For Finextra's free daily newsletter, breaking news and flashes and weekly job board.
"Just think if banks had one payments application with one servicing platform". Indeed, it'd be great. But I wonder if this will happen in my lifetime.
A Top 10 Global Bank kicked-off a project to do exactly this 10 years ago. When last heard, it hadn't completed the project. Some of the hurdles were:
I haven't even raised the people and political challenges.
In a way, monolithic systems made way to distributed systems because of some of these issues. This happened in payments as well. Hard to imagine that payments would be able to buck the trend and get centralized.
There's also a business issue that works against consolidation. I agree that consolidation will slash operating costs. But in a regulated space like payments, regulators / government always target banks to reduce payment processing fees and their arguments
are inevitably based on "your costs are low, why are your prices so high?". We saw this in USA w.r.t Dodd-Frank-Durbin regulations for debit card interchange a few years ago. We're seeing this in India, where the government is keen on accelerating digital
payments and is currently in a tussle with banks to reduce MDR for card payments. What is the incentive for a bank to spend the money and take the risk to consolidate all payment types into a single platform only to face regulatory / political pressure to
drop their prices and see they revenues erode because their operating costs have come down?
Ten years ago, in a report on consolidated payment hub, TowerGroup had made a very strong case likening the technology to the opening scenes of the Samuel Beckett play "Waiting for Godot". Notwithstanding all the intervening technologies and other things
that have happened since then, I'm not sure if the central theme underlying TowerGroup’s conclusion has changed even today.
I would like to respond to Ketharaman Swaminathan's comments. Convergence of payments applications is actually occuring. The Federal Reserve of the U.S. is implementing a single application for its check and ACH businesses. Also, IBM announced a single application
that can handle Check, ACH, SEPA, SWIFT, Corporate Payments, and Faster/Immediate payments.
What's different today? Technology improvements and new standards have enabled new ways to do things. For example, the IBM integrated payments solution uses SOA based technology that enables multiple reuse of service components. Also, it uses ISO20022 as
its internal messaging solution.
In summary, 10 years was a different time and place. Today, the reality is convergence actually occuring in the marketplace.
What regulators / scheme operators and vendors do is not germane to this context. In any case:
Your post is about your wish for what banks should be doing, my comment is about the reality of what banks have been doing. So, with due respect, what regulators / scheme operators and vendors are doing is irrelevant in this context.
I'll believe that payment type convergence is real if you can name at least 10 Top 100 banks that have moved to a single payment hub for all their payment types and sunsetted the plethora of their individual payment systems they ran before the migration.
Let alone consolidation of low care and high care payments, are there any Top 100 Banks that have migrated even Card and ACH/FPS/NEFT low care payments to a single payment platform?
Retired IBMer and Banking Executive
02 May 2013
08 May 2020
09 May 2018