Few areas of banking have been as radically reshaped by the electronic age as payments. Payments no longer have to be made via checks mailed in stamped envelopes or at designated billing locations. Consumers can pay their bills in their pajamas over the Internet, and businesses have a host of options to clear payments around the globe.
But while the electronification of payments has increased convenience for consumers and corporations, e-payments have yielded increased complexity for financial institutions. Electronic check presentment makes it easier for the bill payers, but handling check images and back-office conversion places greater demands on banks' systems, says Lisa Tiemeyer, receivable products group manager for Cincinnati-based Fifth Third Bank ($111 billion in assets). In addition, businesses are demanding the greater flexibility and convenience provided by numerous payment options, leading to increased costs associated with duplicating the payments processes across multiple channels, she explains.
According to Eric Campbell, CTO of Bottomline Technologies -- a Portsmouth, N.H.-based provider of collaborative payment, invoice and document automation solutions to corporations, financial institutions and banks -- banks are deploying enterprise payments architectures to break down siloed payments groups and streamline the processing of multiple payments methods. But while nonbank financial institutions have made solid progress toward implementing holistic payments architectures, "Banks have a much more complicated problem with more difficult systems to rationalize," he notes.
The aim of an enterprise payments architecture is to leverage technologies and services across the payments business and throughout the entire organization, according to Ian Amdor, payments consultant with IBM Global Business Services. "The goal is to deliver a consistent customer experience across market segments by providing a seamless view of payments, competitive functionality and information around payment transactions, and reliable systems that clients can easily understand and depend on for predictable performance," he described in a 2007 research paper, "Enterprise Payment Platforms for Banks: Turning a Commodity Into a Strategy."
Atlanta-based SunTrust Bank ($175 billion in assets) executives have been kicking around the idea of a payments hub for the past couple of years, relates Alex Nygren, vice president and architecture portfolio manager for the bank. About eight months ago, he says, the bank started to focus seriously on building an enterprise payments architecture.
According to Nygren, bank executives began by examining the commonalities across payments channels and by posing some key questions. Those questions included challenges such as, "How can we exploit things across payments, consolidate channels, and provide a more common and consistent approach to how we do payments?" he reports.
A common obstacle across the industry to achieving those goals, however, is the prospect of using yesterday's legacy payments technologies to meet the demands of today's payments business. For banks, the move to enterprise payments architectures is propelled by a "desire to move away from legacy payments engines," says Brian Geisel, EVP of the enterprise payments division at Atlanta-based payments-processing solutions provider Goldleaf. Geisel points out that the industry's ACH and check system engines were developed almost 40 years ago. "It's really esoteric stuff -- it's all batch-based, too," he says.
"Our current payments architecture is expressed in terms of the times," SunTrust's Nygren says, explaining that even technology purchased in the late 1990s doesn't cut it for today's payments complexity. "As technology changes ... and Web capabilities emerge, it behooves an organization to see different approaches to how they may explore an engineering project," he adds.
Why Enterprise Payments Architectures?
How and why organizations pursue enterprise payments architectures can be dictated by geography, notes Colin Kerr, research area director for Needham, Mass.-based TowerGroup's payment practice. In Europe, for example, standardized clearing mandates under the Single Euro Payments Area (SEPA) and the European Payments Directive are driving enterprise payments architectures initiatives, he says. But U.S.-based banks, which are not obligated to comply with the same regulations, are trailing their European peers in this area, Kerr contends.
"The U.S. has been slightly behind the curve because of the money [recently] spent on Check 21 initiatives," Kerr adds. Now that much of the image-enabling projects are complete, however, Tier 1 banks have begun to explore enterprise payments architectures as a way to rationalize their systems and cut down on duplication of effort, he says.
The most common strategy that vendors and banks are taking to reduce that duplication of effort revolves around service-oriented architecture, according to experts. SOA can enable banks to reuse common payments processing services -- such as Office of Foreign Assets Control (OFAC) screening, foreign exchange (FX), formatting and routing -- across different payments channels, rather than recreate and repeat them in separate silos.
In addition to reducing duplicative efforts, an enterprise payments architecture also helps banks improve three other key areas, according to Jim Gahagan, director for financial services industry marketing for Sterling Commerce, a Dublin, Ohio-based business-process solutions provider. The first area is the ability to quickly onboard customers. "This is the front-end piece of connecting to banks," Gahagan says. "It needs to be quicker."
The second area of improvement is moving toward straight-through processing, Gahagan continues. And the third, he says, is the back-end piece -- gaining visibility into processes as payments flow downstream. "Any bank in global transactions is looking at this," Gahagan explains. "It's a competitive advantage."
However, "There are not many [banks] that are really well advanced down this path," contends TowerGroup's Kerr. "One year ago, I was saying most banks are just talking about this."
But today, many are saying the time is right for action on enterprise payments architecture projects. According to Kerr, Charlotte, N.C.-based Wachovia ($782.9 billion in assets), Charlotte-based Bank of America ($1.3 trillion in assets), SunTrust and San Francisco-based Wells Fargo ($575 billion in assets) are the U.S. banks that are farthest down the road to achieving an enterprise payments architecture.
Where Should Banks Start?
Much like other major IT projects, banks should approach the creation of an enterprise payments architecture, or payments hub, incrementally, experts advise. "Banks have to rationalize existing payments infrastructures," notes Bottomline's Campbell. "It's a matter of putting things into digestible phases."
But the motivation and starting point are not the same for all institutions. Some start with the goal of efficiency, while others choose quality of data and still others begin with customer service, TowerGroup's Kerr says.
SunTrust is in the thick of formulating its enterprise payments architecture strategy and choosing the enabling technology, according to the bank's Nygren. He says the bank is approaching the initiative as an integration issue. "As opposed to top-down, we are approaching it from integration up," Nygren says, adding that the project could be viewed as an electronic data interchange (EDI) issue. "We are looking to consolidate payments channels through investments in technology, which is fundamentally middleware."
Nygren recommends that other banks similarly focus on achievable components of an enterprise payments architecture project. "If there are building blocks you can plug together, it gets you farther down the road," he says.
According to Nygren, SunTrust has seven goals, or focus areas, for its enterprise payments architecture; the bank is using these goals to evaluate potential technology solutions. The first area of focus, Nygren explains, is data transformation, which is key because the bank wants to be able to translate payments to and from any format. That is a "key tenet customers will be asking for," he says.
The second area is achieving a canonical, or common, payments format that will provide "central payments representation regardless of source or destination," Nygren explains. The third goal, which utilizes the canonical format, is the ability to apply business logic and rules to the payments stream. Nygren notes that he hopes to leverage existing enterprise rules to attach canonical, rather than specific, formats to individual payments. To achieve this, he adds, the bank plans to broaden its SOA strategy to include payments components, which have proven more difficult to integrate.
The fourth element of SunTrust's enterprise payments architecture is a payments hub that integrates into the bank's existing environment, Nygren relates. That is the foundation of the next enterprise payments architecture goal: a complete payments database that would store the payments data regardless of its type. "The payments database would allow for tracking, aggregation and reporting across all payments channels," Nygren explains.
According to Nygren, SunTrust's sixth goal is to incorporate a user interface into its enterprise payments architecture that would include reporting, and transaction and event controls. The interface would allow end users to understand where a payment is in the system at any time, "potentially ... in real time," he says. The final goal, Nygren adds, is to ensure that strong security "permeates the whole model."
What Solutions Are Out There?
Once a bank has developed a road map for its enterprise payments architecture project, it's time to start looking at the technology solutions on the market. TowerGroup's Kerr says many industry vendors are partnering to deliver payments capabilities along with strong integration.
TowerGroup has divided enterprise payments architecture solutions into two categories: enterprise payments applications and enterprise payments frameworks. The application providers are pure payments application providers that now are attempting to leverage their solutions to fit into an enterprise payments strategy, Kerr explains. Examples of these vendors include ACI Worldwide (Omaha), CheckFree (Atlanta), Clear2Pay (Mechelen, Belgium), Dovetail (Fairfield, N.J.), Fundtech (Jersey City, N.J.) and SAP (Walldorf, Germany). "These vendors have been around for some time, and they have to reinvent themselves," Kerr says.
The framework providers are developing interfaces with integration capabilities, Kerr continues. "Most vendors in this category produce enterprise application integration [EAI] ... technologies," wrote Kerr in a September 2007 report, "Are Two Heads Better Than One? The Trend Toward Alliances Between Enterprise Payments Vendors." Vendors in the enterprise payments framework area include IBM (Armonk, N.Y.), LogicaCMG (London), Microsoft (Redmond, Wash.), Sterling Commerce and Unisys (Blue Bell, Pa.), according to TowerGroup.
SunTrust's Nygren says the bank toyed with several build-versus-buy models, ultimately deciding on a mostly buy model. "We want to purchase as much as we can," he relates. "We will probably find a vendor that meets a lot of [our needs]." The bank currently is in negotiations with vendors for the first stage of the project, Nygren says, but he declines to name the contenders.
According to Fifth Third's Tiemeyer, her bank is not quite as far along in the process. "We are evaluating what's in the market," she relates. Vendors that are taking an umbrella view of payments in aggregate with risk and fraud prevention are high are her list, Tiemeyer adds.
She notes that Fifth Third's payments architecture initiative will be a generational process that will include environmental as well as technological changes. "What's available, how do we tie it together and what do we want it to experience" are among the factors the bank is using to judge its options, she explains, adding that the bank is building its systems with an eye on shared services and an integrated experience. "The advantage Fifth Third has in looking at enterprise payment channels is that we have invested in technology that is easily integrated into the enterprise," Tiemeyer says.
What Results Can Banks Expect?
While building an enterprise payments architecture is a formidable challenge, the payoff can be huge, according to most experts. Goldleaf's Geisel says an enterprise payments architecture is the "gift that keeps on giving." Banks that have pursued the strategy are realizing they can "offer services at such a low price because of STP that their competition can't get there," he contends.
In addition to efficiency, an enterprise payments architecture also delivers agility, SunTrust's Nygren says. Through SOA, SunTrust's enterprise payments architecture will give the payments group the ability to offer a richer set of services back to the bank, he claims.
According to IBM, the benefits of enterprise payments architectures include reduction in costs through enabling efficiencies and decreasing duplication, improved customer satisfaction, faster market response times, and enhanced liquidity management through better monitoring and control. Despite the promise, however, most observers agree that it will be some time before institutions see the full benefits that enterprise payments architectures can produce.
"The vision is there," Bottomline's Campbell says. "[Now] banks have to figure out how to get there."