Centralised vs Modular Payment Infrastructure: Advantages and Disadvantages

Payment Infrastructures Defined

A fast overview of payment infrastructures established by the industry today.

What Is Centralized Payment Infrastructure?

Centralised payment infrastructure runs all payment stages in one large system with everything from authorisations, settlements, fraud checks and reporting all through one integrated payment processing system. This is often a single vendor/bank solution.

This is how traditional banks and legacy payment providers operate. Everything from card payments to ACH goes through a single process hub, which retains all payment information in one system.

Key traits of centralized infrastructure:

What Is Modular Payment Infrastructure?

Modular payment infrastructure comprises integrated systems for payment stages that function separately but are connected through APIs for everything from fraud checks to settlement, to tokenization—and more.

This means organisations have the ability to select the best solution for each step and are better able to replace components without reinventing the entire process. Thus, newer players like Stripe, DECTA, and new orchestration platforms operate under this model.

Why Payment Infrastructure Decision Matters

The type of selection made impacts the speed of growth, compliance with regulations and management costs.

Scalability, Agility and Speed

Centralised systems are more likely to update at a slower pace as they need to change everything all at once. Modular systems are more likely to update at a faster pace, as parts can change independently of the whole.

Centralised systems are easier to monitor and execute when payment flows are strict and predictable. Modular systems facilitate those companies that are trying newer methods of payment in newer markets.

Compliance and Risk Management

The payment realm is rife with compliance from PCI DSS to PSD2. Centralised systems make it easy to comply because things are centralised under the same security components that must be monitored.

With modular systems, different components may be governed by separate vendors, which complicates matters. Yet it allows for specialised components that target certain compliances, separate from others.

Costs

Centralised systems often present more expensive overhead (credit), yet more predictable outcomes over time. Modular systems rarely cost more upfront, yet there can be huge jumps over time when compliance, vendors and integration costs rear their heads.

Deep Dive: Centralised Architecture

All data is in one place with a centralised architecture---therefore, reporting and analytics are easily accessible alongside compliance because all rules are in one location. This means the same security provisions apply everywhere and are easier to audit.

When traffic is stable and predictable, service is better given one source through which performance projections can be monitored.

Disadvantages of Centralised Architecture

The Modular Architecture

Advantages of Modular Architecture

It's easier to implement new payment solutions through modular architecture without disrupting the design in its entirety. This means upgrades happen more often and swiftly when everything is modular.

Components can run either independently or alongside each other; fraud detection can scale separately from transaction processing without scaling inefficiencies.

Due to APIs, it's easier to integrate third-party services, which allows for greater flexibility with tools and vendors.

Disadvantages of Modular Systems

Use Cases Where Centralised Architecture Would Be More Appropriate:

Use Cases Where Modular Architecture Would Be More Appropriate:

Choosing the Right Model for Your Organization

It depends on what choice is best down the line for goals, technical capabilities and budgets over time.

Business Needs Assessments

If transaction volumes are consistent/predicted, centralised systems might be the better solution. However, if growth is quick/easy, determined modular systems make it easier to scale quickly.

Vendor lock-in might be important if it's anticipated that investments will all go into one resource during initial assessments; those companies with a specialisation-driven mindset determined with less technicality may want centralised solutions.

Those companies that have less-known/structured technology configurations may work better with modular architecture as they reassess.

Key business considerations:

Technical Assessments

If there are old systems involved, it could be easier to integrate centralised systems. If companies are starting from scratch, it might be better to facilitate modular settings.

Budget Considerations

Centralised solutions will inevitably require high investment upfront, but more predictable costs on an ongoing basis. Modular systems might charge less upfront but incur additional costs as they scale/facilitate vendor management over time.

Centralised systems come with fewer vendor relationships/independence; modular spreads risk across vendors but requires more time investment on behalf of the company.

Common Challenges and Mitigation Strategies

Modular systems struggle with data consistency across platforms. These can often be resolved with event-driven systems, transaction managers, and high levels of monitoring, as well as delays between lots of communication among services. Using caching appropriately and strategic placements/service running can help as well.

Centralised systems fail when there is an increase in consumers at peak hours/delays, trying to roll out changes with more emphasis on monitoring requirements, buffer stock policies, and best practices over time. Thus, staging difficulties can work against centralised options when things need to take place over time.

Key mitigation approaches include: