Treating Payments As A Business Line

Payments processing currently faces intense pressure as financial institutions strive to increase payments volume and market share. Banks are strained by a number of changes in the payments arena, including higher expectations among their corporate clients, new payment infrastructures like image clearing, increased competition, and ever-stringent regulatory demands.

New research from TowerGroup finds now is the time for banks to shift their view of payments processing - treating it as an enterprise-wide business rather than a service function. The author of the research, senior analyst Colin Kerr who is the newest member of TowerGroup's Global Payments research practice, expects more banks to take an enterprise view of the payments business and the corresponding technology.

"What's turning payments into a business is competition," said Kerr. "Managing current customers, while fending off challenges from increasingly vertically integrated competition, is forcing banks to construct business cases for their payments products, rather than considering them as utilities that are parts of larger deals. Key to this is including the architecture of the technology underpinning the payments operation in strategic planning. An integrated approach between strategic planning and technology will help banks pursue a unitary business model that includes products, channels, market infrastructures and service."

Highlights of the research include:

• Growth in the volume of electronic payments is not only organic, but also a result of conversion of checks to electronic payment methods. TowerGroup estimates that check conversion volume in the United States will rise from 500 million items in 2002 to approximately 4.6 billion items by 2008, adding another significant dimension to the complexity of payment operations.
• Corporations integrate with transportation and logistics companies to optimize the supply chain. Similarly, banks should view themselves as the logistics providers of the payments business to help optimize both internal processes and corporate payment flows.
• Since payments are based upon the same core elements -- and since the mandatory information requirements are essentially the same for all payment types -- banks have the ability and data to provide the integrated payment capabilities that corporate clients demand. But they cannot do so if their payments services are fragmented. Inaccessible data stored without context is of little value to external parties.
• The right architecture and technology road map will facilitate a consolidated, consistent view into payment operations, enabling business-wide functionality such as tracking and tracing, intelligent payment routing, trending of payment processing, and rule-based exception handling.

Kerr continued, "Information is the heart of all payments operations, but it is the availability, quality, and timeliness of that information that sets organizations apart. The banking institutions that become true 'payments logistics providers' and offer better visibility into the full payments process will gain real differentiation in the payments business."

Prior to joining TowerGroup, Kerr spent eight years with ABN AMRO Bank, where he held the position of first vice president, Transaction Banking, North America. He started his career in the retail banking division of HSBC in the United Kingdom, before he joined software vendor Aleri as a business analyst. At TowerGroup, Kerr will draw upon 19 years of experience in the banking and payments industry, with particular focus on international and cross-border commercial payments, enterprise payment solution models, and the strategic use of technology to support the payments business.