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Bob Mackman

Bob Mackman

Bob Mackman - Mackman Associates

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A New Model for Payments?

07 October 2009  |  3395 views  |  2

As the dust settles on the credit crunch, it’s clear that banking has entered a new era. While it remains to be seen whether banks will heed the lessons learnt from the past two years in the long-term, there is no question that the crisis has led banks to re-think their payment strategies. 

Banks want to make the most of this stable source of income, but in order to do this, they need to move to a more efficient and effective payments model. Upgrading current payments systems is however not a cost effective option.  Furthermore, increasingly complex customer needs require an expansion in banks’ offerings and services. The need to innovate has never been so pressing but so too has the requirement to keep costs and risk under control.

In light of these issues, the industry is beginning to question whether managing these conflicting needs and growing challenges requires a new approach to payments technology. In recent years, service-oriented architecture (SOA) has been heralded by many as the panacea to IT and business challenges. While SOA can certainly help meet some of the challenges currently faced by the payments industry, it is not an end in itself. 

Instead, a completely new payments model is emerging which should help banks address the current challenges they face head on. This model aims to blend products and blurs the distinction between high- and low-value payments, and between domestic and international payments.  

Financial institutions are realising that a standardised operating model that covers all payment types is both desirable and possible. A consistent underlying architecture, usually in the form of one or more hubs, supporting multiple payment types, channels and customers, promotes efficiency and can reduce costs.  Such platforms that provide practical solutions for today, and an agile payments infrastructure for the future, are capable of encompassing all payments processing and providing a structure that enables liquidity, fraud and other risks to be managed.   

Failure to implement these kinds of changes will see banks struggle to maintain their income from payments as the world economy recovers and ever more low-cost alternative suppliers emerge without the legacy systems that will inevitably inhibit banks.

 

TagsPaymentsWholesale banking

Comments: (3)

Steve Liles
Steve Liles - Sheffield Computer Systems PL - Sydney | 09 October, 2009, 04:29

Hmmm..."Upgrading current payments systems is however not a cost effective option"...well something needs to happen.  Re-engineered systems and processes rather than upgrades are needed in my view.

SOA? Nope.  This is not a panacea for all ills. It's a means by which legacy back end systems can be utilised in a functional manner.  Get the services right and you'll be able to rip out the back end in the future if needed. That's the plus side.

Additionally, FI's need to reconsider where their payments systems are causing grief...and will cause more grief in the future.  Security comes to mind, both transaction and authentication. System/process efficiency & cost to maintain is a close second. Integrity?...well now there is an issue all sitting waiting to be disclosed along with stability (NAB & CBA both had serious back end issues impacting customer payments this year). Consumer/Merchant user acceptance? Risk management...both for the consumers, the merchants and the FI's? I don't see SOA being the answer to any of these important issues Bob.

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Bob Mackman
Bob Mackman - Mackman Associates - Alderley Edge | 13 October, 2009, 08:53

Steve, I agree with you. SOA is a tool, not a panacea. As I said, whilst it might help, it is not an end in itself as some would have us believe. Also it is not the only way of moving the payments industry forward. I also agree that FIs need to look at their systems and identify where the real problems lie and address those first. My point is that hubs that are capable of multiple payment types are a good way of enabling this - and have been proven to be very cost effective.

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Matt Scott
Matt Scott - RenovITe Technologies Inc - London | 15 October, 2009, 13:22

I agree with the comments regarding SOA – in my experience this is a Nirvana rarely achieved – indeed in my experience the initiative to implement SOA failed to gain traction and was abandoned due to spiralling costs and severe scope-creep.  Whilst there are clear benefits to implementing SOA – unless you are working on a green-field site (or gradual migration through platform refreshment) the costs incurred are unlikely to justify the benefits at this time.

 

Modernisation of payment systems is a key requirement to ensure institutions remain competitive and cost efficient – whilst maintaining regulatory compliance.  However, it is only those institutes that have sufficient cash reserves that have the capital with which to invest.  The vast majority of the industry is still feeling the bite of “the crunch” and will have to adopt a make-do-and-mend strategy – maintaining their existing platform until they can justify a business case to invest in a refresh.  This is likely to stimulate demand for Managed Service Organisations to patch these systems until they are eventually replaced.

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