In a recent blog post, I gave some thought to how payment hubs are evolving and where these complex, but increasingly necessary, technologies fit into our present-day financial institution eco-systems. To gain more insight into the subject, I had the opportunity to talk to Trevor LaFleche from Fiserv. Trevor is the Director of Product Management and Marketing, Enterprise Payments Solutions, for the company, and is based out of the UK. Trevor has extensive experience in designing and building platforms of this kind, most recently spending eight (8) years at Dovetail (now part of Fiserv).
Trevor and I spent some time talking about how these enterprise solutions are integrated by financial institutions and why he agrees the time is right for organizations to think seriously about implementing a Payment Hub. Here’s our discussion.
In a recent interview, you indicated the value of a Payment Hub is to take all of an institution's payment types and put them on one platform. However, when you say “platform” - what do you mean from a feature function/capability perspective?
Prior to the emergence of Payment Hubs, there were payment engines, which were designed to address specific needs of one payment type, including standards and business rules. Over time, people realized that the core functionality - the processing of a payment - was very similar regardless of payment type. What made each payment unique was the standards or scheme rules applied to it. Whereas a payment engine was designed only for one specific payment type, a Payment Hub is designed to apply a full range of standards or scheme rules. So, the Payment Hub or platform can take the place of five or six payment engines. This is the exciting advantage of a Payment Hub.
Recent thought leadership offers an incremental approach to implementing a Payment Hub, but doesn't this delay the ROI?
In my experience, there are two paths to implementing a Payment Hub: One option is to find your pain point and make a change that addresses your most urgent problem so you can realize immediate benefits. Then, over time, you can renovate other solution areas. Another option is to pick a customer segment and move that entire segment onto the Payment Hub. An example of this would be corporate customers that use wire transfers, ACH, and real-time payments.
What I haven't seen in larger organizations is a big bang implementation, where they move their entire enterprise to the hub at once. This kind of approach introduces far too much risk. As a result, we recommend, and have found our clients prefer, a progressive modernization approach.
Another way to implement a Payment Hub is by leveraging an ASP service, which Fiserv offers in the U.S. This method serves to reduce the cost of modernizing. Even in some large institutions, we are seeing interest in an ASP model in order to get the IT stack off the table and reduce the overhead of running a IT operation so that they can focus on customer offerings.
Do the demand drivers for Payment Hubs vary by region?
Demand drivers do vary by region. For example, in Europe, the demand for enterprise payment platforms is due to compliance. In the United States, however, the demand is very different. In the U.S., financial institution systems are larger and more complicated, resulting in resistance to change and creating inertia. There also remain significant silos in U.S. banks, such as consumer vs. commercial payments, that don't exist in other countries. But we’re seeing that starting to change, especially with the advent of Real-Time Payments.
Recently, McKinsey did a great study on this which found that the move toward real-time is driving the U.S. market to address the legacy issue of constraints on change. What they found is that this new scheme is providing an opportunity to build a roadmap for getting cost out of the organization.
In Asia, which is a more complicated environment, regional real-time payments are driving the change. However, there is a strong need to inter-connect payment systems across borders. This cross-border challenge has significant regulatory hurdles, slows the adoption of new capabilities, and delays the wholesale replacement of payment applications.
How do FIs address data normalization and driving the value of Payment Hubs deeper into the value stream?
The data from different payment systems is usually in different formats. A Payment Hub holds all of this data in a neutral standard, so the FI gains value from that normalization of data and creation of consistency across the enterprise.
In the past, to complete a payment investigation request from a financial authority, an operator in a bank might have to log in and check data from 10 to 12 different systems. A Payment Hub provides operator visibility into the entirety of the payments data. Working from a a single source of data can help streamline queries, reduce errors and increase processing speeds. Finally, we are starting to see a little bit of work happening relevant to analyzing liquidity.
What about incorporating card network transactions into the solution?
Incorporating these kinds of transactions into a payment hub platform is not commonly done, primarily due to the difficulty in getting organizations to talk across silos and agree on one common objective, not to mention cost factors. However, we are looking at what the market would want relevant to card network transactions. There are some examples of this in the market today. For example, Natwest delivered Tyl to the merchant market, which initiates a push credit from the POS and is processed as a faster payment. We are very interested in these kinds of payments and are actively exploring what banks would like to offer customers.
Finally, can you define for me the elements of a true enterprise-level Payment Hub?
A true enterprise-level, global Payment Hub is one that is capable of handling all account-to- account based electronic payment types on a single code base, deployed in the cloud. For example, our platform supports more than 50 clearing and settlement systems worldwide, which makes us a truly unique solution in the market.
From this strong grounding, and in collaboration with our financial institution clients and their business and consumer customers, the capabilities of payment hubs will continue to expand into the foreseeable future, which is very bright indeed.
My thanks to Fiserv for making Trevor available for this conversation and for his taking time to add to the Payment Hubs discussion. What has always excited me about Payment Hubs is the opportunity to create coherent value from previously disconnected payment types. In the short term, efficiency is the winning ROI, but over time, I believe institutions will be able to leverage the normalized data output from these solutions to build more valuable products and services for their end users.