The payments business operates today in a far more open and holistic environment than at any time previously. Banks are beginning to leverage business functions performed in one area of the bank for the benefit of another area. The rapid growth of international commerce has transformed the face of financial operations, notably payments. The several-day turnaround required by traditional payment systems is no longer acceptable. Banks are also facing competition in the payments space from innovative service providers, such as online payment systems.
In the European Union (EU), the single euro payments area (SEPA) is harmonising multiple national payment systems that will help reduce cost. Similarly, in the US, automated clearing houses (ACHs) allow companies and individuals to process payments efficiently and cost-effectively. Change is happening in emerging markets, as central banks upgrade their clearing and settlement infrastructure to facilitate payment flows. These constant changes challenge corporates to stay ahead of the above impacts.
Despite the complexities and challenges of the evolving market landscape, corporates should be aware of some best practices, such as operational efficiency through electronic payments, a high rate of STP through advanced technology, advanced solution such as workflow solutions and risk, etc.
The need for proactive, innovative strategies to increase operational efficiency, productivity, growth and customer net asset value, by cross- and upselling, has forced banks to consider how to play a more dynamic part in the industry. Globalisation is leading to greater foreign trade activity. This increases the need for companies to begin to make – or make more – international corporate payments. On the retail front, customers demand an efficient and transparent mode of payment.
The use of credit transfers and direct debits has grown, while the global use of cheques continues to decrease. Payments have now emerged as the critical differentiator for banks in their quest for market leadership. Banks face the following critical issues with their payments systems:
- Cluttered technology ecosystem.
- Monolithic systems, with multiple systems servicing different hosts and product processors.
- Inflexible systems, difficult to change and operate.
- High per-transaction cost.
- The need to be the leader in the payment industry has forced FI to seek.
- Improvement in payment efficiency and emphasis on time delivery.
- Real-time, round-the-clock supported payments.
- Flexible solutions for better business growth.
- Solution that can support integration with other ecosystems.
- Improvement of process efficiency.
- Improvement of control through end-to-end automated payments.
- The right analytics at the right time.
To achieve these and be a market leader, FIs should look for a system that can:
- Seamlessly integrate with the existing legacy systems.
- Support multiple modes of payments and disbursements.
- Provide the ability to define workflow as the business changes.
- Support communication flow among various external interfaces such as SWIFT, ACH, CHAPS, etc.
- Support timely customer communication through email, alerts, etc.
- Generate the right analytics at the right time.
Source: Miniwatts Marketing Group
The legacy payment systems in banks today depend heavily on human interactions that not only increase the turnaround time but also increase the risk. Today, time is at a premium and makes a huge difference to business. The growth of the internet has caused FIs to change they way they look at e-payments. While this demanded significant customisation to the existing legacy system and process, it paved the way for larger benefits to both FIs and customers. Today the growing trend of business payments worldwide shows a slow decline in cheques usage and migration to electronic transfers.
Source: First Annapolis
While e-payments certainly provide greater efficiency to both parties, there is a need for payment systems that can support:
- Large volumes of transactions to be processed accurately.
- Customers’ demand for real time transactions with proper information update.
- Lack of analytics in the proper format at the right time.
- STP – the solution to most problems. STP enables the FIs to perform transactions without the need for manual intervention. FIs have now moved to a one-day settlement instead of the traditional T+3 days or more.
- The growth of worldwide financial transactions is twice that of worldwide gross domestic product (GDP) growth.
- Real-time payments networks such as SWIFT have seen a tenfold increase in the number of corporates connected in just the past four years.
Increasing Operational Efficiency in Corporates
- Centralise their payments for more effective and efficient processing.
- Control their process through automatic workflow configurations for efficient handling and increased customer satisfaction.
- Consolidate all payments, which will help easy maintenance and reporting of regulatory requirements.
With the worldwide volume of paperless payments showing a steep increase, banks are forced to look at a solution that is cost-effective yet will yield better results in terms of operational improvement. The preferred modernisation approach should also help banks to build solutions on top of this as the bank grows.
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