What do payment systems of the future look like?

As financial institutions review their payments infrastructure, it is likely that many will decide that they need to start to consider how they evolve current systems in the future, if they haven't started already. But where should they aim to get to?

If today's payment systems are siloed, non-compliant, inflexible and uncommunicative, the payment system of the future is the diametric opposite. Whereas legacy processes and architectures can throttle new initiatives, and strongly limit the ability of any financial institution to be proactive, advanced systems and architectures facilitate the achievement of both revenue-raising and cost-reducing strategies.

The answer lies in payments hubs. These have been enabled by new service-based software technologies that have matured and opened the door to creating a central, unified platform for payments. The accepted vision of the future for payment systems is one or more payments hubs, built on modern technology and using open standard concepts. A hub is a central platform that breaks down internal, vertical barriers to integration. Rather than having multiple systems for different channels, payment types or business units, mature payment hubs can provide a centralized processing service for multiple channels and payment types.

Some banks may aim to consolidate everything onto one hub, but more realistically, at least in the medium term, will be consolidating possibly dozens of systems onto a smaller number of hubs, perhaps one per department for example. The hub processes input data and then routes it intelligently to the relevant downstream application such as check clearing networks, ACH networks or DDA systems. At the same time it provides a single feed to all centrally managed utilities such as risk management, settlement and reconciliation and customer services, as well as value-added capabilities such as data analytics and product enhancement. As a result, hubs can integrate all payment types onto one or more platforms. They can also concentrate business processes such as customer service, fraud prevention and risk management into single service units that are shared by the entire enterprise.

Payment hubs may take one of a number of forms. But the essential characteristic that underpins them all is agility: the essential combination of speed and efficiency that enables financial institutions to realize their strategic imperatives without compromise.

The vision of a truly agile organization will have all forms of payments integrated on a consistent payment system that will handle each phase of the payments process. But agility is not just about the underlying platform. Agile financial institutions have the tightest focus on the customer regardless of channel, payments type, system, or business silo. Everything the financial institution does regarding payments, including channels, processing, product development, sales, marketing and systems, is geared to the needs of its customers. That often requires a significant change in thought processes and business operations to accompany the new flexibility and capabilities of the underlying IT platform.

Payment hubs enable financial institutions to update or replace functionality on a service-by-service basis. They generate a return on investment by decreasing total cost of ownership and improving the ease with which new services can be introduced. In particular, they can significantly reduce the costs of implementing and operating IT management processes and tools because the associated labor costs are much lower. Financial institutions can focus on growing their business.