Changes in consumer behaviour, technology adoption and creative payments offering are driving a transformation of the payments ecosystem, with the result being that the demands of banks and processing hubs have outgrown their technological capabilities.
Between 10 and 15 years ago we saw significant investment in the payments industry following concentration and internationalisation of both bank groups and processors. Mainframe technology which was the peak of advancement at the time – a position it maintained for decades – offered stability. However the downside of these dedicated platforms was inflexibility, which is becoming increasingly problematic for banks when time-to-market provides such a competitive edge.
Operating dedicated platforms for any type of card does not integrate well with an important aspect of the modern retail banking business: the single-customer-view. Today’s customers are impatient and unlikely to wait for a bank agent to fiddle with a number of systems in order to view the balance history. Any workaround that provides halfway unsatisfactory results would require significant IT effort to build interfaces in the bank’s front and back office.
There is consensus across the industry that it is time for a new generation of platforms, either through the development of a proprietary system or collaboration with a payments processor, such as SIX.
The decision to move to a new platform is not an easy one as it requires significant investment, in terms of both money and time. The migration process is likely to tie up resources for at least a year in the business and IT departments alike. Of course, once successfully implemented, a new platform will result in a considerable return on investment (ROI). Business processes and transaction processing will be simplified and, more importantly a competitive edge will be added when compared with that of peers, in particular, greater flexibility which makes it easier for issuers to add new customers, features and products.
In practice, this has led to a move away from mainframe systems to cluster technologies when it comes to systems architecture. One of the key strengths of the new generation platforms is the database which can be accessed from a variety of applications. As the data models are at the centre of the architecture, the surrounding systems can perform the required transactions at unprecedented speed. Consequently, new products can be developed and implemented easily and quickly: it’s more of a configuration than having to code or programme the logic. Subject to complexity, products can be ready to market in weeks instead of months.
Like any technical migration the move from traditional cards business to 360° solutions is a huge project for IT support, but the benefits are tangible. The capabilities of a new platform allows products to be brought to market with greater ease and speed and allows forward-thinking banks to maintain their position at the vanguard of technological developments and market needs. Perhaps most important is the reduction in total cost of ownership in operations and maintenance that modern platforms provide.
In terms of product diversity, new generation platforms can handle the whole bandwidth of card products and virtual cards, with two distinct advantages. First is the commercial aspect of a broad and innovative product portfolio. Through integrated processing of debit, credit and prepaid cards as well as newer solutions like contactless, mobile and P2P, an issuer can bundle all volume and leverage the economies of scale stemming from its entire portfolio.
Second is risk management and customer aspect as the system provides a comprehensive view of the customer with a single click – something which allows banks to better assess risk and ensure compliance with Basel regulations.
Increased flexibility means that banks can make a stronger, faster impact on the market, giving them a much sought after edge over their competitors. Differentiators such as peer-to-peer solutions are becoming ever more important as customers look for speed, security and convenience. Paymit is one of the most recent examples. It is a mobile-based application that SIX has developed for and with the Swiss banking community aiming at displacing cash transactions.
Regardless of the technology that sits behind the processing services, the expertise of the payments processing partner and its customer focus is paramount. Our research shows that the majority of SIX customers are interested in what we refer to as full outsourcing model – levels ranging from pure processing through comprehensive technological provision to a full service capability where the processor takes over the full spectrum of card operations for a financial institution, encompassing authorisation, clearing and settlement, fraud and claims management and also call centre services.
Customers place ever more expectations on their bank and are increasingly vocal when these expectations are not met. At the same time, interchange regulations put issuer profitability under significant pressure. A technology partner can support its banking customers to find the right strategy and manoeuvre among the multiple future payment options. Banks need to take the bull by the horns and be prepared for sweeping shifts.
By Andrej Eichler, Head of Financial Industry Services, SIX Payment Services.