Most banking executives realize that achieving greater payments visibility and centralizing systems will enable greater cost control, increased efficiency and higher levels of customer retention. However, most banking executives also view the road to centralized payments as a long, expensive IT nightmare. Fortunately, recent standards development and advancements in imaging, real-time data access and service-oriented architecture (SOA) technology have now made it possible to create a road map to implementation that doesn't require costly replacement of systems. Banks investing in centralized payment architectures now have a new alternative for differentiating products and services with a customer-centric payment solution that leverages existing infrastructure.
A senior executive at a commercial bank eloquently summed up the challenge and opportunity of centralizing payments when he said, "At the end of the day, the leaders in the banking industry understand that winning is achieved by those who most effectively leverage their information assets to serve their customers." Unfortunately, the current payment processing environment is a highly complex amalgamation of disparate systems that were added over time to support the evolving needs of banks and their customers. New channels have been added, payment options have been expanded, legacy systems have grown in scale, and the number of point-to-point connections has risen.
As banks increased the number of ways they interacted with their customers, the number of methods in which payments could be originated, received, inquired against and reconciled also increased. Over time, not only has managing payment processes grown in complexity, but the ability to manage the holistic customer relationship has outstripped the capabilities of the systems already in place. Over the years these channels and systems have been patched, extended, scaled and upgraded, but rarely have they been simplified to the satisfaction of the bank's customers. The complex and siloed nature of today's systems management means most banks are unable to take the next steps necessary to drive growth, improve efficiency and simplify regulatory compliance.
According to Tower Group, noncash payments continue to grow globally at approximately 12 percent per year. But despite that growth, banks are struggling to increase margins. The answer lies in a centralized payments system that can support increased electronic payment volumes while also providing internal business intelligence that can point to new revenue streams and increased cost efficiencies. Banks that can effectively view, analyze and act on the data transmitted with each payment message can create custom products and services based on market segmentation and customer use.
Beyond driving global customer growth, increasing payments visibility can lead to numerous cost savings though improved efficiency. Centralized payment services can enhance workflow management and routing, eliminate call center traffic and put an end to manual exception processing. These services improve efficiency by automating the interface of payment engines to facilitate common processes and streamline reporting and administration across all channels. A leading centralized payment service provider estimates an organization employing 50 call center representatives averaging 50 calls each per day could save more than $450,000 per year in reduced customer assistance costs alone. Factor in the cost of manual exception handling and the savings reach more than $5.6 million in one year (based on 9,000 daily exceptions and an average straight-through-processing rate of 66 percent).
Another key challenge banks face today is keeping up with complex global regulatory and compliance requirements. Compliance management can be simplified with the creation of a rules-based centralized payments hub to handle risk management, audit and control needs across all channels. The payment hub can enforce compliance with payment standards and bank policies while securing access to prevent payment and message fraud. Centralized systems eliminate processing errors and significantly reduce risk by ending the dependency on aging legacy systems.
Despite the benefits of centralized payment services, most banks cannot afford to take a "rip and replace" approach to their existing legacy systems. The back-end applications have been built, customized and re-customized through the years, creating brittle systems that are not easy to replace.
But the complexity of the task is no longer a sufficient reason to wait. Achieving a centralized processing structure does not require replacement of legacy systems. Taking a services-based approach to centralizing processing allows banks to leverage historic systems while investing in future capabilities. And taking an evolutionary approach to implementation ensures banks can realize the benefits of centralized payment services without putting their businesses in jeopardy.
The first step is creating an overall payments strategy. One leading financial institution started that process by defining their top business imperatives across the categories of growth, efficiency and risk and compliance. Based on these driving goals the bank created a detailed product and technology road map.
The road map was used to define system evolution by key milestones as well as by technology and team dependencies. The team created an eight- to 12-month timeline outlining how the bank's multiple integration and compliance points would be integrated through a single, advanced SOA layer sitting between the bank's legacy systems and its customer interaction channels.
Banks need to re-evaluate their payment strategies to protect their margins and grow their business. As banks have resolved to create a broader view of their payment strategy, a new breed of centralized payment processing solutions has emerged. The evolution of this centralized visibility is the competitive key to bridging business communities, growing revenue streams and reducing operating risks and costs.
Jim Gahagan, director, financial services industry marketing, Sterling Commerce
