Though banks generate one in four recurring bills, according to Gartner, siloed lines of business and disparate payment systems keep banks from achieving economies of scale and improving customer service. Payment service hubs (PSHs), however, could help banks overcome the traditional silos separating payments solutions and promote efficiency, the Stamford, Conn.-based research and advisory firm says.
Without an enterprisewide view of payments operations, it is difficult for a bank to assess the flows of funds moving in and out of the bank and, thus, to measure its risk exposure. Further, banks are hard-pressed to find the most efficient means to fulfill payments and provide the best customer service possible. "Regardless of where the processing happens, banks have to know collectively what's going on with specific clients and the [payments] processes they are using," explains Vince Hruska, SVP and manager of product solutions strategy at Beverly Hills, Calif.-based City National Bank ($16 billion in assets).
Fortunately, PSHs promise to centralize payments processes, enabling banks to develop holistic payments strategies. A PSH is an intelligent central engine that uses workflows to capture, map and route payment information through clearing, settlement and risk mitigation, according to Gartner.
"Middleware that sits in front of payment applications detects via XML or EDI [electronic data interchange], for example, which application needs to process the payment," Hruska explains. "A routing engine determines the most efficient processing method and pushes the payment toward the best application. PSH enables banks to break down silos, reuse common infrastructure and conduct payments more cost-efficiently."
Of course, banks have their work cut out for them. First, banks need to understand how their internal payments operations work from consumption, processing and risk standpoints. Next, institutions need to evaluate the IT architecture operating among their many lines of business.
"Banks need to take into account all different payment services used by all clients, consumer and commercial, and how each business unit processes each payment," says Christophe Uzureau, research director, financial services research group, Gartner. "Then they need to align business governance operations with IT. This will eliminate redundant systems and help the company establish a holistic payment infrastructure."
There is no silver bullet to deploying a PSH. "Banks need to implement a set of middleware components between legacy systems and their business channels where payments are processed," explains Richard Crone, founder and CEO, Crone Consulting (San Carlos, Calif.). Successful integration, he says, can be achieved through packaged solutions, APIs (application program interfaces) or service-oriented architecture.
The challenges go beyond IT, adds City National's Hruska. "A cross-cultural drive is required to tackle something this complex," he asserts. "Larger banks are approaching PSH from a risk and efficiency perspective, while mid-tier and smaller institutions, such as City National, are evaluating how we can use this technology to deliver more customer service and gain a competitive advantage."
The big winners could be the banks that merge mobile payments into the mix. "According to Visa, 58 percent of consumers want to make payments via their communications device," Hruska contends. "Mobility could jump-start the adoption of the hubs."