Modernizing Commercial Payments: When Duct Tape and Rubber Bands No Longer Work

The patchwork of applications and technologies on top of legacy payments infrastructure seems anything but capable of keeping up with today’s mobile-empowered customers. IBM says that a faster and more streamlined payments system must pick up where the duct tape and rubber bands leave off if we want a modern commercial payments ecosystem capable of serving a modern customer.

IBM’s latest white paper, titled “Faster Payments: Three Steps To A Modern Commercial Payments System,” argues that the uncertain and ever-moving payments marketplace is in desperate need of modernization or it will be left to deal with the consequences.

Continuing to support siloed legacy payments infrastructures has left financial institutions to deal with poor visibility, operational inefficiencies, inflexibility and an uphill battle in terms of evolving to meet customer expectations, IBM explained.

The complexities of these existing systems are only exasperated as financial institutions push for newer applications and subsequently implement patchwork solutions and integrations to keep them running.

But a move toward near real-time payments, which the white paper identifies as a movement being pursued worldwide, may be the change commercial payments processing needs.

“It is inevitable that faster or real-time payments will become a reality worldwide — it’s just a question of timing,” the white paper states.

The significance of transforming the current commercial payments system into a more sustainable infrastructure is underpinned by the fact that nearly 85 percent of financial institutions have either deployed or plan to deploy a payments convergence project to simplify and streamline processing, according to a recent survey conducted on behalf of IBM.

In order to reach a payments environment nirvana – one that is inherently more modern, streamlined and flexible – the white paper suggests banks and financial institutions follow three fundamental steps, as well as creating a strategic blueprint to reach a more modernized payments system.

STEP 1: CONVERGE MULTIPLE PAYMENT SYSTEMS ON A UNIFIED PLATFORM

Rather than entirely replacing legacy payment systems, which is not only time-consuming but also not cost-effective, IBM suggests modernizing the payments ecosystem should involve bringing together existing applications and processes on a unified, robust platform. Supporting a platform based on open standards can position banks to consolidate, standardize and centralize payments operations through a middleware integration layer. Eliminating a disparate infrastructure reduces operational inefficiencies and helps to future proof systems for ongoing innovation, the white paper stated.

STEP 2: USE ANALYTICS FOR GREATER PAYMENTS INSIGHT

Instituting more holistic and advanced payments reporting and analytics will help financial institutions combat many of the challenges current being faced in the payments landscape. IBM argues that the use of predictive analytics tools provides improved depth and immediacy into how customers are being serviced and can deliver more insight into risk and fraud management, compliance strength, profitability measurements and potential revenue opportunities.

STEP 3: PROGRESSIVELY EVOLVE PAYMENTS INFRASTRUCTURE

Instituting an approach to iteratively evolve legacy payments systems is preferred over the “big bank” rip-and-replace strategy, which IBM identifies as impractical from a disruption, risk and cost perspective. With the necessary technology in place, modernizing commercial payments processes in a progressive manner can help banks reach their goals of implementing systems that support reduced technical requirements and a greater ability to adjust to faster market changes, IBM stated.