In my previous two blogs I have discussed different areas of manufacturing that financial services firms and vendors could learn from. In this final post in this series, I want to look at Supply Chain Theory and the factory model

Everyone in the United States remembers when the Japanese auto makers began to take over the U.S market. As a result, the large American car companies hired Ed Demming and Michael Hammer, who developed Supply Chain Theory. The basic principle was to include the suppliers in the manufacturing process. This required the development of a more integrated software system to drive such collaboration that gave rise to the development of MRP, ERP, and ultimately CRM systems. Supply chain theory combined with enabling IT systems reduced time to market, lowered costs and resulted in quality improvements.

The modern electronic payment systems needs something akin to ERP and CRM that links to the internet and cloud to optimize payment services across single and dual message formats. Through the web we can now include suppliers such as regulatory bodies, credit bureaus, statistical modellers, acquirers, issuers, payment processors, credit card companies, merchants, banks and end users into a single set of services that initiates, manages, secures and operates payments.

The financial services industry is under unprecedented pressure to lower the cost of payments, improve services, secure transactions, and simultaneously drive strategic innovation. Financial institutions, processors and retailers have bought many tools but still struggle to automate payment processes, gain business insight across their enterprise in a holistic fashion, protect consumers from financial crime, and quickly deliver compelling new and better services to customers.

The levels of waste in the payments industry are astounding and are only exacerbated by the mergers and acquisitions that have pervaded the industry in the last few years. The maturity of new technologies such as SOA, modelling, extreme transaction processing, SaaS, mobility, and collaborative technologies present the possibility to transform payments.

In reaction to these increased pressures the payments software market is moving away from the focus on monolithic, fragmented systems towards a more flexible and holistic solution. But this is challenging because of the complexity of payments and the need to transition to the future. But the current fragmented systems are what consumes resources and keeps payments as an expensive commodity rather than a strategic advantage.

Instead, a factory model approach is required, using the different techniques I have discussed, that will describe, control and automate the payment environments in the financial institution. By continually understanding the business conditions as well as the desired state of payment systems one can develop and deliver the repeatable processes required to automate the initiation, management, security, and operation of payment life-cycle within the context of the changing business conditions. 

In conclusion, I believe that the new approach to developing payment services must be one that allows for the holistic and streamlined definition of a payment system that is sensitive to changes in surrounding environment and the market. Based upon these external changes the system can automatically make adjustments to system definition and the current settings to continually converge to a desired state. If we can achieve that then I believe the payments industry will be in the strongest possible position to face whatever the future holds.