Like you (no doubt), we've read countless articles discussing the business case and challenges associated with delivering real time payments. There’s a lot of focus on what new innovative products can be developed, whether they’ll deliver a profit, and the types of services consumers really want.
While this debate goes on, it’s interesting to see other initiatives progressing apace – such as China’s One Belt One Road initiative. As China focuses its efforts on re-establishing the Silk Road trading routes, I was struck by the fact that the country has invested twice as much in high speed rail as the rest of the world put together. What’s that got to do with payments I hear you ask? Well it’s the fact that China clearly believes that to open up new trade routes and the country generally to new opportunities, it must invest in the core infrastructure to support growth in business and services.
This proactive investment and rapid progress in building new infrastructure contrasts with a more guarded approach to infrastructure development in banking. The benefits of real-time payments have been discussed for many years – reaching a crescendo this year as banks prepare to deliver on the requirements of new instant payments initiatives worldwide as well as PSD2 and open banking.
Banks should be investing in ensuring that their core infrastructure and payments capabilities are current and enabled to meet future needs. With a few notable exceptions this is not the case today.
The reality is that banks have a multitude of different systems in place to handle different payment types – and often duplicate systems which have arisen as a result of mergers and acquisitions. On top of this, development has often been done in silos and software deployed that includes payment functionality for each different line including trade finance, forex and money markets, loans, securities, derivatives, bonds and so on. Just keeping the large number of existing systems that handle payments updated is a challenge in itself – since banks have typically undertaken significant bespoke development.
They now face trying to layer instant payments on top of an overly complex structure. An infrastructure that simply hasn’t been set up to check available balances and even update accounts in real-time. Creating virtual accounts and shadow accounting systems to cope is beset with risk and a potential recipe for disaster, and may be not the way to go.
Clearly, a different, more straightforward approach is needed. Decoupling some of the account-based processing requirements from the bank’s core infrastructure and deploying a set of payment objects that can handle all payment types and support real-time processing, can deliver significant efficiencies and cost savings.
For years we have been reading that the time for legacy replacement is nigh, and about the search for pensioners with Cobol skills, with stories of them being be lured out of retirement for $1,000 a day.
With real time payments the issue of legacy can no longer be ignored. The failure to invest in modern infrastructure is blatantly apparent. This is the ‘elephant’ in to the room – not the business case for real time.