Published in American Banker, October 19, 2010
Tuesday, October 19, 2010
Recent economic upheaval has resulted in unprecedented consolidation and tremendous regulatory change. Banks are now wondering how to take advantage of the capital investments made during this time as well as how to generate profits.
In similar historic circumstances banks that did not make the next-generation technology investments shortly after such change failed to exist. During the 1990s the S&L fallout led to an enormous amount of change and a tremendous amount of consolidation in the industry. The banks that responded by better integrating their systems thrived, but those that did not make the appropriate investment were in a much weaker position than their competitors. Globally, banks must now rise to a similar occasion and invest in the next generation of payments.
Most large financial institutions are considering payment convergence and the use of frameworks to improve cross-selling solutions, drive better customer value or simply lower the cost per message. The downward pressure on costs means that banks must continually consolidate their systems and drive cost reductions. At the same time, they must manage the risk of fraud that is inherent in the business.
Financial institutions have purchased a great deal of technology and other tools in the past 30 years to manage payments. However, they still suffer from the inability to automate payment processes, gain business insight across their enterprise in a comprehensive fashion, protect consumers from financial crimes and quickly deliver compelling new and better services to customers.
The electronic payment systems that are on the market today often ignore customers' needs, are too complex and difficult to deploy and use, and do not support basic economic principles such as transparency and liquidity. Additionally, most banks and their vendors have many payment systems with redundant and overlapping components that cannot be used or integrated. This situation has resulted in the inability to migrate to newer systems and unnecessary waste in developing, deploying and operating redundant parts.
Businesses are challenged by the complexity of payments and the need to transition to the future. This is what consumes resources and keeps payments as an expensive commodity rather than a strategic advantage. Insights learned from a "lean manufacturing" movement, which focuses on adopting uniform and interchangeable parts, have the potential to transform the payments industry.
This approach controls and automates the payment environments. By continually understanding the business conditions as well as the desired state of payment systems, the industry can develop and deliver the repeatable processes required to automate the initiation, management, security and operation of a payment life cycle within the context of the changing business conditions.
As a result of the splintered organizational structures exacerbated by the mergers and acquisitions of many years, payment systems have been developed and implemented in a piecemeal fashion without regard to reusable parts.
The maturity of new technologies such as service-oriented architecture, extreme transaction processing, software-as-a-service, mobility and collaborative technologies present the possibility to transform payments. In reaction to these increased pressures and the maturity of SOA, the payments software market is moving away from the focus on monolithic, fragmented systems toward a more flexible solution.
Massive consolidation is driving the need for banks to leverage their capital investments and break down barriers across the following dimensions: customer types, payment types, geographies and banking channels. The need to break down these barriers is intensified by regulatory pressures, financial crimes and unrealized customer expectations.
By developing a complementary set of services that map directly to the payment life cycle processes, the industry can create reusable parts that integrate and collaborate to create a single unified system.
The new approach to developing payment services is one that allows for the streamlined definition of a payments system with desired states that are sensitive to changes in the surrounding environment and the market. Based on these external changes, the system can automatically make adjustments to the system definition and the current settings to continually converge to the desired state.
Louis Blatt is the chief product officer of ACI Worldwide.