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There’s never been a better time for financial institutions (FIs) to connect to new opportunities. By having Open APIs, the connectivity between historic financial institutions and new players dramatically improves. And, in a world where both the quantity and quality of alternative payment methods is rising exponentially, it is no surprise to see that banks are trying to simplify their approach to these offerings.

Dean Wallace, Director of Product Management at ACI Worldwid
Dean Wallace

The opportunities to be had by FIs is something that’s discussed in depth throughout this guest post from Dean Wallace, Director of Product Management at ACI Worldwide. Below Wallace discusses banks’ challenges of modernising their payments infrastructure, connecting to new vendors and consolidating different payment types. He also puts a forecast for the future of payment hubs forward and describes the implications of having Open APIs on people and society in general.

Wallace has been in the solution space for over 20 years. Initially starting out at IBM as an IT architect consulting to cross-industry blue-chip clients, it was at IBM where, as lead integration architect on an ePOS chip and PIN replacement programme for a leading UK retailer, Wallace caught the cards and payments bug.

Following IBM, Dean moved 100 per cent into cards and payments solution consulting and product management leadership within TSYS, and later with Vocalink. At Vocalink Wallace was head of product for what is now known as Pay By Bank App, combining faster payments with mobile payments to replace plastic cards to buy goods (a precursor to PSD2).

At ACI Worldwide, Wallace has held various product leadership roles covering consumer and merchant management, clearing and settlement, reconciliation, dispute management, mobile payments and now immediate payments and hub solutions. With this latest addition, Wallace is working with global partners to support the transformation of payments into a digitally-native, real-time industry, supporting any payment, every possibility.

Founded in 1975, ACI Worldwide helps banks, merchants and billers capture rising real-time opportunities and volumes, all to meet the shifting needs of their consumers and business customers
THE banking landscape has changed significantly over the last decade, with new challenger fintech companies offering an array of streamlined payment solutions. There is now increasing pressure on Financial Institutions (FIs) to further modernise and consolidate their payments offerings. And failure to tackle this potential existential crisis risks them withering on the vine.

In a world where both the quantity and quality of alternative payment methods is rising, it’s no surprise to see banks are trying to simplify their approach to these offerings. This is a business-critical move. Especially considering a third of FIs now generate over half of their income via payment processing, with 86 per cent of large banks generating more than 30 per cent of their revenues through this channel, according to our recent report,Defining and Building the Next-Generation Payments Hub.

Siloed infrastructure

Legacy systems, designed and built for very precise historical reasons, are not able to keep up with the frenetic pace of change in the payments world. Coupled with the siloed approach many institutions still have, legacy systems act as a further hindrance to operational clarity and fluidity. When asked which payments-related challenges they face, 51 per cent of respondents at FIs said they experience ‘a siloed approach to support different payment processes and systems,’ and 48 per cent feel that ‘current legacy systems no longer meet the business or customer needs.’

Finding a solution to these challenges is imperative for many FIs today to ensure their long-term survival. A payments hub alleviates the overbearing pressure caused by the complex matrix of junctions of siloed and outdated systems, which undoubtedly has a bearing on processing times for error resolutions and compliance issues. By tailoring them to an individual institution’s back-end environment, modern payment hubs can bring together these ageing systems and give them a new lease on life.

Operational resilience

Operational resilience has become a significant talking point post-Covid-19. In a changed global environment, where footfall in bank branches dropped to zero during the height of lockdown restrictions, the importance of having robust digital channels was never greater. However, implementing a solution is easier said than done.

Banks and other FIs need to map their operational resilience trajectory. Yet they either take robust actions to deal with compliance and business continuity requirements, or they are scratching their heads as to what they can undertake on a reactive basis; we believe many to be the latter. For this group, payment hubs are a welcome relief and working with a trusted fintech is the fastest route to achieve this.

Regulatory changes

Modern payment hubs are closely linked with the latest regulatory changes such as ISO 20022, as its technology creates data-rich communications, along with more efficient processes.

Let’s take open APIs as an example. With open APIs, connectivity between behemoth FIs and young fintech players dramatically improve. A further example of how regulation helps banks can be found in automatic reconciliation, for instance, between invoices and payments. For banks that are lost in their journey to becoming ISO 20022-compliant, a payments hub can help to spearhead the necessary integrations. On the flipside, for those that are significantly on their way to already adopting this new standard, the integration of a payments hub solution can aid in shielding them from the additional expenditures associated with further compliance changes.

Bank-fintech partnerships

It’s clear from our data, FIs are aware they need an effective solution to ease these burdens, and this starts with being open to adopting new technologies. Banks could build solutions in-house, but many are choosing to engage with fintechs because it’s these younger players who are driving the wave of innovation.

To put it simply, investing in a modern payment hub and partnering with fintechs can solve pain points brought along by legacy systems – and even sets itself to be a future-proofing solution. In essence, it offers a cohesive and centralised way of managing a bank, well beyond the realm of payments.

Banks need to be decisive in their strategy regarding the adoption of these technologies and find the best roadmap to address their needs. For those that decide to embrace the new generation of infrastructure without fully moving away from their offline systems, payments hubs act as an effective enabler. As a result, not only will their back-end environment receive a healthy update, but their potential customer offerings will dramatically expand too.

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