The introduction of regulations such as the Single Euro Payments Area (SEPA), continuing recessionary pressures and increased competition across the payments landscape are forcing banks to re-evaluate the way they process payments.
For many, payment processing remains an extremely costly business. For example, it can constitute up to 40% of a bank’s operating costs and contribute only 33% to revenue. Yet these costs are primarily the result of inefficiencies in processing and the
technology banks use. For example, there is a high level of manual processing and ad hoc technological architecture used as a result of legacy applications, geographical expansion and regulatory pressures.
That said, if a banks can effectively manage their positive and negative exceptions these costs can be reduced significantly or even eliminated.
Three significant opportunities currently exist in payment processing. Firstly cutting costs through the reduction of manual intervention and the use of straight-through processing (STP). Secondly generating revenue by providing innovative products and
value added services to clients. And thirdly retaining customers by being responsive to their needs.
Improving efficiency and achieving payment STP are key to turning payment processing from being a cost centre into a revenue generator. Speed has become a differentiator for corporate and retail customers and banks must demonstrate their ability to process
payments quickly and efficiently.
In such a competitive environment, banks cannot afford to continue to support functional duplication, and a siloed approach to payments and manual processes and legacy systems have no place. Banks need to demonstrate that they are agile and able to cope
with eroding margins, time pressures and the increasing complexity of payments processes.
Typically 80% of the cost of processing payments is due to three things – namely repair and enrichment (42%), customer support (20%) and payment input (18%). The solution to reducing these costs is to build in greater automation throughout the payments
process by introducing a robust next generation Exceptions Handling Solution.
The intangible benefits of investing in a specialist payment solution such as this include improved customer satisfaction, increased customer retention and market share plus a quicker time to market for new products and services.
More tangibly, the system will allow the bank to reduce the number of full time employees in repair operations, cut charge back cost, increase revenue through the introduction of new services and minimise the cost of customer support through greater use
of STP. Significantly this might add up to a typical mid-sized bank saving up to £2 million in operational costs
That same mid-sized bank however can also generate over £6 million in revenue through better management of their positive exceptions - in other words creating opportunities to provide new products and services to customers through intelligent customer profiling
and detection of how a customer uses their payment services.
For example, positive exceptions will allow an institution to provide differential pricing for different clients depending on the type of client they are the volume of payments they make. They will also enable incentivized products to be sold to specific
All of these factors, I believe, makes the business case for implementation unanswerable.