Payment services are a large part of any bank’s operations and revenue generation. This gives banks a compelling reason to constantly focus on how they will deliver the best in class services. According to a study by the Boston Consulting Group (BCG)¹, the estimated global payments market will be worth US $ 782 trillion in noncash transaction value and US $ 492 billion in transaction revenues by 2020. Banks definitely need a strategy and system that will help them achieve the full revenue potential from payment transactions.

In the given business environment, this is a complex task. Banks are faced with a myriad of payment challenges arising out of ever-changing regulatory requirements, globalized operations and increased customer demands. Banks are also struggling with the burden of legacy transaction systems that no longer serve the purpose. The increased costs of maintaining these disparate solutions and market pressures, have forced banks to review their current payment processes and systems.

It is a well-known fact that standardization and simplicity when combined, can make a large difference to a complicated process. The power of simplicity seems to be strongly influencing the future of payment transaction systems. Banks are transitioning to a unified enterprise-wide solution. The focus is on creating payment hubs which will serve as a single platform that operates across all customer relationships, channels of interaction and payment alternatives.

While there is some skepticism about payment hubs ending up in a single point of failure, most banks would agree that the rich functionality and scalability of this infrastructure has many benefits.

Why do banks need payment hubs?

Payment hubs allow banks to improve their management of IT operational risks, by better facilitation of compliance with regulations. The increase in new payment products, need flexible payment structures, which can be provided by a payment hub. . This flexibility of infrastructure improves the time-to- market for new products, thereby giving a strong boost to the bank’s competitive advantage.

Payment hubs can also lower the cost of duplicate functions which leads to reduced errors and straight-through-processing. The consolidation of disparate payment systems into a centralized hub, offers banks the advantage of lowering their cost of asset ownership and maintenance costs.

With the centralized infrastructure banks can easily add or replace old systems, without disrupting the entire architecture.

Hubs can also help in reducing the risk of fraud by aggregating data from disparate front-end systems before core processing and creating a bank-wide customer transaction history. This can be used to predict the probability of a fraud being committed by a customer. A comprehensive knowledge of a Customer’s history enables banks to offer new products and customize products as per the customer’s needs.

With so many far-reaching positive effects, payment hubs are integral to the future of payment services.  Banks across the world need to consider transitioning to this centralized system and offering agile payment services.

Sources

1. www.bcg.com