By avoiding these common missteps, payment providers can reap the benefits of a simplified, modern infrastructure and application environment and minimize the risks.

To learn more, please visit the digital payments section of our website or contact us.

Rustin “Rusty” Carpenter leads payments solutions within Cognizant’s Banking & Financial Services’ Commercial Industry Solutions Group (ISG). In this role, he works with group leaders and client-facing teams to elevate Cognizant’s client relevance, industry expertise and challenge-solving capabilities. Over his career, he has developed deep and broad expertise in payments and the emerging alternative and digital/mobile payments arenas. He is a frequent speaker on these topics at conferences worldwide and serves as a board advisor to fin-techs in all areas of payments and fraud prevention/mitigation.

Carpenter most recently was Head of Sales & Service, NA for ABCorp. Previously, he ran the Instant Issuance business for North America at Entrust Datacard; served as COO for Certegy Check Services, N.A.; was General Manager, NA for American Express Corporate Services; and completed multiple assignments at Andersen Worldwide and Dun & Bradstreet. Rustin has a Bachelor of Arts degree from Denison University and an MBA in finance from Rutgers Graduate School of Management. He can be reached at Rustin.Carpenter@cognizant.com

Source: 4 Missteps For Banks To Avoid When Migrating Payment Services To The Cloud

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30+ of 2020’s Latest Cloud Computing Trends

Cloud computing is a market that’s consistently increasing. For this reason, there are many cloud computing trends available for us to talk about.

The growth in last year’s cloud computing market was astonishing, and it’s only set to grow even more through 2020 and beyond. It’s for this reason that so many businesses are relying on cloud computing.

Whether you’re looking for VPS cloud hosting, application software, virtual networks or databases, there are plenty of cloud services to grab by the horns and take advantage of.

If speed and security are important factors in your company, cloud computing is definitely the way forward, and I highly recommend you looking further into this world.

General Cloud Computing Statistics

  • By 2025, the cloud computing market is expected to exceed $650 billion
  • 80% of organisations are expected to use cloud services by 2025
  • The main reason people turn to cloud computing is due to being able to access data from everywhere
  • By 2021, cloud data centers will process 94% of workloads (Cisco)
  • In 2018, cloud infrastructure spending surpassed $80 billion (Canalys)

Cloud Type Statistics

  • The average business runs 38% of workloads in public and 41% in private cloud (RightScale)
  • In small to medium-sized businesses, 43% use public cloud (RightScale)
  • In 2019, the revenue from the global public cloud computing market was set to reach $258 billion (Statista)
  • 89% of companies use SaaS (IDG)
  • By 2021, 75% of all cloud workloads will use SaaS (Cisco)
  • IaaS is the fastest-growing cloud spending service with a five-year CAGR of 33.7% (IDC)

Cloud Computing Adoption Statistics

  • 42% of companies say “providing access to data anytime, anywhere” is the main reason for cloud adoption (Sysgroup)
  • 38% of companies choose cloud computing due to disaster recovery (Sysgroup)
  • 37% of businesses would prefer to use cloud computing due to flexibility (Sysgroup)
  • The hybrid cloud adoption rate is 58% (RightScale)
  • 12.2% of global cloud spending is on professional services (IDC)
  • Banking accounts for 10.6% of global cloud spending (IDC)
  • Process manufacturing and retail are expected to be in the top five spenders of cloud spending in 2022 (IDC)

Cloud Security Statistics

  • Almost 2/3 of companies believe security is their biggest challenge in cloud adoption (Logicmonitor)
  • 60% of enterprises worry about privacy and regulatory issues (Logicmonitor)
  • By 2020, public cloud IaaS workloads will experience 60% fewer security incidents than traditional data centers (Gartner)
  • In 2022, at least 95% of security failures in the cloud will be caused by customers (Gartner)

Cloud Spending Statistics

  • In 2018, companies’ average yearly cloud budget was $2.2 million (IDG)
  • Between 2016 and 2018 there was a 36% increase in cloud budget (IDG)
  • In terms of revenue, online backup/recovery is the leading cloud service (15%) followed closely by email hosting (11%) (IDG)
  • Smaller companies dedicate only around 20% of their IT budget towards the cloud (Spiceworks)
  • In 2019, companies planned to spend 24% more on public cloud than they did in 2018 (RightScale)

Cloud Service Provider Statistics

  • In 2018, Amazon, Microsoft and Google accounted for 57% of the global cloud computing market (Canalys)
  • AWS attracts 52% of early-stage cloud users (RightScale)
  • 41% of beginners choose Azure (RightScale)
  • Only 9% of beginners choose Google Cloud (RightScale)
  • AWS earned more than $7.6 million in the first quarter of 2019 (Canalys)
  • Google’s cloud service revenue was $2.3 billion (Canalys)

By: Jann Chambers

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