Wednesday, October 7, 2009
As the dust settles on the credit crunch, it’s clear that banking has entered a new era. While it remains to be seen whether banks will heed the lessons learnt from the past two years in the long-term, there is no question that the crisis has led banks to re-think their payment strategies.
Banks want to make the most of this stable source of income, but in order to do this, they need to move to a more efficient and effective payments model. Upgrading current payments systems is however not a cost effective option. Furthermore, increasingly complex customer needs require an expansion in banks’ offerings and services. The need to innovate has never been so pressing but so too has the requirement to keep costs and risk under control.
In light of these issues, the industry is beginning to question whether managing these conflicting needs and growing challenges requires a new approach to payments technology. In recent years, service-oriented architecture (SOA) has been heralded by many as the panacea to IT and business challenges. While SOA can certainly help meet some of the challenges currently faced by the payments industry, it is not an end in itself.
Instead, a completely new payments model is emerging which should help banks address the current challenges they face head on. This model aims to blend products and blurs the distinction between high- and low-value payments, and between domestic and international payments.
Financial institutions are realising that a standardised operating model that covers all payment types is both desirable and possible. A consistent underlying architecture, usually in the form of one or more hubs, supporting multiple payment types, channels and customers, promotes efficiency and can reduce costs. Such platforms that provide practical solutions for today, and an agile payments infrastructure for the future, are capable of encompassing all payments processing and providing a structure that enables liquidity, fraud and other risks to be managed.
Failure to implement these kinds of changes will see banks struggle to maintain their income from payments as the world economy recovers and ever more low-cost alternative suppliers emerge without the legacy systems that will inevitably inhibit banks.
Head of Business Services (Wholesale)