Though the term “next gen” may feel like it’s been around for generations, it is in fact relevant to banks and their own payment services infrastructure, moving inexorably to the next level due to pressures from consumers and other clients, and a shifting regulatory landscape.
A recent white paper from IBM discussed how the next iteration of payment infrastructure will develop, and what it can ultimately do for financial institutions upon adoption. The paper, titled “Analytics and Next-Gen Payments,” noted the end result is a desirable one – where banks can manage and leverage disparate platforms – yet the movement toward that cohesiveness can be a complicated path.
New technologies such as big data and analytics, the boost in mobile usage and the growing acceptance of the cloud have served as disruptions to the traditional banking model, noted the white paper, with new channels in payments adding to the upheaval.
As a result, and amid what IBM termed a “perfect storm” in the financial services industry, financial institutions are in the midst of re-evaluating their payments processes across multiple lines of businesses (LOBs), across both operations and the tools used by those operations, and the continuous process is one of refinement across both avenues.
One area, that is not new (yet still getting increased attention) is the payment hub or framework built on what is known as service oriented architecture (SOA). The infrastructure here works across several common components to facilitate payments across channels, and provides end to end processing of payments. Once a unified payments infrastructure is in place, the next-generation technology is one that is adaptable, with analytics in place to report crucial payment-related data in real time. As real time processing is on the rise in many parts of the world, data is important, so too is the flexibility to allow, and process, transactions across multiple customer types, ranging from commercial payments to treasury to consumer cards. In this environment, the piecemeal approach to payments that has worked in the past is no longer workable due to redundancy and wasted time and effort across LOBs. IBM’s recommended solution is to break down the “silos” that house individual business lines, with a 360-degree view of the company emerging as a result. Crucial information is thus shared across businesses, with existing walls no longer in place, with payment needs and customer needs finally visible to all.
To gain such visibility, the legacy systems that are in place must be at least partly reconfigured, as a wholesale “breaking down of the silos” just mentioned may be impractical. An iterative approach to the transition to a unified payments platform is suggested. The most immediate steps to be taken by FIs can include bringing in a centralized system that can also house the “useful” parts of the legacy systems that can help bridge the needs of financial players and their customers. Centralized payment platforms can provide insight into both payments behaviors from customers and current and future risk tied to those customers.
Analytics can extend beyond the purview of transactions and embrace liquidity management, with an eye, too, on risk management The centralized next-gen technology that a bank puts in place, or should put in place, would offer direct connection of accounts to real-time settlement networks, and ultimately better control over cash balances and anticipation over funding needs. Liquidity management also embraces and can make supply chain management more efficient. Strong insight into supply chain and trade finance needs can reduce risk throughout the various business lines.
All of this takes place against a backdrop of faster payments globally, so the implication is that financial players must adapt quickly as more than 35 countries around the globe, said IBM, have announced plans to develop, or already are developing, faster payments networks. Real-time analytics also can grapple effectively with a relatively new but quickly mounting concern: fraud. The risks across data breaches, money laundering and even terrorism financing have been well-documented and will be among challenges banks must meet head on.
Turning to payments themselves, IBM noted that most consumer payments across various types, from credit to debit, are settled using deferred net settlement, which means that they are batched and settled at the end of a given day – and though the process is an efficient one for banks, it is not so smooth for consumers. In fact, consumers may have to wait a few days to see funds move in and out of accounts and finally be settled.
How to address all of these issues? IBM recommended in the paper that executive leadership and long-term strategic vision must dovetail to bring payments processes to the next generation. In addition, analytics solutions must be broad in scope and modular in implementation, rather than focusing on a key area such as fraud or risk.