The change of pace has picked up in the ecosystem of consumer behaviour, technology adoption and creative payments offering. It is difficult to tell which of these factors triggered what, but the fact remains that these developments outstrip the traditional technology lifecycle, in which large investments and advances usually last years, if not decades. These changes come at a time when most of the European processing infrastructure is between 10 and 20 years old and banks, as well as processing hubs, are realising that their demands have long outgrown their technological abilities. The question remains if this is a lucky coincidence or extra pressure on the decision makers, but it is time for banks to act.
To provide some expert guidance on the how to take the bull by the horns and be prepared for sweeping shifts, Luc Holper, Head Market Development, Financial Industry Services at SIX Payment Services, outlines the major issues in the market.
Around the turn of the millennium and until maybe 10 years ago, there have been huge investments going on in the payments industry,following a concentration and internationalisation of bank groups and processors alike. Good old mainframe technology was state of the art – and it undoubtedly held this position for a decade or more. Users of these dedicated platforms for either debit or credit or prepaid cards still suffer from the downside of the stability: with their inflexibility increasingly becoming a burden when time-to-market provides a competitive edge for any bank. What’s more, the specialisation in a particular type of card, as tempting as it may be from that particular product’s point of view, does not work well with one of the key assets of today’s retail banking business: the single–customer-view. Would today’s customer with his fast-and-easy attitude wait until his bank’s agent has fiddled with a variety of systems just to see the balance history? Not to mention the additional cost for building all those interfaces in the bank’s front and back office.
Everyone -in-house IT departments, independent processors and huge worldwide players alike, agree that the time is ripe for new generation platforms. A move to a new platform, either a proprietary one or an outsourcing partnership with a payments processor like SIX, is not an easy decision to make. Moving involves investment and – perhaps even more crucially – ties up the IT department’s resources for an average of 12 to 18 months. Of course,a new platform needs to dramatically simplify all processing needs, but it must also add a competitive edge compared with their peers: offering greater flexibility than their predecessors, and in doing so making it easier for issuers to add new customers, new features and products.
But what does this all mean in practice? Systems architecture has certainly moved away from mainframe systems to cluster technologies. In today’s new generation platforms, the database is the core asset that can be tapped into from a variety of applications. With data models sitting in the centre of the architecture, the surrounding systems pull and combine the necessary data at an unprecedented speed. This allows for new products to be developed and implemented in a much easier and faster way: it’s more of a configuration than having to code or programme the logic. Depending on the complexity of the product, great new marketing ideas can now be up and ready for launch in weeks rather than months. This is obviously a huge project for the IT support when it comes to the inevitable move away from traditional cards business to providing 360° solutions, integration with e-banking, m-banking, etc. Indeed, one single interface to the core processing platform is enough. This approach also provides substantial market benefits. A new platform with advanced capabilities enables products to be brought to market with greater ease and speed and allows the ‘progressive’ banks to remain at the forefront of technological developments and market needs. The final and ultimate benefit is the reduction in total cost of ownership in operations as well as in maintenance.
New generation platforms can handle a plethora of card products and virtual cards, with two great advantages. One is the commercial aspect of a broad and innovative product portfolio. Through integrated processing of debit, credit and prepaid cards as well as new solutions like contactless, mobile and P2P, any issuer can bundle all volume and leverage the economies of scale stemming from his entire portfolio. For one of our Belgian customers, SIX is supporting a very sophisticated combination card, combining both debit and credit functionality on the same piece of plastic, contactless of course, plus an integrated passcode generator for secure online transactions.
The other benefit comes into play from a risk management and a customer service point of view: the system provides a holistic view of the bank’s customer in a click. This view helps banks to better assess risk in their quest for compliance with the Basel regulations.
The increased level of flexibility means that banks can make a stronger, faster impact on the market, and in many cases, move faster than their competitors. They can differentiate themselves by launching innovative solutions like peer-to-peer solutions, based on a smartphone app and offering multiple payment channels to load the stored value. At SIX, we are in the process of developing this for some of the major banks in Switzerland.
Whatever technology sits behind processing services, it is the expertise of the payments processing partner and its customer focus that makes the difference. Our research shows that 80 per cent of our customers are interested in what is commonly known as full outsourcing model. Levels range from pure processing, through comprehensive technological provision to a full service capability, where the processor takes over the full range of card operations for a bank or financial institution, including transaction authorisation, clearing and settlement, fraud and claims management as well as call centre services.
From the privileged position as a conduit between many different banking clients and card issuers, we are at the forefront of the technological process in partnering with banks whose customer proposition is based on innovation and ensuring the best customer experience As today’s consumer expects ever-more from their bank and is increasingly likely to vocalise any issues they encounter, the time is nigh for infrastructure to keep up with demands and be ready for the future changes.