Yesterday at the IPS conference in London, a major theme emerged for payment banks: managing costs is no longer enough to maintain a successful payments business – banks simply have to become more efficient.

Overlaying this realisation is the concern surrounding regulatory reform. At the conference, 67% of attendees admitted that regulatory reform is at the very top of their agenda either on its own, or with other strategic issues. Not least in this regulatory reform is Basel III and its implications for payments liquidity, which provoked some searching questions at IPS:

- do banks have adequate data sources and reporting capabilities? (most thought not)

- should banks begin to charge for the use of liquidity? (most thought they should)

The fact is however that the customers are increasingly demanding operational excellence from their banks, while many financial institutions are still trying to run a fundamental service on disparate, cobbled-together systems, whose complexity and inflexibility make it difficult to respond to new customer needs, and market and regulatory demands. Three decades of ad hoc technology investment have left financial institutions with isolated islands of information, redundant processes and duplicated effort. Not surprisingly, they can’t communicate or integrate effectively and the entire edifice is now less than the sum of its parts. Platforms that were formerly competitive enablers have become a source of stagnation.

This presents financial institutions with a critical problem: the status quo is extremely costly, and can hold back the innovation needed to develop new revenues. If today’s payment systems are siloed, non-compliant, inflexible and uncommunicative, the payment system of the future is the opposite, and now is the time to get one!