Few areas of banking have been as radically reshaped by the electronic age as payments. Payments no longer have to be made via checks mailed in stamped envelopes or at designated billing locations. Consumers can pay their bills in their pajamas over the Internet, and businesses have a host of options to clear payments around the globe.
But while the electronification of payments has increased convenience for consumers and corporations, e-payments have yielded increased complexity for financial institutions. Electronic check presentment makes it easier for the bill payers, but handling check images and back-office conversion places greater demands on banks' systems, says Lisa Tiemeyer, receivable products group manager for Cincinnati-based Fifth Third Bank ($111 billion in assets). In addition, businesses are demanding the greater flexibility and convenience provided by numerous payment options, leading to increased costs associated with duplicating the payments processes across multiple channels, she explains.
According to Eric Campbell, CTO of Bottomline Technologies -- a Portsmouth, N.H.-based provider of collaborative payment, invoice and document automation solutions to corporations, financial institutions and banks -- banks are deploying enterprise payments architectures to break down siloed payments groups and streamline the processing of multiple payments methods. But while nonbank financial institutions have made solid progress toward implementing holistic payments architectures, "Banks have a much more complicated problem with more difficult systems to rationalize," he notes.
The aim of an enterprise payments architecture is to leverage technologies and services across the payments business and throughout the entire organization, according to Ian Amdor, payments consultant with IBM Global Business Services. "The goal is to deliver a consistent customer experience across market segments by providing a seamless view of payments, competitive functionality and information around payment transactions, and reliable systems that clients can easily understand and depend on for predictable performance," he described in a 2007 research paper, "Enterprise Payment Platforms for Banks: Turning a Commodity Into a Strategy."
Atlanta-based SunTrust Bank ($175 billion in assets) executives have been kicking around the idea of a payments hub for the past couple of years, relates Alex Nygren, vice president and architecture portfolio manager for the bank. About eight months ago, he says, the bank started to focus seriously on building an enterprise payments architecture.
According to Nygren, bank executives began by examining the commonalities across payments channels and by posing some key questions. Those questions included challenges such as, "How can we exploit things across payments, consolidate channels, and provide a more common and consistent approach to how we do payments?" he reports.
A common obstacle across the industry to achieving those goals, however, is the prospect of using yesterday's legacy payments technologies to meet the demands of today's payments business. For banks, the move to enterprise payments architectures is propelled by a "desire to move away from legacy payments engines," says Brian Geisel, EVP of the enterprise payments division at Atlanta-based payments-processing solutions provider Goldleaf. Geisel points out that the industry's ACH and check system engines were developed almost 40 years ago. "It's really esoteric stuff -- it's all batch-based, too," he says.
"Our current payments architecture is expressed in terms of the times," SunTrust's Nygren says, explaining that even technology purchased in the late 1990s doesn't cut it for today's payments complexity. "As technology changes ... and Web capabilities emerge, it behooves an organization to see different approaches to how they may explore an engineering project," he adds.
Why Enterprise Payments Architectures?
How and why organizations pursue enterprise payments architectures can be dictated by geography, notes Colin Kerr, research area director for Needham, Mass.-based TowerGroup's payment practice. In Europe, for example, standardized clearing mandates under the Single Euro Payments Area (SEPA) and the European Payments Directive are driving enterprise payments architectures initiatives, he says. But U.S.-based banks, which are not obligated to comply with the same regulations, are trailing their European peers in this area, Kerr contends.
"The U.S. has been slightly behind the curve because of the money [recently] spent on Check 21 initiatives," Kerr adds. Now that much of the image-enabling projects are complete, however, Tier 1 banks have begun to explore enterprise payments architectures as a way to rationalize their systems and cut down on duplication of effort, he says.
The most common strategy that vendors and banks are taking to reduce that duplication of effort revolves around service-oriented architecture, according to experts. SOA can enable banks to reuse common payments processing services -- such as Office of Foreign Assets Control (OFAC) screening, foreign exchange (FX), formatting and routing -- across different payments channels, rather than recreate and repeat them in separate silos.
In addition to reducing duplicative efforts, an enterprise payments architecture also helps banks improve three other key areas, according to Jim Gahagan, director for financial services industry marketing for Sterling Commerce, a Dublin, Ohio-based business-process solutions provider. The first area is the ability to quickly onboard customers. "This is the front-end piece of connecting to banks," Gahagan says. "It needs to be quicker."
The second area of improvement is moving toward straight-through processing, Gahagan continues. And the third, he says, is the back-end piece -- gaining visibility into processes as payments flow downstream. "Any bank in global transactions is looking at this," Gahagan explains. "It's a competitive advantage."
However, "There are not many [banks] that are really well advanced down this path," contends TowerGroup's Kerr. "One year ago, I was saying most banks are just talking about this."
But today, many are saying the time is right for action on enterprise payments architecture projects. According to Kerr, Charlotte, N.C.-based Wachovia ($782.9 billion in assets), Charlotte-based Bank of America ($1.3 trillion in assets), SunTrust and San Francisco-based Wells Fargo ($575 billion in assets) are the U.S. banks that are farthest down the road to achieving an enterprise payments architecture.