Simulated Host-to-Host Channel Banking Testing

Lowering the barriers to corporate client on-boarding?

Transaction banks only offer host-to-host channel banking services to their largest clients (one billion dollar plus turnover is regularly cited as an entry level, for example).

With good reason.

Whilst the advantages to the corporate of host-to-host are clear (straight through processing in the channel, ability to confidently process as many payments and collections as they wish through that channel, automated error trapping, timely reception of statements and intra-day reports etc etc), the costs of integration are high. By its very nature, the kind of corporate that is eligible for host-to-host in the first place is likely to run a complex payments operation, probably multi-country, probably with multiple ERP or Treasury Management Systems. This complexity makes on-boarding that corporate a time consuming and expert-resource hungry exercise for the bank. Bespoke requirements (anything from non-standard message formats and workflow, through to specific business rules for payments processing and the eventual generation of the bank statements (which may themselves be bespoke for the corporate’s different in-country or system requirements) must be gathered, after which the bank must configure its systems and processes accordingly. And once this is all done, the really difficult and truly expensive bit begins.

Testing

The bank must set up a series of test ‘environments’ that allow for functional and non-functional testing of the various components of the solution, some used purely internally to check the solution first before engaging with the client in an environment that mirrors the bank’s production system. These test environments must contain copies of all the necessary elements to simulate the production service, including core banking systems, channel integration and connectivity software, and will typically be supported by an army of acolytes, from project managers to business analysts to testers to technicians and more (all of whom need to be paid over a protracted period!). Testing is then largely a matter of trial and error until every eventuality has been covered and the solution may go live.

Our company, The B2 Group, has over the last decade or so on-boarded around 400 corporates for many of the world’s largest transaction banks (using our own channel banking integration software solutions and in a consultancy capacity on third-party software), and across many countries.  But whilst some on-boardings have been more straightforward than others, I have never seen (despite wishful thinking on the part of some software vendor purporting to offer ‘simple’ solutions that will hook up a large corporate to its bank with a series of screen clicks and a penny test) a silver bullet for testing. Market initiatives such as ISO20022 standards can also be beguiling, implying that one day all banks and corporates will communicate using a single set of message formats, when the reality is that these standards are so open to interpretation that an almost infinite number of variations are possible (and likely!).

The cost in time and money for testing can therefore be truly enormous, with market averages of around 35% of the overall project effort for testing overhead according to Gartner research.

But, whilst there is no substitute for the final stages of client acceptance testing for host-to-host channel banking, there is a way to cut out much of the preceding effort and hence dramatically reduce cost and time to market.

Simulated self-service testing tools

By simulating message validation and workflow, payments processing and statement generation, and by packaging all this up into an easy to use tool for the corporate client, only the final stages of testing are necessary. The corporate defines its payment message formats and sends test files into the simulation tool, which has been configured to process those payments according to that corporate’s specific profile (e.g. receiving or sending messages in ISO 20022 or SWIFT MTXXX format, with certain business rules for generation of Payment Status Reports or content and frequency of Bank Statements). The testing tool may be configured for the corporate’s profile by the corporate itself, but more likely by the bank’s own on-boarding experts. Validation may then occur at each stage without the bank’s intervention, from the initial structure of the incoming payment message right through to the correct generation of statements, which once achieved, allows the corporate to engage in a final round of acceptance testing with the bank. Providing a clear health warning is given to avoid the assumption that successful testing with the simulation tool means the solution is ready to go live, the testing cycle time will have been dramatically cut, and far fewer of the bank’s precious on-boarding resources will have been consumed.

The trend towards simulated testing is clear, and at The B2 Group we are seeing more and more demand for our screen based ChannelTest simulator tool from banking clients wishing to provide cheaper end-to-end ‘payment through to statement’ prelimary testing. Market opinion seems to support our own observations, with services such as SWIFT’s MyStandards Readiness Portal (enabling banks to store and test different incoming and outgoing payments message standards and formats in a central, screen accessed repository) gaining increased traction. 

Marc Delbaere, Head of MyStandards at SWIFT, recently commented “The take up of SWIFT’s MyStandards is evidence that the collaborative, standards-based approach opens up the integration and on-boarding processes.  We are seeing global take-up across lines of business with over 40 commercial organisations publishing their messaging formats on MyStandards and over 2000 message formats published on the platform. This transparency and standardization of information creates many collaboration possibilities across the industry.  With the banks’ need to meet regulatory requirements, dynamic customer demand and an ongoing remit to reduce costs, we see strong future growth and acceptance of the MyStandards approach as a proven and reliable way forward.”

So the market is moving and the tools are available. This in turn may not only reduce cost and time to market for larger corporates, but also open up the very real benefits of host-to-host channel banking to smaller corporate clients than the VIP customers banks have been used to service.