Sales League Table 2020 | Banking Technology Winners

Results Announced!

IBS Intelligence launches BankTech Daily News

Subscribe today. Limited time offer.

The Black Swan Opportunity | Get your bank digital ready.

IBSI Special 5 Digital Report Package with Special Offer. Subscribe now

India FinTech Report 2020

Insights into the historical and projected market size of key FinTech categories. Subscribe now

The Payment Hub is Dead – Long Live the Digital Ecosystem

by Vinay Prabhakar, Vice President, Product Marketing, Volante Technologies

The business of payments – and payments technology – has transformed. In the pre-internet age, banks made money primarily from lending and deposits, supported by batch mainframe systems, with payments a minor sideshow. As electronic payments volumes started to take off in the early dot-com era, banks began to treat payments as a distinct business, driven by fee and transaction revenues. They packaged their offerings as monolithic, silo-ed financial products—and mirrored them with a complex silo-ed technology architecture.

The payment hub was originally conceived as a response to this complexity, to help banks eliminate processing silos and streamline their payments businesses. As we approach nearly twenty years since the first hubs were brought to market, it is a good time to evaluate whether hubs have delivered on that original promise.

Unfortunately, they have not. Many banks that made significant investments in hubs are still running legacy systems, with some institutions even having ended up with different hubs for different payment types, an architectural oxymoron. Many hubs have also proved unable to adapt to the challenges of real-time payments, always-on open banking, and the move to the cloud.

The stakes are high: today, payments generate over $1tn in revenue, with that amount, and transaction volumes, set to double over the next decade. If the traditional hub won’t allow banks to capitalize on this growth, then what will?

Before answering this question, let’s take a look at the trends that are shaping the payments industry, and how these are affecting the basic business model of banking.

Business and competitive environments are now very different from past decades. Competition is depressing fee revenue and rising payment volumes are driving up processing cost, eroding margins. Open banking is allowing challenger banks and non-bank service providers to disintermediate banks from their customers and is placing a premium on innovation and “fintech-like” agility from banks. With complexity in clearing and settlement growing and regulatory pressure mounting, banks are struggling more than ever to bring new payments services to market.

Most importantly, in this era of rapid transformation, both consumer and corporate customers want something different – they want their banking experiences to match the seamless, tailored real-time experiences they are accustomed to across social media, ecommerce and mobile applications. Services above and beyond traditional product offerings are in demand and, with brand loyalty declining, customers are more than happy to switch banks to obtain those experiences.

The combination of competitive pressure, technological change, and shifts in customer demand is forcing banks to change perspective and become much more customer-centric. They are viewing themselves as value-added service providers in a digital customer experience ecosystem, rather than purveyors of financial products. This altered perspective allows the answer to our original question to come into focus—the correct technological response to the transformational demands of business is to move away from monolithic payments applications and hubs glued together by middleware, to digital ecosystems.

A digital payments ecosystem consists of a number of independent components that interoperate easily and symbiotically allowing for rapid development of new business services. It is open; designed to support open banking interaction models, and API banking, with every function accessible as a service or microservice. It accommodates services from multiple third-party vendors – and banks. It is cloud-ready; operating in public, private or hybrid cloud models and able to mix and match where services and data run based on a bank’s deployment and data security requirements. It is inherently real-time and 24×7, unlike legacy hubs with real-time workflows grafted onto batch/RTGS scaffolding.  Lastly, it enables banks to own their roadmap – loosening vendor dependencies by eliminating the need to wait for vendor upgrades in order to release innovative new customer services and experiences.

Traditional payment hubs are dead, or dying – but new ecosystem-based payments technology approaches are ready to take over. Long live the next generation of hubs—the digital payments ecosystem!


Related IBS Intelligence Research

Related Posts

Push Technology launches new Service API capability

UK-based Push Technology announced today the launch of a new Service API capability for its real-time API management cloud platform, Diffusion Cloud. The company stated that the new Service API would provide a REST interface for publishing and requesting data. The Service API enables developers to shuffle application and data types, publish real-time events using […]

This post is only available to members.

Read More »

People’s United Bank partners with FIS & MineralTree to bolster Treasury Management

People’s United Bank, a subsidiary of People’s United Financial, has expanded its Treasury Management Payment offering in partnership with FIS and MineralTree to bring to market two AP Automation solutions that will replace traditional paper-based processes with simple, secure digital capabilities for Commercial Banking clients. The new enhancements are part of People’s United’s strategy to […]

This post is only available to members.

Read More »
Credorax, bank, payments

Credorax partners with Feedzai for Anti-Money Laundering

Credorax, a licensed bank and smart payments provider, and San Mateo-based risk management platform Feedzai, announced a new partnership to provide Credorax merchants with anti-money laundering (AML) and anti-fraud capabilities. The collaboration is expected to increase payment security, reduce operational costs and improve customer experience. “Credorax has a long-standing relationship with Feedzai and we are excited […]

This post is only available to members.

Read More »

Currencycloud to process cross-border payments on RippleNet

Payments provider Currencycloud has partnered with Ripple, announcing it will process cross-border payments on global financial payments network RippleNet. With the partnership, Currencycloud, which delivers embedded B2B cross-border payments for a number of banks and FinTechs, will focus on new territories currently under-represented for small and medium-sized enterprises. This, it said, is in order to […]

This post is only available to members.

Read More »
Techemy, Auckland, DeFi , Finance

Techemy Capital launches DeFi strategies for investors

Techemy Capital (TCAP), a regulated financial services provider and funds management company, announced the launch of DeFi-based investable products to help investors tap into the open finance ecosystem. Run by programmable algorithmic code, DeFi removes middlemen and connects principals directly, thereby reducing capital inefficiency to enable higher yields. Hosted on the TokenSets platform, Techemy’s new […]

This post is only available to members.

Read More »