From the early days of check and credit card processing to wire transactions and today’s real-time options, each payment rail has developed along its own lines, necessitating separate hardware, software, and operational teams, amounting to a set of parallel rails that often do not intersect. This puts each of the payment systems in its own silo, with little interoperability among them, creating duplicated costs and efforts and fragmenting customer experiences.
“Many legacy core banking systems were built 30 or 40 years ago,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “They weren’t built to accommodate the newer real-time payment systems that exist today.”
As payment rails expand in their capabilities and complexity, those limitations have become more of an issue for financial institutions. Customers want the flexibility that comes with multiple payment options. For example, sometimes they need to complete a transaction as quickly as possible, whereas other times they need to complete one as inexpensively as possible.
The Trouble With Legacy Systems
Legacy payment systems frequently get in the way of providing these options. Some banks that would like to offer new rails to their customers are wary of the costs. Even if the bank decides it’s worthwhile to include a new payment rail, it’s also creating another silo, another process separate from the others.
“If a business or a bank wants to connect to all those networks for different payment types, they have to spend the money to engineer a connection to the payments network,” said Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research. “They have to test it, certify it, connect it to their internal systems, and have a way to audit control it.”
The process could also create additional customer friction. Banking clients may not care which payment rail their payment rides on, but they do want the opportunity to send funds quickly, or cheaply, or some combination thereof. And the more sophisticated the customer, the more options they expect their bank to provide.
Accounting for the Opportunity Cost
Expanding into new payment rails isn’t just about how to pay for it. Everything comes with an opportunity cost.
“There isn’t an organization alive that has free IT resources,” Apgar said. “Everything’s on a backlog list. Everything’s on a 12-month rolling project plan. It’s nice to be able to say yes, we’d like to connect to this new rail, but that’s not the most important thing our IT team needs to work on right now.”
Given customer demands, it can become an issue not of whether to make new options a priority but rather how soon the organization can free up the resources to make it happen. If the entity chooses to work within its existing systems, the question becomes whether to add newer capabilities or overhaul the entire system.
Let the Hub Make the Decisions
Many organizations deal with these challenges by turning to payment hubs. Rather than managing a set of parallel rails, the process turns into a set of spokes with a central control point.
These systems unify all of a financial institution’s payment processes, from account-to-account payments and card processing to real-time transactions. By coordinating these, a payments hub can position the bank to innovate, compete, and thrive in a payments market that will continue to evolve at lightning speed.
A payment hub makes all the various payment types available to an organization, without the need to maintain its own connections. It gives banks the ability to let their customers set up their own rules for payments, and through optimal routing, the hub can find the appropriate rails to move the transaction most efficiently and according to the customer’s needs.
“If you’re the CFO of a large company and you’re paying bills, you may know what all the networks do,” Apgar said. “But you still have to make decisions on a payment-by-payment basis, balancing availability, speed, and cost.
“With a hub, you can set up a business rule that says, ‘Make sure payments get there as fast as possible, with no exceptions.’ Or you can ask to send more payments via the cheapest path and to notify the initiator if there’s a conflict. You’re not having to make those decisions on a payment-by-payment basis. The hub automates most of that logic.”
A Win for All Involved
A refined payments hub can benefit all parties involved in an organization’s payment processes.
For a head of technology, it removes the headache of managing disparate and siloed systems and all that entails, including such concerns as regulation, compliance, and outages. For a head of the payments business, it supports the twin—and occasionally competing—imperatives of revenue generation and cost containment. It also simplifies the launching of new payment products. And for a head of operations, it reduces the specter of errors, delays, and breaches by streamlining the entire process and letting the rails interact with each other.
“Interoperability has long been one of the challenges, because the different rails aren’t necessarily interoperable,” Tavilla said. “For example, if you want to send a real-time payment, the institution sending the payment might be set up for FedNow, but the one that’s receiving it might have to default to ACH or one of the other options. If the systems weren’t operating together, that creates inefficiencies and makes it difficult to move the money easily and seamlessly.”
Even the newer capabilities are not always interoperable. It could require investing resources separately for a financial institution to connect to each rail. A payments hub helps route and orchestrate behind the scenes, making the system more efficient financially but also easier to set up and train the staff in how to use it.
Most important are the benefits a payments hub provides to the customers. Their preferred ways of paying are supported seamlessly, and new products are designed and launched to cater to their needs and expectations. It simultaneously provides them with more options and makes their decision-making process easier.
Leading the Industry
What a payments hub comes down to is future-proofing the business. Customer demands and products evolve and emerge regularly, so a business risks losing customers to competing institutions if it is not set up with capabilities to route and process transactions quickly and efficiently. And it has to be ready for new payment systems to emerge.
“That’s what your customers will demand,” Apgar said. “If you can’t meet their needs, you risk them going to a different financial institution that offers the service that would.”
The leading, most advanced refined payment hub solution is ACI Connetic, which constitutes a redefinition of payments, covering processing, monitoring, and delivery through a highly advanced technological lens. It unifies payments, from A2A to cards to wires, including advanced authentication/fraud detection, all in a single architecture.
ACI Connetic provides all of these benefits to organizations and their customers while uniting the goals of those customers and the stakeholders within the organization. It provides the efficiency, revenue, and resilience that the heads of technology, operations, and the payments business are seeking.
Learn more about how modern solutions like ACI Connetic can break legacy limits and power digital growth.
The post All in One: How a Payments Hub Eliminates the Pain Points appeared first on PaymentsJournal.
