However, the existing architectures are becoming ever less sustainable. There


are serious risk management considerations, with an inability to see the full picture in terms of credit, market and liquidity risk. There is also operational risk with such a set-up. There is a direct cost implication because the fragmentation hinders efficient liquidity management. Similarly, it is difficult to meet service level agreements and cut-off times. Too often there is manual processing around the systems, with particular inefficiencies where there are breaks and hand-overs of processes between departments. Understandably, the regulators take a dim view of such weaknesses and, without a complete picture, it is difficult to do fraud detection and AML (this is also often done on a silo basis).


Another aspect of the unsustainability is technology. Many of the systems are on


legacy platforms. At the time they were installed, there was probably a very good reason why they needed to run on, for instance, an IBM mainframe or a Tandem server. However, as the scalability and resilience that set those platforms apart have become standard within lower cost offerings, so there is the opportunity to significantly reduce the cost of ownership. In addition, support of those legacy platforms and legacy systems becomes ever more difficult, in part due to the dwindling resources within the bank and on the market. Cobol and PL/1 programmers, for instance, do not get any younger. There are also competitive implications. Those banks that have a streamlined,


centralised payments infrastructure that is flexible, automated and robust are pulling away from the masses who are still hampered by legacy. In today’s difficult markets, where the rallying cry for some time has been ‘back to basics’, many banks see payments as one of their foundation stones. And today’s financial sector is clearly only becoming more competitive, with payments one of the battlegrounds. It is a cliché, but true nonetheless, that customers are becoming more demanding. We live in impatient times, where in our personal and public lives we are not used to waiting and, certainly when it comes to information, expect things to happen in real-time. A common analogy in the payments sector is to the tracking services of the courier companies, whereby customers can see where their packages are at any point in time (online retailers provide a similar service for orders). Which banks can provide anything like this for payments at present? Indeed, it is understandable if there is frustration. The payments space over the years seems to have been beset by too much talk by banks and too little action, arguably more so than any other area of financial services. Meanwhile, other participants have been forging ahead. The agendas for bank-oriented payments conferences are filled with speakers who are strong on the theory but light on practical examples. Too few institutions have a good story to tell. The heightened competition, as discussed in the previous section, is partly to do with the pace of technical change, opening up many new opportunities, particularly around micro-payments, cards, and mobile. There is a lot of innovation and there are opportunities for new entrants, with these typically in a better position to harness the new technology than the banks. Regulatory change can also bring new competition, most clearly seen in the PSD/PSD2 in Europe.


Cause for optimism?


There is some light, however. For one thing, the payments area appears to have been more immune to cost cutting than many others within the banking market. This in part has been to do with regulatory demands, particularly SEPA in Europe. Those regulatory requirements have often been used as the catalyst for overall business improvements.


Payment Systems & Suppliers Report | www.ibsintelligence.com 15


market overview


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