Transformation is a term that is thrown around a lot in our industry, and when you take a look at banking and payments for the past 15 years—it’s understandable. Many of the back office systems and central infrastructure that keep our economy humming along were designed and coded before I was born (along with anyone else born in the 1980s or later). However, “payments transformation” is more than just taking the existing payment operations we have today forward. Transformation involves simplifying, streamlining operations and then transforming the operation. To fully understand this, it makes sense to examine the market as a whole and what the arc of transformation has looked like.
Monolithic Engines – For payments, most financial institutions traditionally had one specific solution for each type of transaction. They were built specifically to handle either low value/high volume payments (e.g., ACH Payments), or high value/low volume transactions (e.g., Fedwire or CHIPS). On the retail side of the house you would have additional systems for your card portfolio (e.g., credit, debit, pre-paid). Each of these engines was likely deployed on-premise, though in later years many moved to shared data centers. Due to the customizations that many financial institutions made to these solutions, many still run today!
Payment Hubs – If I knew exactly who coined the term I would give them credit, but sometime in the mid-2000s ‘payment hubs’ became a very hot buzzword. Banks and credit unions started reviewing their payment operations and trying to consolidate their payments infrastructure. During this time there was a lot of consolidation through mergers and acquisitions, so this was a period where many financial institutions had two or three engines for each clearing and settlement rail. The payment hub was a way to start that consolidation strategy—bringing the overlapping solutions together in a systemic approach, and attempting to bring both the high value/low volume and low value/high volume systems together from an operational perspective. The biggest headwind payment hubs faced was they were often defined by “rip and replace” projects due to their high price tags.
Payment Platforms – The evolution of the payment hub discussion has brought us to where we are today. In addition to the heritage payment types that have shaped and defined our money movement experiences for the last 40 years, we now have to adapt to new real-time payment types. Real-time payments are defined by their always-on, always-available nature and their settlement requirements, which puts new demands on operations. While the payment hub was focused on bringing the heritage payment world together, the payment platform is focused on creating a new base to grow outward from. It builds on the ideals of consolidating operations for payments into a single solution. However, the real value is giving institutions a composable platform in order to deploy and connect to multiple payment clearing and settlement systems. In other words, simply and seamlessly giving them the ability to adapt to market demands as they grow or change. With payment platforms, having to “rip and replace” existing infrastructure was eliminated due to their cloud-based deployment. Cloud-based solutions lower the cost of entry to a point where many financial institutions can start their journey with a single payment type and evolve the strategy to coexist with existing infrastructure within the institution.
No matter where you find your credit union on the payment transformation journey, our market continues to adapt and change. It’s an exciting time to be a part of this industry and I can’t wait to see where these new payment types take us and what new value they create for our economy at large.
Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email firstname.lastname@example.org.