The recent financial crisis and continuing impact of a slow growth economy and increased regulation has focused financial institutions on the need to be more agile and innovative. This requires greater flexibility from the technology that underpins card services and other payment processes. Banks need platforms that improve their ability to anticipate changes, respond quickly and ensure a faster time-to-market for new products while also costing less to install, deploy, configure, maintain and migrate.
Unfortunately, many banks are struggling with legacy payments infrastructure – of which card processing is only a part – that has been built up on an ad hoc basis over the past few decades. Comprising separate systems, information silos, duplicated processes and extensive teams to support them, this infrastructure tends to be cumbersome, inefficient, expensive and unresponsive. The result is higher maintenance costs, lack of customer focus and stifled innovation.
However, there is an alternative: the integration of new card processing systems into more agile payment hubs. A hub is a central platform that breaks down the internal, vertical barriers to integration seen in many legacy infrastructures. Mature hubs provide central processing services to feed all channels and all payment types, rather than creating a complete but separate payment function for each channel, payment type or business unit.
No Big Bang
Hubs work by processing input data from all channels, including cards, and then routing it intelligently to the relevant downstream applications. They also provide a single feed to all centrally managed utilities – risk management, fraud prevention, settlement and reconciliation and customer services – as well as value-added data analytics and product enhancement.
Card processing thus becomes an integral part of a broader, holistic payments capability, fully and efficiently supported by business processes that have been transformed into single service units shared by the entire enterprise. Sales and services are no longer targeted at customers based on their card use alone, but on all aspects of their relationship with the bank. This granular, accurate picture aids the development of precisely targeted products and services – and efficient workflows to support them – that have a far greater chance of achieving revenue or cost saving goals.
For those who still have the scars from previous enterprise-level technology implementations, one of the most significant advantages of a payment hub is that it does not rely on a massive, big-bang replacement project. Appropriately for a platform that is designed to enhance an organization’s agility, there is no need to rip out and re-build the entire payments edifice. Banks that have already successfully moved to a payments hub have done so by taking an incremental approach, starting with card processing or other strategically important areas, and incorporating more functionality over time.
However, there is no universal blueprint for hub adoption. A company’s existing systems are dictated by its individual history, customers, markets and regulatory framework, and so are the changes that need to be made. Each financial institution must determine its own requirements and priorities, and the means by which these will be achieved.
Nor does a hub eliminate the need for detailed project planning that takes stock of the current situation, assesses the impact, creates a watertight business case, assigns project ownership and leadership and identifies low-hanging fruit for early success.
There are useful route maps available. For example, the Payments Maturity Model (PMM), developed by Aite Group describes how a financial institution can progress through a series of clearly identifiable stages to become a truly agile payments business. Using methodologies that have informed other more widely-known maturity models – notably the Capability Maturity Model/ Infrastructure developed by the Software Engineering Institute at Carnegie Mellon University – the PMM acts as essential check-list, guide and progress report.
The move to a payment hub is not to be undertaken lightly. The financial, managerial and operational implications will only be mitigated by meticulous project management. But the implications of maintaining the status quo are no less serious: a steady loss of competitiveness that banks ignore at their own peril.
Mr. Blatt is chief product officer for Framingham, Mass.-based ACI Worldwide Inc. He can be reached at [email protected].
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