Financial Institutions Must Treat Payments Processing as a Business Line to Gain Competitive Differentiation

Banks need to treat payments processing as a business line rather than a service function, asserts a new report from Needham, Mass.-based TowerGroup. As competition in the payments space continues to heat up, more and more banks will take an enterprisewide view of the payments business and corresponding technology, says TowerGroup senior analyst Colin Kerr, who authored the report.

Banks increasingly are examining payments processing as they strive to increase payments volume and market share. But banks are strained by a number of changes in the payments arena, including higher expectations among corporate clients, new payment infrastructures such as image clearing, increased competition from nonbanks and ever-stringent regulatory demands, according to TowerGroup.

"What's turning payments into a business is competition," Kerr says. "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." Kerr notes that the drivers are especially strong in the corporate space, where the volume of payments is growing but the number of providers is shrinking.

Checking Payments Strategies

But competition isn't the only driver of enterprisewide payments strategies. National City Bank ($136 billion in assets), for example, reevaluated its approach to payments because of Check 21, according to Mary Ann Francis, SVP of global trade and treasury management solutions at the Cleveland-based institution. "It affected every check," she says of the legislation. As a result, "Whether it's a business line or a focus of a strategy, what is key is that there is an overall payments strategy for the institution."

National City maintains a payments board with members spanning lines of business, Francis relates. Representatives from the treasury management, wholesale, retail, credit card, IT and operations business lines meet regularly to discuss payments initiatives across the enterprise. The group also discusses National City's payments operations in relation to the overall payments world and trends, Francis adds.

"Information is the heart of all payments operations, but it is the availability, quality and timeliness of that information that sets organizations apart," says TowerGroup's Kerr. "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."