Bank Systems & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.


03:00 PM
Nancy Feig
Nancy Feig
Connect Directly

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

Banks need to view payments as a business, TowerGroup says.

It Pays to Treat Payments as a Business

According to TowerGroup senior analyst Colin Kerr, banks that treat payments as an enterprisewide business also should realize internal benefits, including:

  • Improved customer service and payments-operations management.
  • The ability to deliver value-add payment services to clients based on a clearer picture of their payment patterns and preferences.
  • Improved risk management (based on improved operations knowledge of payment processing).
  • Sharing of knowledge, best practices and technology investment costs.
  • 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."

    Register for Bank Systems & Technology Newsletters
    Bank Systems & Technology Radio
    Archived Audio Interviews
    Join Bank Systems & Technology Associate Editor Bryan Yurcan, and guests Karen Massey and Jerry Silva from IDC Financial Insights, for a conversation about the firm's 11th annual FinTech rankings.