Bye, bye, batch processing; hello, real-time processing: are we there yet?

Well, not quite, but the long-term trends are certainly pointing in that direction, according to Robert Hunt, a research director with MasterCard International’s TowerGroup Inc. in Needham, Mass. “We’ve reached the tipping point,” Hunt said. “We’ve got to start seriously making plans to move to real time.”

Hunt made his comments Monday at BAI’s TransPay Conference & Expo in Orlando in a session entitled, “The Long and Winding Road to Real-Time Systems.” He said the rapid transition from paper checks to electronic payments is steadily strengthening the case for moving beyond batch processing to real-time transaction processing.

This would involve recording transactions in a bank’s accounting system as they occur, regardless of which delivery channel the customer is using. Significant cost savings would derive from eliminating the current “memo post” system, by re-engineering the handling of transactions and by installing newer hardware and software, presumably with lower maintenances costs, Hunt said.

Check proofing, for example, could be moved from the back office into the branch, he said. This would reduce the need to transport paper from one office to another and would speed up identification of problems, thus reducing the risk of fraud, he said.

Implementing a switch to real-time transactions, however, will be a huge challenge, Hunt acknowledged. Re-engineering work flow is fraught with risk and many banks will need to replace core deposit systems that are more than 20 years old, he said.

Hunt estimated that replacing such systems can take three years or more. The up-front costs and risk of foul-ups gives many bankers pause, although vendors are now offering tools to break the process down into separate pieces, he said.

Most banks still update account records in batches after the close of business each day, as they have for more than a century, Hunt said. To ensure that each delivery channel has up-to-date transaction information throughout the business day, they use the complicated memo post system, in which temporary account entries are created with each deposit, payment or withdrawal and then expunged at the end of each day.

This system, Hunt said, generally eliminates the risk of a customer withdrawing the last $100 from his checking account at an ATM and then obtaining another $100 at the teller counter. It also generally ensures that customers get the same balance figures online, at ATMs, over the phone and in branches, even when they’ve just made a deposit or withdrawal, he said.

But memo post is an inefficient work-around for the shortcomings of batch processing architecture, Hunt said. Moreover, reduction in paper check volumes renders maintenance of systems designed to support paper increasingly pointless, he said.

U.S. banks generally lag behind banks elsewhere in the world in moving from batch processing to real-time, Hunt added.

(For more on this topic, see “Getting Real (As In Real-Time Transactions)” in the January/February 2007 issue of BAI’s Banking Strategies.

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