March 8, 2005

Frequent B2B customer demands, compliance mandates and critical budget pressures require a fresh look at the whole payment chain from the customer's initial touch point right through to full payment processing and reconciliation.

Moving to enterprise-wide and real-time is no longer a luxury, but a business agility necessity for an adaptive enterprise focused on wholesale payments.

Financial institutions today need a wholesale payment framework that sits between the customer touch point and the payment application or system of record.

It should include multi-channel integration capabilities, common data models, and a hub approach with an operational data store (ODS) to enable the real-time and enterprise-wide applications. Banks must have a single view of the multiple facets of the business. They must be able to view a customer's information across accounts and across payment applications so they can make informed decisions and provide better service to their clients.

Banks today must deal with five critical business areas relating to wholesale payments:

1) Payment process efficiency
2) Client service
3) Business continuity and operational risk management
4) Real time information services
5) Industry consolidation and mergers

Payments Process Efficiency: As payments become more a commodity business, banks need to increase the volume that can be handled, while reducing costs. Any broadly compelling process efficiency business solution should be enterprise to enterprise (E2E) for processes including straight-through processing and real-time information, monitoring of key points of failure.

Check 21, the "Check Clearing for the 21st Century Act" now mandated by federal law, is illustrative of how changes in payments processing are driving financial institutions toward open framework technology solutions capable of capturing real-time information. As electronic checks supplant traditional checks in greater number, banks must have a technology infrastructure that can scale to handle the increase in transactions without adding additional costs.

Client Service: Client Service is a key differentiator for a commodity business. Client service is also one of the most expensive components of payments-related costs.

An open framework that relies on an integrated, real-time information hub can be the enabler for improved customer service, along with sophisticated customer service capabilities.

Under Check 21, banks are now exchanging electronic images of checks, a process that is faster and more efficient than physically transporting paper checks, and therefore provides an improved service level for the customer. However, without an integrated, real-time information hub, this improvement in customer service becomes a cumbersome process and a financial drain on the institution.

Business Continuity/Operational Risk Management Business: Continuity and operational risk management have come to dominate bank business needs in the aftermath of the 9-11 disaster. Regulators have set stringent requirements and sophisticated bank customers include business continuity and operational risk management as key aspects of all new systems. With checks increasingly stored and transported in digital format, the need for rock-solid business continuity in the payments platform becomes crucial.

Operational risk management has also emerged as a critical business requirement. Large banks assign capital to transaction services businesses, such as payments based on the risks associated with the business and the degree to which these risks are managed and mitigated by control processes.

Both business continuity and operational risk management are natural extensions of an open, enterprise-level framework--because they are designed to integrate information across geographies and multiple system silos.

Real-time Information Services: While some legacy systems and core applications still run in batch mode, banks have developed front-end systems to capture transaction information in real-time.

In addition to needs arising as a result of Check 21, there are numerous other ways in which real-time information services impact the industry.

In fact, access to real-time information is emerging as a value-added service in its own right. Real-time information is central to the payments process efficiency, client service, and business continuity/operational risk management propositions. To provide continually enhanced services that incorporate this information, institutions must find an open framework that is real-time and enterprise-level.

Industry consolidation/mergers In addition to ameliorating problems presented by changes in the industry, federal laws and other advances in banking, an open, enterprise-level framework can directly support the industry consolidation/merger value proposition. With this approach, newly-joined companies have the capability to quickly link legacy systems and mainstream vendor applications into an information hub--providing a merger quick fix.

Similarly, an open framework can provide the environment for longer-term migration to chosen systems and platforms, while creating the information hub to manage credit, operational and market risks.

The open-payments concept does not require wholesale change in hardware or systems to create an information hub. Therefore the ROI is high and the investment is relatively low.

With a central hub and an operational data store, companies can reduce cost and complexity while providing a single, integrated view of legacy and new systems. Whether it is check clearing, liquidity management, billing, compliance or empowering corporate treasuries, companies need an open, flexible, and scalable framework that can provide real-time, enterprise-level wholesale payments processing.

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