Electronic payments are moving cross-channel at the speed of light these days, intensifying the race to streamline the adoption of mobile and other automated point-of-sale and real-time payments. Charles Davis reports
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The holy grail of automated payments is emerging in the form of global payment hubs platforms that process all payments, regardless of channel, currency or destination. Payment hubs enable organisations to reduce the number of payment platforms they operate, centralise the processing of multiple currencies and payment types, increase straight through processing and lower processing costs, and provide better, more holistic real-time information to their clients to help them manage the entire payment process.
The consensus view is that payment hubs are the only effective way to improve payment margins, respond to client requirements, manage compliance and avoid being left behind as competition in the payments market continues to increase.
Hubs are being built all over the world. Deutsche Bank has worked with Dovetail to build a hub to manage high volume payments across the US and Europe, and with Logica to build a hub to manage low volume payments in Europe. JP Morgan Chase has built a single platform for both low and high-value payments around the world. Misys has built a hub for a South African unit of Barclays and the wholesale unit of National Australia Bank.
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Perhaps the most ambitious payments hub project to date Bank of Americas hub, built by Fundtech is now up and running.
Fundtechs payment hub product, Global PAYplus, is built on the service-orientated architecture (SOA) concept and handles payments that operate across multiple regions, channels and interfaces. With its merger with processing technology firm Bankserv, completed, George Ravich, executive vice president and chief marketing officer for Fundtech, says that Fundtech now is poised to further expand its solution.
Bank of America and Fundtech began collaborating on the development of the global e-payments hub in 2009. Ravich says the hub enables Bank of America to automatically validate payments as clients create messages. The hub identifies any field within each payment that needs to be corrected and helps the customer correct it before sending the payment message. That way there is no human intervention necessary on the other end to clean up errors.
The hub also allows clients to attach documents and instructions to payments, improving the remittance process. Clients even can have an optional e-mail sent to beneficiaries alerting them to pending payments along with the invoice.
Ravich says the document-attaching capability is a huge help in getting corporate clients to migrate to online payments.
One of the biggest reasons clients want to retain checks is that all their remittance information is printed on it, says Ravich. When corporate clients move to electronic payments, not all of their suppliers are set up to receive detailed remittance information, and their bank may not support it, especially if it’s a community bank. The hub does the same thing, simply by allowing the sender to append the documentation, removing a huge obstacle to electronic corporate payments.
Oracle software embedded in the hub allows the system to personalize dashboards for information reporting and payments. A company is able to create a view representing all payments it’s initiated over the past month, or create a look at total cash position per currency or per country.
The hub also can track payment status to see what percentage of sent payments have been processed, and it can create a table showing the number of payments received by a beneficiary bank, how many payments have been rejected, how many payments are in the process phase.
Ravich says that Fundtechs SOA backbone eases the integration of older legacy bank systems to newer Web-based software platforms without requiring an intensive and costly overhaul.
"SOA really helps reduce the total cost of implementation and ownership because it allows banks to make changes to one part of their systems without having to make changes everywhere," Ravich says. We are building two or three more hubs for banks more right now, and every major bank is looking at this, because SOA is now at the inflection point. We are at a point where there have been enough use cases that they know what a competitive disadvantage they will be at without a hub.
Dovetail
London-based Dovetail recently added the Bank of Montreal to its already impressive list of payment hub clients that includes JP Morgan Chase, Royal Bank of Scotland, HSBC and Deutsche Bank.
Trevor LaFleche, global marketing director for Dovetail, says that Bank of Montreal like many of its clients is in the midst of reorganizing its payments business, and finds itself with a diverse, complex payments operation whose architecture has evolved over several decades and a number of major acquisitions, from its Harris Bank subsidiary in the United States to its recent acquisition of Marshal & Illsley.
They have a lot of high-value and low-value payments on one platform, LaFleche says. Like all modern banks, over the years, shifts from batch to real-time, client-server and middleware have left opportunities for integration in the system, and thats where we come in. We build payments systems for these larger players that run on 100 percent Java, in incredibly modern processing environments, and that has allowed us build flexibilities into the system that others struggle with architecture-wise.
LaFleche says that unlike its competitors, Dovetails hub enables processing of batch and individual payments on a single platform, irrespective of instrument type, value of payment, customer, channel, or transaction type. It also supports standards-based interfaces, and provides a real-time view across all payments.
Same-day ACH, multiple clearing cycles per day, were a huge move from batch processing, and so supporting multiple payments cycles plus batch was a real movement toward hubs, he says. Banks also are facing a whole lot more compliance-related fact-checking against watch lists, and a hub gets you in position to do that centrally.
LaFleche says momentum for payment hubs is coming from a variety of directions these days, not the least of which the push for mobile payments at the corporate and consumer level.
There is great power in channel-agnostic services these days, and banks are facing the emergence of mobile, and integration with the online banking engine, and SMEs and corporates who want on board, and the idea of building a platform that allows payments to be made, verified and reconciled across channels. Behind the scenes, the hub recognises any payment coming in from any channel. So you dont have to build new channels onto the payments piece you just change it once and it moves across the entire hub.
New markets
The next wave of hubs will be focused on mid-sized institutions seeking the efficiencies the larger players enjoy, he says.
Were now ready to go after a whole new wave of players, LaFleche says. Weve gained enough experience at building hubs and we have a compelling business case to sell behind, so those institutions who were waiting and watching will be able to see for themselves the benefits.
Another player in the global payments hub market, Misys, sees a great deal of potential among medium-sized regionals and smaller international banks.
Barry Kislingbury, Global Solutions Manager for payments, says that Misyss hub product, Misys Payment Manager, is a low risk, rapid-implementation method for banks to modernise their payments environment, at the same time as protecting their existing investment in legacy systems.
It doesnt matter what size the bank is, we can build them a hub that works for them, Kislingbury says. Nobody has the appetite for a total swap-out these days. Nobody is going to go to their board and say, I need $150 million pounds to swap out our payments entirely but a really narrow, cautious approach, at the $10 million range can work. And then they can benchmark results, then add a piece, then another.
Misys Payment Manager automates and standardizes payment processes from capture all the way through to settlement, cutting out manual processes. This improved efficiency enables banks to increase the volumes and capacity of their payments business as it grows, without having to increase personnel, Kislingbury says.
Financial institutions can replace complex payments flows between existing core processing systems with a centralised hub, through which all payments flow, making those existing payments more visible through a single user interface, improving internal efficiencies as well as customer service and STP rates.
Organisations already operating with a payments processing engine can also wrap Misys Payment Manager around their existing system to control the processes and modernize the environment, automating payment queues and highlighting exceptions earlier in the process without a "rip and replace" project and utilizing existing investments.
This is a key point, Kislingbury says. Although its a big project, you can replace the payment engine in a large bank as it is separate from the applications, but it is much harder to replace or update the payment processing inside a smaller banks application, especially if it has several applications, he says. If your back office already processes the transaction and accounting correctly, can you re-use those assets? If you can then you do not need a payment engine, you need a payment hub.
Kislingbury says that the hub it has built for National Australia Bank is an example of the projects Misys has underway at a number of other international banks.
Their initial take was capital markets, a smaller part of the bank but still a big part of a big bank, he says. They had 15 legacy systems and customer complaints about different levels of service for different payments. If it was a Swiss payment it was seamless, but if it was lending it was an onerous manual process. They almost had the range from automation to manual and everything in between.
Today NABs hub has brought straight-through processing to nearly 95 percent of all payments, and all manual data entry has been replaced by business rules set by the bank.
Its been a complete change to how they do business, Kislingbury says.
Misyss third annual Trends in Transaction Banking survey underscores the momentum toward consolidating payments. From the responses of more than 120 respondents across 45 countries, the theme of reducing IT complexity and costs remain the dominant concerns of transaction bankers.
Some 77 percent of respondents stated that they had started consolidating at least trade finance and cash management businesses to achieve this goal. At the same time, 45 percent described their infrastructure as "multiple core processing systems", underlining that the industry has a long way to go before true consolidation happens.
We are all ending up in much the same place, solutions-wise, but we come from the angle that our customers are not looking to replace the whole thing at one time, but to modernize one app at a time so our hub has an integration toolkit built in to it, so you can do it on the bank end, Kislingbury says. You dont need hundreds of consultants to do it. If you do this properly, you can deliver a payments hub in less than six months, which offers ROI quickly so you can go ask for more.
