Innovations in technology, competitive pressures, emerging market developments and expanding client requirements are revolutionising the world of payments processing. Calls to support new payment models, demands for seamless, faster payments across multiple currencies and geographies, regulatory mandates to further reduce risk and technological advancements are generating a cornucopia of changes.
This degree of transformation, especially when considered alongside the significant growth projections for non-cash transactions in coming years, presents sizable opportunities for many providers. However, for others, meeting this growing list of demands, and staying one step ahead of the fresh-faced competition, comes with its fair share of challenges.
Living with legacy
A major challenge often experienced by traditional market participants in embracing change, is just how complex their payment processing environments have become. Many of these have evolved organically in response to emerging client needs with changes quickly implemented to meet impending deadlines.
As new offerings have been brought speedily to market, new functionality may have been bolted onto legacy technology, which, over time, has been concreted into the infrastructure’s very foundations. In many cases the legacy technology, whilst very good at performing the tasks it was originally designed to do, may now be supporting a very different set of functions and level of volume from the original design goals.
If future enhancements continue to be supported by such legacy backbones, further adding to the already tightly knit clusters of processes they comprise, it is important that firms have the degree of oversight to quickly identify the early warning signs of potential risks to ensure on-going resiliency.
Complex and siloed environments
Merger and acquisition activities have often also added complexity, resulting in the inheritance of duplicate systems and processes for the same product. Additionally, new third party systems may have been incorporated in order to meet client and regulatory needs, further contributing to a disjointed puzzle. In many cases, a combination of these factors has led to the creation of highly intricate and siloed processing infrastructures.
Whilst many firms operate effective system-by-system, process-by-process monitoring and reporting tools, the challenge is understanding the end-to-end payment transaction flow. Unfortunately individual system monitoring only enables fragmented snapshots of what is happening at any one time to be revealed.
Without a 360-degree view of how everything is operating, technical teams can often struggle to fully comprehend the exact impact that functional and non-functional upgrades might have on related systems and payment flows, and hence the complete process. These limitations can stifle innovation by restricting a firm’s ability to respond to market changes and introduce new payment models in a timely manner. Conversely, it can also hamper efforts to retire duplicate systems.
The budgetary burden
Sustaining these environments can prove a huge budgetary burden; with a large proportion of available spend, sometimes up to 80%, swallowed up with system maintenance and error remediation costs. A large component of these costs comes from the manual effort and time required by business, operations and client services teams to continuously assess the health of different, and possibly duplicate, systems, and when an issue occurs determining the cause and quantifying the client and business impact.
The budget allocation required to cover these costs then reduces the amount available to improve efficiencies, which could in turn reduce per transaction costs in an increasingly competitive marketplace. Additionally, the percentage that can be apportioned to developing new products, supporting customer retention and growth, is also restricted.
As such, simplification, the introduction of more holistic approaches and greater automation would present significant long term cost benefits.
Tracking payments from entry to exit
Navigating the labyrinth of possible paths a payment may take during end-to-end processing has now become incredibly complicated. This is a result of the increased number of entry and exit points for a payment and the level of credit, risk and sanctions checks required for payments across multiple currencies and geographies, coupled with the interconnected or batched nature of many types of payments. With technological advancements and client demands to support new payment models on the rise, the degree of complexity is only likely to increase.
Furthermore, due to the siloed nature of systems, as a payment moves through the processing environment it is likely to be allocated different identifiers by each system. Therefore, trying to determine the location of a particular payment can be very difficult, as it is likely to change identifier multiple times throughout the payments process.
These inconsistencies can result in missing payments, which then require considerable manual effort to detect and locate, generating settlement failures, late fees, and potential litigation. As payment processing SLAs get faster and the processing flows even more complex, the time available to resolve these issues before they become critical has significantly decreased.
The ability for payments to be known by a single identifier from their point of entry to final posting, for operations teams to be alerted to payments at risk of failure, along with the high degree of operational oversight necessary to detect their location across complex flows, has been shown to cut issue resolution times from hours, and in some cases days, to minutes, whilst increasing support team efficiency and successful payment rates.
Reliability, stability and efficiency: Primary payment health factors
Reliability, stability and efficiency are fundamental to sustaining client trust and retention in modern banking. Regulatory scrutiny and the significant media coverage generated by recent issues impacting high street banks have demonstrated just how costly, from both a financial and reputational risk perspective, slips can be.
Therefore, it is essential that, as firms enhance their systems to meet emerging client, competitive and regulatory demands, they are able to achieve the level of operational oversight across the complete process to ensure they can adequately manage change risks and that they don’t also fall victim to high profile omissions. If an issue does arise, they must be able to rapidly identify the problem’s root cause so remedial action can immediately commence. In addition, timely access to the data necessary to identify in which system payments are stuck will allow them to allocate manual resources to resolving the problem and help accurately identify and manage the many risks that can flow from the incident.
At the same time, client-servicing teams also require the information to accurately advise impacted clients as to the status of their individual payments as they move through the recovery process. In doing so, issue resolution and impact assessment costs can be slashed, risks more effectively managed, and client disruption and potential sources of stress minimised; along with the likely fines.
The transparent future
The transformational nature of the changes already being experienced and those set to impact payment providers in coming years are likely to be vast. Tomorrow’s premier providers will be those putting in place the strategies, technology and business processes now that will empower them to not only confidently embrace current changes, but also achieve the high degree of transparency, operational oversight, agility and levels of resiliency necessary to effectively meet the inevitable future developments still to come.
By Simon Wicks, Technical Development Director, Velocimetrics