By George Warfel, Fiserv
Controlling and reducing payment processing costs and boosting payments revenue have become critical as financial institutions suffer from the loss of lending revenue due to the credit crisis. Managing payment channels in separate silos on disparate technology platforms causes redundant work and expense. By implementing a convergent payments system to handle all payment types, a financial institution can dramatically reduce payment processing costs and offer new payment services to corporate customers.The benefits of a 'hallway' At its most essential level, convergent payments processing can be defined as the handling of payments of different types-checks, ACH, wires and virtually all other payments-on a single technology platform using a single workflow that conveys the different payment types through the usual processing steps. On a convergent platform, various payment types are supported with common processing modules and a cross-trained staff. The result is what Fiserv has termed Convergent Payments Optimization and what others in the industry have referred to as a payments hub or payments director. Regardless of the terminology used, convergent payments processing technology does more than just change the routing of a payment or simply convert a payment from one instrument to another. A truly convergent payments solution handles multiple payment types within a single suite of software that accomplishes the back or middle office functions for all the transactions that flow through it.
The benefit of a convergent payments system is best described by the analogy of a single hallway. Think of the hallway as the place where all payment types are managed by one unified workflow. The rooms along the hallway are where processing tasks are performed by one software platform and administered by a cross-trained staff. Due to its simplicity, the single hallway approach reduces errors and is also inherently better at detecting and stopping fraud since one platform monitors all payments transactions. Having a single hallway not only reduces the requirements for computing resources and personnel, but it is also more efficient and facilitates the reuse of software modules in support of multiple payment types.
To evolve beyond the integration and data-sharing limitations imposed by legacy processing systems, a convergent payments solution must leverage the use of a nimble service-oriented architecture (SOA). And, since ACH transactions are on the rise and check volumes are falling, the solution should define ACH as the normative transaction type. A system built in this manner maximizes the reuse of existing code and facilitates efficiency, scalability and the management of changing channel volumes. This combination of the right processing model, the right base transaction type and the right technology creates a convergent payments solution that delivers the cost reductions, risk management and new customer services that convergent processing promises.
Creating customer value and revenue opportunities The most recognizable advantage of payments convergence is the ability for financial institutions to process payments more efficiently by leveraging common tasks across various payment types. The customer advantage created by payments convergence is just as important. The convergent processing platform processes payments faster, with fewer errors, exposes fraud more readily and provides corporate treasurers with real-time views of their payments while being processed. A convergent payments platform makes payments processing faster, safer and more transparent for the customer.
Facilitating cost containment and growth Among the very largest financial institutions, the business case for payments convergence is most easily proven, not just because of the larger volumes of each type of payment, but also because of the diverse payment types managed. Running multiple payment types on a single platform has a dramatic effect on overall payments processing costs. Most of the top 100 U.S. financial institutions that handle both check and ACH transactions can benefit. The customer benefits that can be realized through convergent processing will be a selling point for financial institutions serving large corporate customers. Likewise, corporate credit unions, banker's banks and other institutions that provide contracted payments processing services will also gain from moving to a convergent processing system. For their customer institutions, the advantage will be faster and less expensive processing.
Streamlining payments processing is an effective way to improve financial institution profitability, especially now when payments account for a greater percentage of financial institution revenue. Through a convergent payments solution, dramatic reductions in cost can be realized. In addition, the new services that a convergent payments solution enables are highly valued by corporate treasurers. Financial institutions can use these services to defend and increase market share while enhancing revenues.
George Warfel is managing director, consulting, Global Payment Solutions, with Brookfield, Wis.-based Fiserv.