Modernising payments: Why enterprise banks need a new operating model
Let’s look at the current state of play. Payments is a $1 trillion dollar business that has been growing at 7-10% annually across different payment types in recent years. Various factors are driving this; namely, customers are moving to digital payments, while growth in emerging markets and the rise of international payments are also contributing to higher volumes.
For large enterprise banks, surviving – and indeed thriving – in this market means having multi-country capabilities across as many as 160+ countries, and supporting numerous clearing and settlement mechanisms. It also involves keeping on top of constant regulatory and payment format-driven changes across multiple markets, and supporting new and emerging payment formats.
In addition, enterprise banks need to have sufficient agility and flexibility to capture new markets, business opportunities and use cases. And on top of all this, they need to be able to harness new revenue streams in an agile manner.
Seeking agility and flexibility
Against this backdrop, it’s clear that banks need to be flexible and agile in order to capture new and emerging businesses opportunities, use cases and revenue streams. But they face a number of challenges:
- Increasing customer expectations. Customers increasingly expect their banks to offer self-service payment origination, as well as to provide integration into their ERP systems and banking-as-a-service; they also expect their banks to support ISO 20022.
- Stringent security and data privacy laws. Banks are grappling with stringent security considerations arising from PSD2 and Open Banking regulations, as well as data privacy laws. These require workflow changes to the way payments are handled; there is also a need for localisation in order to meet security-related requirements.
- High Performance and strong resilience expectations. Enterprise banks process high volumes of payments, often running to millions of transactions per month. And where resilience is concerned, they need their payment systems to be available 24/7/365.
- Rapid integration needs. Banks need to be able to integrate to new platforms and systems that support new operating models – and they need to be able to do so quickly.
- Need for API innovation. Many enterprise banks are building APIs themselves in order to capture new opportunities – but this tends to be a resource-intensive and time-consuming undertaking.
The traditional approach
For banks looking to overcome these challenges and increase their agility and flexibility, there are a couple of options available:
- The middleware approach. Often, banks choose to abstract their payment capabilities into a middleware or orchestration layer to achieve some level of flexibility. In this way, banks can pull different payment functions out of their standard workflows and put them into the orchestration layer, to be called upon when needed. Doing so allows banks to create custom workflows for different LOB’s, regions, customer segments as needed, quickly, without having to stand-up new systems
- The disparate approach. A second approach is to use a range of different payment systems for different countries, regions and lines of business, which means banks can achieve some flexibility and agility. Having a separate system for each LOB, region or customer segment allows banks to customize workflows to meet customer demands, while complying with regional regulatory requirements.
But while these approaches might make sense at first glance, they can also create more problems than they solve. These range from high development costs and expensive compliance processes to lingering technical debt and cumbersome upgrade cycles.
A better way
But what if there was a better way? What if enterprise banks could meet their regional payment needs while achieving consistency around the world? And what if banks could make the changes they need without being reliant upon their software vendors for innovation and tailoring customer journeys?
In an ideal world, enterprise banks would be able to focus on growing their payments businesses, instead of having to operate as a technology development center. By taking advantage of opportunities for self-enablement, they could streamline their technology footprints, comply with regional regulations and streamline their integrations with regional standardisation.
Furthermore, all this could be underpinned by a KPI-driven operating model that rewards outcomes, instead of rewarding the resources that have been expended on specific projects.
The good news is that all these things are already available to banks. Consolidation of payment systems by region help minimize technology costs & overheads, while also maintaining regional specificity and the ability to meet regulatory requirements. Hosting your payment systems on leading cloud platforms ensure scale and security, and guarantee that your technology stack is always up-to-date. Through the cloud, access to Open Banking marketplaces for innovation and fintech collaborations become available. Instead of relying on yourself to create new revenue opportunities, and state of the art customer experiences.
So, while traditional methods of pursuing flexibility and agility in payments can create additional challenges, these are not the only options to consider. A partner like Finastra provides the full range of capabilities that you need to move beyond imperfect solutions, and create a new operating model.
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