Payments Transformation: One Step at a Time
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Overview: Although noncash payments continue to grow globally at approximately 12% compound annual growth rate, in the current competitive market, banks must find a way to increase margins. The most daunting challenge in the near term may well be the need to refocus future investments in “wholesale” payment and cash management services. Banks need to transform their payments services from siloed products that support a single payment method to a convergent, more holistic set of services. They need to align their payment services with corporations' internal business processes for disbursements and receipts. Despite banks' actions to cut costs and their greater willingness to consider outsourcing operations and technology, true payments transformation at many banks is still obstructed by operational redundancy and a complex, inefficient payments infrastructure. At some point, banks must invest proactively rather than reactively or defensively in payments operations and technology usage if they are to retain competitive advantage. TowerGroup sees a trend toward a payments model of expert systems coupled together by means of an enterprise payments framework using service-oriented architecture (SOA) concepts. The services would include many ancillary payments processes such as security, exception management, and compliance screening that are required to complement pure payment processing functions. No bank is likely to be able to revamp payments delivery channels, processes, and back-office applications in one fell swoop. Rather, transformation will be achieved incrementally. Analysis of the payments environment to draft the road map exposes similar functionality and service requirements that define the milestones.