A payments hub is a flexible platform that enables banks to build their own payments services that can integrate with multiple systems and channels, essentially breaking down the silos present in legacy structures. For that reason, payments hubs make it easier for institutions to integrate with fast changing newer digital channels such as mobile, internet and social media. Also, payments hubs bring in agility, consistency, competitiveness, centralized control and adherence to regulations.
Despite these advantages, relatively few banks have adopted payments hubs over the past decade. Why? Because of the implementation challenges. In order to implement or upgrade a payments hub from an existing payments processing legacy infrastructure, banks have to navigate a fairly complex transition cycle. Here are some suggestions for embarking on that journey:
Look beyond the context of the problem. Begin with a generic, big picture perspective on the need for a payments hub. Then, the bank can identify the business lines that the hub is expected to cover and the services it intends to provide, the approximate maintenance cost, the expectations of different user groups and the tangible business benefits it’s expected to provide.
Identify the type of hub that best fits the bank’s requirements. No one-size-fits-all solution is available for payments hubs. In fact, there are three primary choices available:
- Front-end. This is best when the bank’s aim is to consolidate all channels (internet banking, mobile banking, corporate portals, social media, etc.) through a single integration layer. Agility of rolling out new services across channels is another consideration.
- Back-end. This design is used when the bank’s aim is aggregation of data from multiple internal systems and routing that data to appropriate payment networks such as Automated Clearing House (ACH) and Real-time Gross Settlement Systems (RTGS). Aggregating data and feeding the same into analytics/cross-sale systems is another consideration.
- End-to-end is the most advanced payments hub design, which combines the features of both a front-end and back-end hub. This involves building a new payments processing system to replace the existing legacy platform and hence is embraced by banks wishing to completely overhaul their existing legacy payment system. Supporting an entirely new payment system environment, like the proposed faster payments system in the U.S., is another consideration.
List the business components that the payments hub should have or interact with. This includes individual business components such as routing, exception handling, file-parsing, settlements and regulatory considerations.
Fitting the business components to the hub. It’s of paramount importance to rightly classify each business component that makes up the payments hub as core, regional and context-specific components and accordingly create placeholders for each of these components in the delivery plan.
Choosing the right integration layers. Payments hubs are never complete without choosing the right integration standards, such as ISO20022 and ESB. A scalable, flexible and agile integration layer provides the best efficiency.
Use off-the-shelf, build or some mix of build-and-buy. Banks generally hire external consulting organizations to undertake a detailed analysis and propose the solution.
Big-bang or incremental approach. Each of these approaches has its pros and cons. While the big-bang approach reduces the implementation time, generates faster return on investment and trims down the transition requirements in hub implementation, the risk of operational breakdown is significantly high. Large banks generally prefer the incremental or evolutionary approach, starting with a pilot, which mitigates the risk of operational breakdown. Banks opting for an incremental approach use a service-based design of payment services that would continually evolve over a period of time.
The real challenge here is to develop a workable plan for migration that delivers real benefits at each incremental phase. However, one needs to be cognizant of the fact that the transitory requirements can sometimes pile-up in an incremental approach, which might stretch the implementation cost.
Stakeholder buy-in and hub roadmap. Sponsors and stakeholders need to be convinced of the long-term value hubs create and envisage an efficient transformation path to get there, which includes breaking the transition into logical pieces to form a multi-generational program.
Finally, after implementation, the key performance indicators need to be constantly monitored for satisfactory results and continuous improvement.
Mr. Mallik is principal consultant, Wholesale Banking, with Pune, India-based Tech Mahindra. He can be reached at [email protected].
