The payments services industry is booming. Worldwide mobile payment transaction values will reach $235.4 billion by the end of 2013, a 44 percent rise from $163.1 billion in 2012.By 2017, the market will be worth $721 billion with more than 450 million users. On the flip side, payments are no longer the sole prerogative of banks. Thanks to digital disruptions, other payment service models have evolved, enabling non-banking players to provide similar services at lower costs, giving banks a run for their money.
Banks are trying hard to reclaim their dominant place but several pain points stand in the way: legacy infrastructure, homegrown systems, stove-piped architecture and batch-oriented interfaces. Cross channel integration is virtually nonexistent resulting in data redundancy and difficulty in reconciliation of transactions. However, banks are now getting their act together, propelled by the rapid rise in global transaction services.
Post the sub-prime mortgage bubble burst and the ensuing credit crisis, banks are back to providing global services like commercial banking, cross border payments, risk management and international trade financing and demand is huge. A revamp of their IT infrastructure is definitely in order. Banks need to create a more open architecture, standardize interfaces and rationalize existing services by implementing event-driven architecture and building cross-channel integration, Straight through Processing (STP), and Complex Event Processing (CEP) capabilities.
Another compelling reason for banks to upgrade their payment processing capabilities is the need to fulfill regulatory compliance requirements, both global standards like Basel II and Basel III and regional regulations such as SEPA-related rules and FATCA. However, implementation is proving to be a challenge thanks to the complexities surrounding these regulations and lack of clarity.
Also, the rapidly increasing number of electronic transactions calls for real-time visibility and a good reporting mechanism; existing technical capabilities are falling short. The legacy systems are unable to rise up to the required levels of scalability and responsiveness. Installation of an event-driven service architecture as mentioned earlier, and integration of events with a CEP solution help overcome these challenges. What’s more, integrating the CEP solution with analytics throws up insights into customer behavior and system responsiveness. However, CEP solutions focus only on tracking and tracing of payments. Tracking of activities from customer channels to the payment engine and from there to the clearing house systems will reveal even deeper customer insights. There is also need to handle SLA management aspects better. All these changes will enable better validation of not only regulatory compliance policies, but also other business rules such as syntactic and channel agreement rules.
Then, there is the pressure from heightened customer expectations. The new-age customer expects a seamless cross-channel experience. For instance, as a bank customer, when I send my transaction via FTP channel, I expect it to reflect on the bank’s online portal real time and also to receive an immediate status update on my mobile phone. With an increasing number of customers opting for Internet and mobile payments, banks need to quickly work on channel rationalization and integration or risk losing the customer. The organization has to first segregate the channel from the core processing layers, define SOA-based interfaces, and use standardized data formats within the enterprise. At the same time, it should support non-standardized formats at the channel end.
Innovative technologies are hitting the market on a regular basis leading to the introduction of new channels that are fast becoming customers’ channels of choice for payments. Shouldn’t banks take up the task of upgrading their payment processing capabilities on a priority basis to not only meet regulatory requirements, but also to make the most of the thriving payment services market? Do write in with your views.