PAYMENT HUBS FEATURE NAME
IBS Journal October 2017
27
Payment hubs – transcending many borders
The concept of a payment hub is a key shift in the industry, enabling a centralised, standardised and coordinated payment model for person-to-person, business-to- business, micro, commercial and treasury payments
V. Ramkumar
Senior Partner, Cedar Management Consulting International LLC
P
erhaps the single biggest shift in the past decade is in moving payments services from being a utility-oriented cost centre to that of a state-of-the-art centre for
innovation, and a profit centre for banks and financial institutions. Considering that any bank has a myriad of payments to make, across individual and institutional transactions – the emergence of payment hubs, or payment “factories” as they are now increasingly called, is but inevitable and a natural progression that’s come of its age. And the reasons for those are not hard to decipher:
• A global marketplace results in a more accurate demand for consistent services across geographies and customers with an international orientation seek homogenous payment services independent of geographies
• There is an exponential growth in payment technology and its applications – mobile, contactless, NFC, e-wallets, blockchain and also a higher degree of regulatory requirements such as SEPA, necessitating standardisation of services across banks
intuitive service offerings in the payments domain have an instant customer appeal
“
• Competition brings out the best in the best. Innovative products and intuitive service offerings in the payments domain have an instant customer appeal, and being the early bird, does help.
The historical framework of payment applications required having one’s respective mechanisms of settlements, reconciliations, exception handling and supporting services of risk and compliance validation, anti-fraud screening and wherever required, dispute resolution. The costs of all of these on
an individual basis would not only be prohibitively high but also render the scope of services to be fairly limited as it was not an easy to have all of these services embedded across all service areas. When the investments are concentrated into a single payment hub, the limited resources at a bank’s disposal get better deployed and drives a higher return on the infrastructure investment.
What is important to note here, is that a payment hub is not necessarily always centralised, or is a single piece of infrastructure. The concept has evolved over the years, and without necessarily calling it a payment ‘hub’, many parts of the model have been adopted and put in use by banks across the globe in different variations.
Innovative products and
The blocks of payments integration, as we see them today, have grown through the value chain of front, mid and back-office functions, the sequence representing
customer interactions, risk management and payments processing activities respectively.
1. Front office/customer interaction & data services: Having a broader and deeper perspective of all the customer payments requires the integration of multiple data feeds coming in from the client, fed appropriately into respective systems using a straight-through-processing (STP) framework. This is the first, and most critical part of the payment infrastructure, as it not only helps reduce the cost structure through the elimination of manual intervention, but also facilitates the avoidance of duplication and the related costs. It also significantly reduces error rates.
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