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My Inside View: Faster payments a catalyst for even bigger innovations

And the banking line of business owners with whom I meet seek to understand the impact that faster payments will have on their various business models and revenue streams. At the same time, their IT counterparts contemplate the technological requirements necessary for readying their infrastructures.

It’s no secret that many business and technology banking executives have (or have had) initial skepticism around the business case for immediate payments. 

Concerns over revenue and product cannibalization, the need for increased risk and fraud prevention, and the investment required to enable real-time connectivity across dozens of systems has bankers worldwide questioning whether they really want to bring faster payments to their markets at all.

The answer to that question is yes.  And in the long-run, the reason they need to invest in faster payments may have very little to do with payments.

Preparing the bank for faster payments provides an opportunity to re-imagine the banking and payments businesses for the 21st century.  Immediate payments are becoming a reality in one country after the next. 

As the world gets smaller through interconnectedness, we’ve come to understand that immediate payments are simply one element of a larger, global, real-time revolution effecting all areas of our lives.

And with every change comes opportunity. As banks accept the inevitability of faster payments, they realize that preparing for them provides a larger opportunity for product and technical innovation.

As bankers prepare for immediate payments, they are provided the opportunity to:

  • Take ownership and control of their highly complex technology infrastructures,
  • Anticipate and embrace change, and
  • Create a technical foundation for future innovation. 

Preparing the bank for immediate payments requires an investment in an operating environment that supports system configuration over coding, invokes modern programming languages, is scalable and resilient and able to run on multiple platforms. 

The environment should also be SOA-based to enable rapid software development, incorporate contemporary messaging standards (like ISO 20022) and be “services-enabled” to more easily integrate with other systems.

Taken together, these investments comprise an “innovation platform” that can enable the bank to re-shape its traditional business models. A technology infrastructure that is able to support future banking and payments innovations can be utilized in many ways. 

For example, one of my ACI colleagues recently expanded upon this concept in his blog post on “platform banking,” which you can read here.

A second example could be the application of the flexible, contemporary banking infrastructure to support the convergence of a bank’s retail and wholesale payments businesses. 

While payments convergence is not a new idea — The Asian Banker conducted research in 2009 that profiled initial convergence efforts by Citi, Deutsche Bank and Standard Chartered — today’s availability of SOA, modern messaging formats and enterprise services can help bring about the realization of the payments hub.

The potential benefits of the payments hub include the promise of reduced IT expenses, increased speed to market and flexibility to introduce new products quickly. Separate lines of business (for example, cards and checking accounts) can be more tightly integrated for better customer support, cross-selling, and retention strategies. 

So, as a bank’s various payments processing systems continue to age – wire transfer, credit cards, checks, debit cards and others – the preparation for real-time payments provides an opportunity for the bank to re-think its full suite of payments products, as well as to consider a payments hub strategy.

Where should a financial institution begin? By accepting, then embracing, the opportunities that preparing for faster payments bring. By thinking long-term and big-picture, banks can lay the foundation of their innovation strategies for the next twenty years. 

In the long run, it might turn out that the true legacy of faster payments will be its role in preparing the bank for even bigger, more significant bank innovations. 

I will be discussing how to leverage technology to enable innovation during a session on ACI’s Supercharged Payments Stage at Sibos. Click here to view the session details and to add them to your calendar.

Director & Practice Lead, Retail Banking & Consumer Payments, Americas

As Practice Lead, Ian analyzes the complex and quickly developing transformational changes in the retail financial services industry, assesses their impact to the banking and payments ecosystem, and communicates this information through the development of business models and value propositions to ACI’s strategic clients, and to ACI’s sales and product development teams. Among the many topics he studies are omnichannel banking, faster payments, mobile payments, card fraud controls, and cyber-currencies. Within his portfolio of responsibilities, Ian represents ACI on the Federal Reserve Bank’s Faster Payments Task Force. Before joining ACI in 2014, Ian worked for several industry market analyst and consulting firms, including TowerGroup, IDC Financial Insights, and Mercator Advisory Group, where he established and managed its strategic consulting organization.  Ian has a Bachelor of Arts degree from Brandeis University and an MBA from Columbia Business School. Ian is a board member of several civic, community, and social service organizations, but prioritizes trying to keep up with his three teenage daughters.