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What is a payment services hub?

02 December 2010 3 comments

Retired member

Although it’s become a familiar term, the marketplace remains confused about precisely what a payments services hub is. Analysts like Zilvinas Bareisis at Celent are trying to shed some light on definitions and types of offerings in the market. But there still seems to be scope for interpretation and lots of latitude.

As I see it, a payment services hub is the centralisation of payments services within a bank to support processing all types of payments through all payment mechanisms globally. Nothing more, nothing less.

What does a payments services hub offer a bank?

First of all, it allows a bank to consolidate disparate payments processes into a single standardised and coordinated operation. This lowers the cost of ownership and reduces maintenance costs and risk.

A payments services hub also enables supervision and control of liquidity, allowing for better cash management, which is a primary objective for both the bank and the bank’s customers.

Most importantly, a well designed, multi-entity payments services hub is the most effective way the bank can support insourcing of white label business and offer personalised services to its customers – both retail and corporate – across the globe.

Never ageing technology

Another important characteristic of a well designed payment services hub is an open architecture, which is easy to update. Transaction processing logic and rules are maintained as meta-data. This means that the system never becomes legacy because it allows the bank to replace parts as they retire, and to upgrade the supporting technology as necessary. A payment services hub should offer a high degree of flexibility and agility, so it can serve the business users and easily adapt and change according to the bank’s strategic objectives.

Looking ahead

I emphasise that a payments services hub is more than just a framework and it should not be a purely technology-driven decision. Banks should be clear on their strategic intent before they modernize their payments systems and business processes. However, payments service hubs provide a way for banks to cost effectively support customised services and thereby stay competitive in the market.

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Comments: (3)

Ketharaman Swaminathan Founder and CEO at GTM360 Marketing Solutions

03 December 2010

After being exposed to strategic payment hub programs at several Tier-1 banks in many regions of the world, I've begun to believe that a single payment hub for all types of payments is a pipedream that is not achievable. I've come across many a program of that nature commence with the grand vision of achieving consolidation across the bank, only to decompose into individual "hubs" for different products and / or geographies. For example, one payment hub for Faster Payments, another for TARGET2, yet another for CHAPS; or one payment hub for North America, another for Western Europe, yet another for Emerging Markets, and so on.

Technology issues apart, a bank-wide consolidation of all payment types is often rendered infeasible due to business silos, grossly variable service levels and a wide range of fee structures that span the different payment types.

Given the hefty fee incomes that banks earn from their payments business, saving in operational costs by migrating to a single payment hub is arguably not a high priority for the C-Suite, whose blessings are nevertheless required for any bank-wide initiative like this to succeed.

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Barry Kislingbury Lead Solutions Consultant at ACI Worldwide

03 December 2010

There are banks who have achieved the dream, but I agree they have more than one hub but for operational reasons rather than payment types. From recent experience at Sibos the issue of replacing legacy silos and multiple payments solutions is definitely on several large banks radars. They may make lots of money but they are old and limit the banks ability to grow or are operationally risky, these are the issues getting C-level attention and investment.

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Nikhil Mittal Financial Crimes Consultant at Wells Fargo

06 April 2011

With the way the PSH is currently dealt with by various banks across the world, it is re-silo-ing the already siloed payments architectures within a bank.

While technological roadblocks can be overcome by better collaboration, the core issue still lingers which is 'Is the bank ready for such an investment?'. Presently there are no NPVs to support the decision on a grand scale and hence smaller hubs are being implemented.

Next wave would see a Hub of hubs being talked about, will be really interesting to see the literal imitation of cloud formation in Payments scenario given that everyone wants to move to PSH.

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