Historically, financial institutions have adopted technology with a best-of-breed approach, utilizing different platforms from different vendors. This is especially true in check processing, where multiple platforms are leveraged to support a single financial transaction or payment type. The end result is multiple platforms, multiple vendors, multiple support resources – and multiple headaches.
To process a single check, a bank captures the check with one system; then it’s passed to a second system for validation; moved on to a third system for the check image to be archived; and then finally a fourth system to research the item. As a result, financial institutions are subjected to an entire host of operational inefficiencies, fragmented systems, multiple points of failure, image duplication and added costs. Information Technology (IT) resources are maintaining multiple systems, vendor management and compliance teams are managing multiple relationships, and financial institutions are paying maintenance on multiple systems, all to process a single check.
Banks simply cannot continue to ignore this “elephant in the back office” for the following reasons:
Their legacy systems (and their programmers) are retiring. While bankers recognize the benefits of adopting more up-to-date technology, such as improved efficiency, lower operational cost and improved customer service, they continue to be reluctant to replace legacy systems because of the custom code and middleware invested to ensure a functional system. The question they ask is: Why change what’s currently working, despite its clunky design?
A primary challenge with this perspective is the IT personnel needed to support outdated systems. The programmers who wrote the custom code and have the experience supporting it are nearing retirement, which is bad news for financial institutions. The new question becomes: Who will support and manage these multiple legacy systems when veteran programmers leave?
Those who will replace these veteran IT personnel and programmers are more like business analysts than traditional programmers; they do not have experience writing custom code to support legacy systems.
Silo integration. Avoiding these challenges means removing silos and consolidating multiple products by converting back office operations into a tightly integrated back office platform. In this manner, banks can improve IT and operational efficiencies, as well as save costs.
With electronic check processing systems, digital imaging technology is used to capture, validate, repair, monitor, store, process and retrieve electronic data generated from all check transactions. Those systems must have the ability to handle large variations in transaction volume. While check processing is really one logical set of activities, the environment is segmented into multiple functional systems, each developed and supported independently of one another. Each function within the check processing workflow is its own silo, creating a massive, tangled and costly infrastructure for the bank to manage and reconcile daily.
The objective of consolidating these systems is to tightly integrate the functional areas of the financial institution and to enable seamless information flows across functional areas. A unified back office platform includes a set of interdependent software modules, linked to a common database, that provide support for the business processes in the functional areas.
Paving the way to payments convergence. Financial institutions are now at a crossroads in evaluating their technology infrastructure and back office operations. On one hand, legacy systems are still functional in terms of their processing power. On the other hand, they come with serious challenges and limitations that banks cannot ignore.
Complicated custom code, multiple vendors and databases, a shortage of support expertise and the growing system maintenance costs all weigh heavily in the bank’s technology decision, and those are just today’s challenges. Looking ahead, banks must consider how well their existing systems will hold up in the future. Consumers are increasingly expecting a consistent user experience, which will require modern technology and the convergence of front-end systems and payment channels.
The first step banks must take to prepare for the inevitable convergence of payments is consolidating back office systems into a single, scalable payment processing platform. Future banking environments must facilitate seamless transactional handoffs between the various channels without disparate, channel-specific customer service centers. Additionally, new products and services can easily be added with a more cost-efficient process.
A unified platform built with modern technology and straight-through processing (STP) will ensure optimum processing capacity for large volumes and provide efficiency, reliability and cost savings. The wisest banks will transition to this modern platform, thus driving growth, restoring revenue and maintaining a customer-centric view going forward. The rest will be left in their wake.
Mr. Veeraghanta is chairman and CEO of Duluth, Ga.-based VSoft Corp. He can be reached at Murthy.Veeraghanta@vsoftcorp.com.