The drive to deliver faster payments, coupled with the need to increase efficiencies and reduce costs has become the Holy Grail for many banks. However, as Simon Wicks, former Technical Development Director at Beeks Analytics discusses, balancing these desires can present significant technical challenges as payment infrastructures are very complex supporting multiple ways in which payments can be submitted, a combination of new and legacy systems and the process itself involves numerous check points and potential payment paths.
Gaining the transparency necessary to track payments from entry to exit is becoming increasingly essential if firms are to detect delayed or missing payments in time and avoid the associated fees, interest charges and the potential reputational risk concerns that the failure to meet client SLAs can present.
The drive to deliver faster payments processing across multiple global markets, coupled with the need to increase efficiencies and reduce costs, has become the Holy Grail for many banks keen to ensure they effectively meet client needs and retain their competitive position. However, balancing these desires with the technical challenges and emerging risks in a 24/7 world, can prove extremely difficult.
Payments processing environments are often very complicated. Keen to meet ever-expanding customer needs, and to offer maximum flexibility, many banks enable their clients to submit payment instructions through a wide variety of channels. For corporate clients, this could include sending instructions through web portals, FTP sites or file based batch systems. These payments then need to be processed, and the path they take may differ significantly depending upon each individual instruction, creating a spider’s web of possible routes including various credit, fraud and sanctions checkpoints along the way. After this, the payments need to be settled in numerous ways in differing jurisdictions. For these processes to work well, and to avoid payments accidently falling into the gaps, the systems performing each task need to be coordinated effectively and must operate seamlessly as components within one giant well-oiled machine.
If designing a system to achieve all of the above was not complicated enough, in the vast majority of cases payment infrastructures have evolved organically over time and are built around technology originally designed to support very different needs from today’s. Legacy systems have been enhanced to meet emerging client needs, new systems have been added as regulatory requirements have advanced and many banks have inherited a diverse assortment of bespoke systems through mergers and acquisitions.
What is happening under-the-hood ?
One of the many challenges facing firms as they seek to operate a faster and more efficient payments environment is gaining the insight necessary to understand what is happening under-the-hood of their heterogeneous infrastructure.
A key area of focus for many is ensuring the on-going stability of both the individual systems and the overall process. This is increasingly becoming essential, as faster payment processing service level agreements (SLAs) often require multiple processes to happen concurrently and increases in speed and volume mean that the same issue could hit multiple payments very quickly. Over recent years there have been a number of cases where high street banks have suffered media storms as outages have halted the processing of retail payments and generated huge backlogs that then take multiple days to process. These events can understandably prove very damaging to both customer experience and institutional reputation. The ability to detect if a system is starting to deteriorate, before the situation becomes critical, thus becomes essential in effectively managing this risk.
From a cost and efficiency management perspective, these environments can also present difficulties when the location or status of missing payments needs to be identified. Whilst many of the individual systems may enable users to search for payments and determine their status within their particular system, this may not be available across the entire end-to-end process. Additionally, because component systems will often be allocating identifiers (IDs) individually, the same payment may acquire multiple identifiers before it is settled. This means that not only can the inability to gain a consolidated view across all systems present challenges, the lack of a common, searchable ID can further complicate matters.
In such situations finding missing or stuck payments can prove very time consuming, in some cases requiring representatives from multiple teams to work on a system-by-system basis, manually querying log files and databases, often under extreme time pressure. Furthermore, if payments fail to achieve their intended settlement dates and SLAs are breached, costs in terms of payment penalties, overnight interest charges and reputational risk can also take their toll.
The ability to tie-up siloed infrastructures, so an end-to-end view across the complete process is possible, and thus be able to allocate a single, globally applicable ID per payment would significantly simplify this process and considerably speed up the task of finding missing payments. This approach would also provide the insight necessary to understand which payment instructions are currently in progress, if any are taking longer than expected in particular stages and, if so, why. This would help to pre-empt the risk of late payments, by allowing preventative action to be taken to ensure they are able to complete on time.
As firms seek to process payments faster and look for ways in which they can increase efficiencies, reduce cost and settlement risk; the move towards a more transparent infrastructure could present huge benefits.