payments for growth · 5/23/2015 · payments banks: market differentiation. differentiation is...
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Payments for Growth: fixing the core
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Payment services have emerged as a key point of competitive differentiation for corporate banks, serving both as a significant revenue generator and an ‘anchor product’ for other offerings. However, changing market conditions across a wide array of dimensions—including regulation, international trade, customer needs, and information technology—are now challenging banks to get their house in order if they are to seize the payments opportunity. The leaders in the payments industry are responding to pervasive change in two interrelated ways. First, we’re seeing banks ‘fix the core’—industrializing payments and building the capabilities necessary for differentiation. This effort, described in this point-of-view paper, involves banks establishing fit-for-purpose operating models and, where necessary, building ‘hub’ architectures to streamline banking operations and transaction management. These efforts lay the groundwork for the second area of response that we’re seeing, ‘market differentiation’, which is described in a further Accenture paper in this series.
Executive Summary
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Drivers for changeIn Accenture’s view, pursuing the payments growth opportunity is a smart strategy. Developments ranging from expanding regulation to the emergence of new trade corridors, and from rising cross-border payments by SMEs to growing usage of mobile services, mean banks need to raise their game in payments. This imperative is intensified by the need for banks to prepare for renewed growth in the post-recession world.
By fixing and industrializing their core payments operations and IT, and using these as a platform on which to develop and deliver new offerings to build differentiation with customers, banks can steal a march on their competitors and position themselves as the go-to bank for their corporate clients.
Responding—by consolidating, industrializing and standardizingFixing the core is about making a bank fit for purpose. It means rethinking the design of the bank’s operating model, often by tailoring it to new market conditions, or by identifying opportunities to realize synergies across the enterprise where retail and corporate payment capabilities converge.
Increasingly, fixing the core in payments is about servicing corporate customers more efficiently through a ‘payments hub’ architecture—whether developed as a stand-alone capability within the bank, or shared through an industry utility model. A third option, which is being considered by a growing number of small and medium-sized banks, is strategic sourcing with a third-party provider.
Whatever the approach, fixing the core creates the basis for the next step for payments banks: market differentiation. Differentiation is about standing out from the competition. It’s about recognizing the drivers for change, and delivering a targeted response to them. And it’s about exploiting a changing environment by delivering value-added products and services that capture emerging pockets of economic value.
In this paper, we examine how banks can fix the core of their payments operations to lay down a basis for differentiation, competitive advantage and higher revenues. In our view, those banks that move now to fix the core in payments will be well-placed to be the industry high performers of the future—not just in payments, but across the corporate banking landscape.
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Payments, cash management and trade services represent an increasingly vital source of revenue for corporate banks worldwide. In retail banking, transaction banking is estimated to account for 21 percent of total revenue. In corporate banking, the importance and relevance of transaction banking is even greater, at some 41 percent of global wholesale revenues—of which cash management, payments and trade make up a combined 78 percent (see Figure 1).
The rising importance of payments is evident not just among larger corporate customers, but also among SMEs, who increasingly trade and transact internationally.
Today, as banks start to reposition themselves for renewed growth and rising client activity in the post-recessionary world, the unique attributes of payments mean it is becoming a growing focus of attention and investment. With the emphasis switching from cost-cutting and regulatory compliance to an agenda based around growth, investment and innovation, payments is being positioned at the heart of banks’ strategies. The importance of payments is further emphasized by its ability to act as an anchor product supporting the cross-sell and up-sell of other offerings. The prize at stake is the opportunity for banks to use payments’ pivotal role to establish themselves as the primary banking provider to their corporate and small and medium-sized enterprise (SME) clients.
Corporate payments: growing in importance and relevance
Source: Accenture Research
Figure 1: Global wholesale revenues (2012 US$bn)
551 (41%)
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335 (25%)100 (7%)
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Global wholesale revenues (2012 US$bn)
Transaction banking product breakdown (2012), %
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As well as increasing the importance and role of payments, today’s changing environment means banks are facing a growing need to take action to reshape, renew and reinvigorate their payments operations and offerings. There are four key drivers for this change:
• Developments in regulation at global, regional and national levels—ranging from global anti-money laundering and anti-terrorism standards, to Dodd-Frank and Foreign Account Tax Compliance Act (FATCA) in the US, SEPA in Europe, and a new ASEAN Economic Community in Asia—are creating major challenges for banks, as they seek to design and deliver regulatory-compliant products
The case for action
and services. Regulatory requirements are inherently local in nature, but must be met in the context of a global or regional operation, where consistency is at the heart of customer service and operational efficiency. Regulation provides banks with the opportunity to invest in strategic transformation projects rather focusing exclusively on compliance. But complying with new regulations can impose a significant cost burden on banks. For example, for banks using typical “siloed” payment platforms based on mainframe infrastructures, SEPA is estimated to increase the full cost per transaction by 10 percent to 15 percent due to intra-day settlement cycles, an increased amount of data to process, and new “silos” for managing SEPA payments in parallel with international payments.
Figure 2: Impact of SEPA on processing costs for banks with “siloed” payment platforms
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Cost position with SEPA upgrade
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~ 30
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• Trends in international trade are altering the global landscape by opening up new trade corridors—in turn creating fresh requirements for corporate payments products and services to support those corridors, and for local knowledge and relationships. Examples include the rapid growth in international trade volumes in Asia (see Figure 3).
• Customers’ needs and expectations are changing rapidly. This affects both corporate and SME customers: as corporates’ supply chains globalize, SMEs increasingly invoice and transact across borders, and all clients seek greater speed and efficiency through automation and digitalization. As well as needing access to long-term debt to finance capital equipment such as motor vehicles, construction and IT equipment, SMEs
International trade: Asia is on the rise—but other regions also present opportunities As Figure 2 shows, the fastest growth in international trade over the coming years will be in Asia by a wide margin, indicating that international expansion strategies for banks’ payments operations will need to be dominated by a strategy for Asia. Eastern & Central Europe and Russia will also see very healthy trade growth, creating good opportunities for transaction banks to grow their business in those regions.
However, the mature economies in Europe and North America should not be overlooked. These regions should rebound strongly, enabling transaction banking businesses active there to move from a focus on cost reduction to revenue generation and renewed growth. The Middle East, although still relatively small on the global stage in terms of trade value, is expected to almost double to US$2 trillion by 2016, while Africa will more than double to US$1.7 trillion.
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Figure 3: Absolute size and relative forecast growth in international trade by region, 2011-2016 (US£ trillion)
Source: WTO, ‘Quarterly world merchandise trade by region and selected economies’; IMF; Accenture analysis. Trade value = exports + imports.
now use a variety of products to manage their working capital, which change over the lifecycle of the business as it grows and matures. Some corporate customers’ banking needs overlap with SMEs, such as cash flow forecasting tools and real-time balances—and with greater international activity, corporates are seeking more cross-border services such as multi-currency pooling and supplier financing products. To reduce the cost of working capital, corporates are also seeking automated cash management, as well as automated collections to reduce the costs of operations. In general, corporate demand is moving towards solutions that integrate treasury, payments and financial supply chain functions, with one integrated access point to all payment types.
• Ongoing developments in technology and digital/mobile channels are opening new pathways to the market for payments offerings, and creating fresh opportunities for banks to deliver new and more client-centric payments services at lower cost. After decades of over-promising and under-delivering, technology is finally living up to its true potential, enabling banks to focus successfully on improving customer service and expanding self-service.
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In Accenture’s view, the most effective way for banks to respond to this changing environment is to become fit for the future by responding in two main ways.
1. Fix the core—This involves making the bank “fit for purpose” by rethinking and reshaping the design of its operating model for today’s changed market conditions, while also identifying and seizing opportunities to realize synergies and break down silos across the enterprise, in areas where retail and corporate payments converge. Steps to support these changes generally include industrializing payments, separating localized processing from globally common processing, and building the capabilities that will enable differentiation in the market. As we’ll discuss later, this often means building a ‘hub’ architecture to maximize integration, agility and efficiency.
Responding to change
2. Differentiate in the market— This step involves offering value-added products and services that capture emerging pockets of economic value. Specifically, this action includes five distinct but interrelated activities:
• Deliver an enhanced product proposition, with a clear focus on integrated trade, international payments and cash management offerings
• Provide multi-channel payment functionality, including via mobile, tablets and online, focusing on real-time transactions and balances, multi-bank applications and analytics
• Differentiate on talent, by empowering and upskilling the people in payments, and fostering a deep commitment to customer service
• Establish a network model attuned to the needs of the bank’s corporate customers, with an operating model that supports the geographic footprint of its major clients
• Exploit regulatory initiatives—for example SEPA in Europe—as opportunities not just to achieve compliance, but to differentiate the bank from competitors in the eyes of customers
These five strands of activity, which are illustrated in Figure 4, open up significant opportunities to generate higher revenues and deeper and more durable customer relationships. The result is increased transaction volumes, fees and deposits, together with increased share of wallet, through enhanced customer retention and acquisition, and more effective international expansion and operations. More detail on the benefits available from achieving market differentiation in payments is provided in another Accenture point of view paper, “Payments for Growth: seizing the revenue opportunity in corporate payments”. Meanwhile, in the rest of this paper, we’ll focus on the actions to fix the core that provide the basis and platform for differentiation.
Differentiate in the market
Enhanced product proposition
Multi-channelpayment functionality
Empowered andupskilled talent
Differentiated regulatoryinitiatives
Appropriatenetwork model
Fix the core
Figure 4: Accenture’s payments for growth framework
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Fixing the core: no longer an option— but an imperative In light of the rapid and sweeping change in the payments environment, there is a growing awareness among banks—be they a national savings or global universal bank—that they need to rethink their payments operating models to remain competitive, compliant and customer-focused. This acknowledgement of the need for change reflects the fact that their current models are often characterized by rigidity and obsolescence, and therefore hamper the agility, responsiveness and efficiency needed to deliver the services that today’s clients demand. In many cases the rigidity in the payments operating model is embedded in the form of outdated IT
and legacy operation configurations and processes, often still burdened with manual interventions and paper-based processes such as fax payments.
The challenges posed by the combination of sweeping external change and the rigidity and obsolescence of legacy payments platforms are illustrated in Figure 5. As the diagram shows, the typical payments platform’s characteristics of siloes, stratification, ageing technology, low integration and high manual effort results in four major drawbacks for the business: high management and transformation costs, lower revenues and margins, reduced flexibility and rising operational risks.
To overcome these barriers in order to survive and thrive in the new market environment, banks need to fix their core IT systems and operating model.
This means making three fundamental changes:
• Industrialize payments, by separating local processes from globally common processes
• Build the capabilities that will enable differentiation in the market. This step has two parts:
1. Establish a bank operating model specifically tailored to new market conditions 2. Identify opportunities to realize synergies by breaking down silos at points across the enterprise where retail and corporate payments converge
• Establish an architecture that maximizes integration, agility and efficiency
Figure 5: The business impacts of legacy payment platforms
Regulation Trends in international trade
Changing customer needs
Technology and mobile
Typical payments platform
Regulation
Stratification
Ageing technology
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Manual efforts
High management and transformation costs• Duplications• Low STP level• Lack of cost structure and governance
Lower revenues and margins• Eroding margins• Pressure to retain customers• Reduced market share
Reduced flexibility• Increased time-to-market for new products • Increased requirement to comply with new regulatory changes
Increasing operational risks• Higher operational risks (with increased charges on business continuity)• Low control on the end-to-end chain
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Making these changes is increasingly a prerequisite for operating in the payments marketplace. Today’s corporate customers expect—and demand—improved experiences, and are increasingly unwilling to tolerate manual processes and slow response times. From the time the customer interacts with the bank right up to fulfillment by the back office, they require a customer-centric approach regardless of where they are located or the channel they use. To meet these customer needs, banks need to transform their operating model by reorganizing their current structure and optimizing operations end-to-end with supporting technology.
This means migrating away from legacy siloed payments operations organized along group and country lines, with their fragmented and duplicated functionality, ageing core payments systems and technology, multiple poorly-validated entry points, paper-based manual processes, and time-consuming reconciliation and reporting; and moving instead to an industrialized payments operating model, characterized by next-generation technologies, rationalized silos and governance, usage of shared ‘one of everything’ components—including IT platform and operations—and enhanced co-ordination with other banks, key
payments consortia and third-party processors. Through an industrialized payments architecture, a bank can move away from an operational mindset (manually-intensive, high-volume, low-skill, repetitive) to one focused on intelligent transaction management centered around customers. This transformation is illustrated in Figure 6.
Figure 6: Transformation of the legacy payments operating model to industrialized payments
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As banks map out their optimal route to an industrialized operating model for payments, their choices should be driven by an analytical path that helps identify the strategic initiatives that will enable and drive their future growth. As Figure 7 shows, this is a three-step process that starts with deciding the bank’s level of ambition in payments; then moves on to setting the targets to achieve that ambition; and finally identifies the individual strategic initiatives needed to deliver against those targets. As a result, the bank’s strategic objectives and programs in payments for the medium and long term are made explicit and well-defined.
Accenture’s experience with banking clients worldwide reveals three distinct strategic options for banks seeking to operate their transaction banking business successfully and profitably. These three options—together with the bank characteristics that make each one appropriate, and their implications for the bank itself—are shown in Figure 8.
To select the right strategic option for its own core payments processing operations, the bank first needs to determine whether transaction banking is a core service. If this is the case, then it must decide whether this service should be provided through internal investment, or outsourced to a third-party provider—the “strategic sourcing” option. If the institution decides in favor of an internally-invested solution,
then the options for realizing growth include creating a stand-alone processing operation based on one or more “payments hubs”; or teaming up with one or more partners to create and use an “industry utility” under a cooperation approach.
As the chart highlights, there is no one-size-fits-all answer: different options will be the optimal choice for different banks, depending on their existing capabilities, volumes, client base, strategic ambitions, skills base and other considerations. To help banks make the right decision, we’ll now take a closer look at each of the three options.
Weighing up the routes to industrialization
Figure 7: The analytical path for making choices on a bank’s operating model for payments
What is our ambition in payments?
Decide level of ambition Set targetsIdentify individual strategic initiatives
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Strategic priorities in payments• Strategic alignment• Feasibility• Benefits• Risk• Competitive positioning
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Figure 8: Three main strategic options in the core payments processing landscape
Options When is appropriate Implications
Payments hub
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Strategic payments option?
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• “Stand alone” option• Strong internal capabilities• Growing market volumes• High internal capacity• Tailored service on own client base• Value added strategy
• “Cooperation” option• Limited internal capabilities• Medium / stable volumes• Limited growth ambitions• Tailored service on own client base / local market opportunity• Value added strategy
• Lack of internal capabilities• Low / medium / stable volumes• Limited growth ambitions• High investments required
• Implement Shared Service Centers• Invest in IT architecture• Focus on cost reduction• Focus on operational risk reduction and stability• Invest in service quality / innovation• Extend geographic network• Enhance price attractiveness• Insource
• Share investment in architecture• Share investment in service quality / innovation• Specialize in niche services / market segments
• Define organizational executive committee to monitor sourced activities• Avoid future investment• Enable more reliable future planning and cost estimates• Competitive advantage by benefitting from economies of scale
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Option 1: Payments hub
Payments hubs enable banks to build the capabilities they can apply to differentiate themselves in the marketplace, while also establishing a base architecture platform that maximizes integration, agility and efficiency. A payments hub achieves these goals by providing an intelligent central engine for processing both inbound and outbound payments, while also enforcing the rules for all payment workflows, clearing and settlement routes, and risk mitigation procedures. This means the hub effectively “owns” the rules of payments-related integration with other banking systems.
The attractiveness of the payments hub concept springs from the fact that banks can enhance their customer experience by sharing various capabilities across the business, thus allowing them to optimize their payments process end-to-end and break down silos. To achieve these benefits, a bank needs to centralize technology, operations and processes across product, payment channels and customer segments.
By centralizing areas such as these, a bank can simultaneously increase its ability to respond to change, offer new products, drive cross-sell and up-sell across retail and commercial, realize economies of scale through standardization, and reduce technology platform duplication and operational costs. A key feature of a hub is a single platform supporting multiple payment and product types (international, domestic, bulk, single
and so on), multiple geographies (and subsidiaries within them), and all banking channels. This means that a payments hub needs to house and integrate a wide array of payments processes and interfaces, as shown in Figure 9. Payments hubs of this type have evolved from the legacy payment engines traditionally used by banks and corporations because they present a single view of payments, support improved operational efficiency and risk management, enable modernization of legacy stove-piped mainframe systems, and help meet rapidly-evolving regulatory compliance needs.
In the course of the past decade, payments hubs have become a focal point of banks’ IT strategies for modernizing their legacy payments infrastructure. To enable all payments activities to be consolidated into a payments hub, a payments platform need to fulfill four key capabilities:
Figure 9: A typical payment hub with its integral processes and interfaces
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1. Performance: In order to be able to process high volumes of payments and realize economies of scale, performance and STP processing rates need to be among the guiding principles when designing an implementing a payments hub.
2. Multi–entity capability: The multi-entity capability enables the hub to run payments for different entities in a multi-unit, multi-back-office, multi-channel, multi-regulations environment. This capability opens up the option of an in-sourcing strategy, involving offering the platform for use by other organisations. The hub also needs to allow entity-specific configuration of products, business rules and processing flows.
3. Functionality and flexibility: A payments hub supports international standards and provides a high coverage of business functionality, while also being
extensible enough to allow country- or client-specific add-ons. It provides flexibility through configurability, allowing fast and easy deployment of new products and services for internal or external customers.
4. Ease of integration and state- of-the-art architecture: To be deemed “state-of-the-art”, the architecture for a payment platform needs to be open, maintainable and highly scalable. Scalability helps the platform to adapt payment volumes to business requirements, and allows it to take on additional volumes, as might happen—for example—if an in-sourcing strategy were adopted. The payment application also needs to be maintainable, and should allow easy and flexible integration with the rest of a bank’s IT landscape. A further consideration is that the architecture needs to meet the ISO20022 standard, a
core standard that is used in Europe due to SEPA, and is increasingly being adopted around the world for payments, including in Japan. The architecture must also support real-time payments, together with the ability to expose the payment platform to third-party applications though payment application programming interfaces (APIs), a key requirement for digital commerce.
In Accenture’s experience, a bank-specific implementation based on a leading payments hub product is usually the most effective strategy for payments transformation. There are several leading products in the marketplace, each with their own specific strength and orientation in terms of functionality, technological sophistication, customer base, depth of services, industry focus and installed base. Again, the choice will depend on the bank’s specific strategic ambition, needs, capabilities and client base.
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Option 2: Industry utilityMedium-sized and small banks seeking to transform their payments operations often find their options are severely constrained by their relatively small transaction volumes. While they face a need to direct significant investment into payments to preserve their margins, retain their customers and maintain regulatory compliance, they also know that scale is a key factor for competing successfully when industrializing payments.
Given this situation, the optimal approach for these banks may be to gain the necessary scale by consolidating their payments volumes with those of other institutions. The way to do this is through an industry utility, which can provide a payment process that is tailored to the bank itself, depending on its requirements in terms of transactions, customers, accounts and operations.
An industry utility is based on the same model as a payments hub—but instead of serving one bank, it is connected through gateways with the systems of various banks that are its clients.
Industry utilities’ attractiveness to banks is on the rise because utilities enable banks to simultaneously standardize with market-driven processing while retaining the ability for client-specific processing. If a bank is considering creating a payments hub, and if a high proportion of the hub is expected to be standardized, then an industry utility is likely to be an attractive option since the bank retains the ability for bespoke processing while facilitating standardization of core processing. Moreover, a utility allows the bank to share the investment burden rather than pouring money into its own standardized asset. While much of an industry utility will inevitably be utilized for market-driven processing, it provides a basis for adding differentiated value-added services on top for the bank’s customers.
To be successful, an industry utility will generally need to achieve three characteristics:
• Limit the impact on its client banks’ channels through having a standardized and optimized interface layer
• Limit the access to client banks’ systems through: - Requiring account / customer information file (CIF) online request only if necessary
- Asynchronous funds release
• Leverage multiple clearing networks
Compared with a stand-alone hub, an industry utility brings the advantages of reducing the level of investment the bank needs to make in its payments transformation, while also enabling a wide range of both business and operational benefits.
In terms of business benefits, an industry utility enables a single global payments and transaction management service to be provided to all customers—especially customers with cross-borders operations—along with improved quality of services, through elements such as value-added payment information and enhanced execution, traceability and investigation. It also opens up new revenue streams by enabling better products, better pricing, additional value-added payment services, and the bundling of other products on top of payments such as liquidity management, trade services and financial supply chain management.
Further business benefits from an industry utility include better customer intelligence and business management through capabilities such as enhanced monitoring and more advanced management information systems (MIS). It also enables increased “on-us” transactions by reducing external connectivity to the minimum.
Benefits in the areas of operations, compliance and risk from adopting an industry utility model include greater operational capacity and scalability,
improved service-level agreement (SLAs) and cut-offs, and increased STP with reduced errors. An industry utility also offers enhanced cost efficiency in processing and maintenance, easier compliance with current and future regulation, and improved internal liquidity management.
Option 3: Strategic sourcingBanks that regard payments processing as ancillary to their core business and have no appetite to invest in a new system are increasingly considering strategic sourcing as an option for their payments transformation. This means paying a specialist third-party to oversee, manage and handle their core payments processing.
There are several drivers that tend to result in a bank taking the decision to choose the strategic sourcing route. One is that the bank’s existing payments systems and infrastructure may be unable to handle the effects of new regulation, such as the requirement for SEPA formats. It may have no desire to undertake the capital investment needed to develop a new system, or may be looking to avoid the future investment needed to maintain compliance. Or it may be looking to enable the creation of a new cost structure and business model for its payments operations. In some cases all these considerations may apply.
In Accenture’s experience, the biggest challenges when implementing a sourced solution via a third party typically arise around the need to interface effectively with the third-party provider. It is also important to remember that, even with a strategic sourcing arrangement via a third party vendor, a number of elements of the payments value chain still need to be supported by the bank itself. Figure 10 shows a sample architecture for outgoing payments in a strategic sourcing model, including the parts of the value chain handled by the outsource provider, bank, and bank customer.
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Successful implementation of a strategic sourcing solution for payments will generally result in the bank realizing five benefits:
• Replacement of the bank’s existing ageing legacy payments IT system without large up-front expenditure
• Avoidance of heavy investment in making and keeping payments systems compliant with regulations
• A well-defined and predictable cost structure into the future
• A high STP rate, with minimal manual processing of payments
• A capability that enables competitive, high-quality and cost-efficient payment products and services
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Figure 10: Sample architecture for outgoing payments in a strategic sourcing model
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Regardless of which strategic option is chosen for the bank’s payments transformation, the “quick wins” and restructuring actions across business processes, governance and IT are similar—as are the outcomes in terms of customer service, compliance and competitive advantage (see Figure 11).
A bank undertaking a payments hub implementation can take various approaches to building the payments platform. The first is to implement and customize a packaged solution, of which several are available on the market. Second, the bank may go for an accelerated custom-build, involving the creation of a bank-specific solution
leveraging existing components as “accelerators” to reduce project time, cost and risk. This approach will often include simplification of existing IT systems to provide a core for the new solution. Or third, the bank may decide to implement a fully custom-built solution from ground up, based on business requirements and a development framework. In our experience, it is rare for a bank to go for a fully custom-built solution, and the clear trend in the market is towards implementing packaged software.
Whatever approach is selected, the implementation of a payments hub involves a challenging and complex transformation because it affects core IT systems directly. Also, activating all the necessary products can take two to three years to complete.
Shaping the transformation
Figure 11: Quick wins, restructuring actions and outcomes from each form of payments transformation
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“Quick wins”
Customer driven• Improved operational scalability / capacity• Improved product features• Automated process / STP
Compliance• SEPA/PSD ready• FATCA• Basel III
Competitive advantage• De-risked infrastructure• Reduced external connectivity• Eliminated paper processes
Outcomes
Restructuring“FTE driven”
Centralise
Establish Enterprise Governance
“Control”
“IT driven”
1. Rationalise correspondent networks, accounts and bilateral clearing2. Connect once to SWIFT3. Reduce CSMs and connect once
1. Tactical fix e.g. corporate hub2. Consolidate core banking systems, placing payments processing in a Payments Engine • Technology driven • Product driven
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Accenture’s experience shows there are four key steps that enable a bank to Fix the core and deliver a successful transformation of its payments operations.
1. Set the business strategy At a strategic level, we see banks taking one of three approaches to payments. The first of these is to do the absolute minimum to stay compliant with scheme and regulatory requirements—we call this “window painting”; the second is to focus on operational efficiency as well as compliance by implementing a hub architecture; the third is to focus additionally on revenue generation as a full transaction bank.
Whatever the chosen strategy, it needs to be well-defined and set out a clear vision of the to-be state. Banks should focus on mapping out their future payments business by asking hard questions up-front about what they want to offer, could offer and should offer in each country. Whatever the factors at play in each territory—revenue, profit, total cost of ownership, risk, expansion, client retention, regulatory change—it is vital to agree and prioritize the objectives. The strategy must take regulatory issues fully into account: payments clearing and settlement—and even transaction banking products—require detailed understanding of national regulations, which are often evolving.
A key challenge is building the business case to support the strategy. Typically, this needs to be holistic, covering revenue growth, operational cost savings and risk reduction. The revenue-generating opportunities enabled by the business strategy, such as an enhanced product proposition, multi-channel payment functionality, and differentiated regulatory initiatives, are particularly important, as is the competitive advantage they deliver the bank in the race to retain and attract customers. For example, in Europe we
are seeing banks responding to the risks of customer attrition due to increased competition with SEPA, by accelerating their payment hub plans to enable the launch of enhanced corporate payment propositions (for more on growth in Corporate Payments see Accenture’s paper “Payments for Growth: seizing the revenue opportunity in corporate payments”).
2. Select the strategic option for the operating model
A key consideration for the business case is the sourcing model. Building capabilities in-house can be expensive and risky, so the decision-making process should include an examination of other sourcing options such as local banking arrangements or outsourcing. If a payments services hub is the chosen option, the bank should have a clear view of what the hub will deliver rather than implementing it without defining what success will look like.
By evaluating processes and services to determine whether they are core to the business or a commodity, a bank can prioritize where it needs to invest its resources, both financial and people. This evaluation contributes further to the bank’s transformation by helping to ensure it has the right people doing the right things consistently and cost-effectively, and by affirming the bank’s market position.
Experience shows that many contracted services used by banks do not reflect the current or the future state of their business and may be costlier than required. As banks review their sourcing agreements, they often discover instances of duplication, and some services that could be sourced more effectively in-house as they are leveraged across the enterprise. Decisions to insource or outsource and contract economics including rates, time period, services rendered and terms & conditions (T&Cs) should be reassessed annually.
3. Establish a governance plan and structure
The governance structure will vary depending on the transformation model selected, and getting it right may pose greater challenges with an industry utility or strategic sourcing model than with a stand-alone hub. Whatever choice is made, it is vital throughout the planning and change program to consider product, geography, customers, operations and technology at the same time. It is also important to consider the needs of operations across back, front and middle office, and to understand how to reduce cost and deploy expertise effectively. The optimal approach is generally to architect, build and process payments centrally with local in-country market connectivity, while using software products that have already been deployed in multi-country architectures.
4. Execute, starting with quick wins
The bank should choose a delivery team that has a solid track record of delivering similar projects and flexible capacity: the voice of experience—from people who’ve implemented the same architectures and/or products before—is vital, as is the ability to flex with peaks and troughs. The project leadership needs to set the right drumbeat, timescale and end-point, maybe starting with “quick wins” such as product rationalisation, simplification of existing infrastructure or rationalisation of external gateways, before progressing to tougher problems and business goals. Throughout these efforts, business process frameworks should be used to accelerate and improve transformation.
Key steps for a successful payments transformation
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Historically, payments were regarded as a necessary but unglamorous and undifferentiated adjunct to banks’ other activities. However, times have changed—as has the ability of payments to drive revenues, differentiation and more profitable client relationships.
Today, as banks look to enhance their payments operations, there is no time to lose. As more and more banks seize the opportunity in payments by investing in new platforms and structures to fix the core and lay down a platform for differentiation, the bar is rising fast. Those that fail to move quickly with smart, targeted investment risk being left behind and losing customers, particularly in the corporate bank A multi-country, multi-release payments transformation program requires not just strong execution across workstreams and countries, but also world-class multi-stakeholder management and deep business and technology expertise. Throughout, it is important to take an evolutionary approach and build for long-term success. Speed of transformation matters—but the vital thing is to get it right.
Conclusion: a time for action
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About AccentureAccenture is a global management consulting, technology services and outsourcing company, with approximately 266,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012.
To find out more about how Accenture can help your bank fix the core to drive higher value from payments, please contact: Jeremy Light [email protected]
Luca Bortolan [email protected]
Luigi Zanghellini [email protected]
Ruggero Maresca [email protected]
With special thanks to: Chris Hilson [email protected]