Financial Institutions Must Treat Payments Processing as a Business Line to Differentiate

Payments processing currently faces intense pressure as financial institutions strive to increase payments volume and market share, says a new report from TowerGroup titled "Where's My Payment? Using Logistics Management to Drive an Enterprise View of Payments." Banks are strained by a number of changes in the payments arena, including higher expectations among their corporate clients, new payment infrastructures such as image clearing, increased competition and ever-stringent regulatory demands, says the report.

According to TowerGroup, now is the time for banks to shift their view of payments processing so that they treat it as an enterprisewide business rather than a service function. More banks will take this enterprise view of the payments business and corresponding technology, said the author of the report, senior analyst Colin Kerr.

"What's turning payments into a business is competition," Kerr said in a release. "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 infrastructure 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 payments. TowerGroup estimates that check conversion volume in the U.S. 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 payments 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 payments operations, enabling businesswide 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."