The financial services industry is a highly competitive, intensely regulated industry with great reliance on technology-based processes and automation to drive quality services to end-customers. To successfully compete in an environment that faces continuous margin compression, financial services must be efficient and the underlying technology they use must be delivered with quality assurance. Digital payments should be a key component of any financial institution’s digital strategy, and Chief Information Officers (CIOs) need to innovate and drive solutions that can deliver value to the business (in other words, bringing higher margins to the P&L). CIOs must be Technology Product Managers who possess an expansive knowledge of the payments landscape coupled with having the skills to communicate business drivers and identify technology solutions. Importantly, a scalable architecture is required to support an effective digital payments strategy.
Before mobile banking applications came into being, commercial and consumer payment channels were never spoken in the same breath, and they were treated as being separate and distinct from one another. With the evolution of online banking, they are still distinct product offerings suited to different customer channels though the underlying technology can support both channels. The challenge comes with cost effectively integrating consumer and commercial payment functions into your online banking services platform.
From a personal and business perspective, the biggest challenge for many banks that I continue to observe is the inability to access all services available to me via my bank’s on-line banking site. My view is that the online banking portal needs to be simply that, an online portal to all banking services that typically available at a brick and mortar location. From a functional perspective, the increase in payment transaction volume by function will continue to pressure and potentially erode operating margins unless your customer online banking platform is open, extensible and scalable. As a solution provider to the Line of Business that is accountable for the online banking services, the architecture decisions you make today will have downstream cost implications unless your corresponding reference architecture is open, extensible, and scalable.
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Types of Payments to Consider
The type of payments and corresponding activities that need to be considered when designing a scalable payment architecture framework are as follows:
- Consumer Payments (Credit, Prepaid, Debit, & ACH): Consists of payments via credit cards, pre-paid cards, debit cards, eCheck, rewards, digital currencies, and any other types payments made using a either a computer or mobile phone. Mobile payments can be used by accessing a web page through the web browser on your mobile device, by sending a text message (SMS), or by using a downloadable application on your mobile device. Payments are charged to your mobile phone carrier, charged to your credit card, or withdrawn directly from your bank account.”
- Peer-to-Peer Payments (IntraBank Accounts, Digital Currency, Interbank): Consists of consumer payments made from one person to another, a land-lord, and a family member. Payments are processed between banks, and in some cases proprietary service networks, via Book Transfers (Amazon WebPay, PayPal), ACH System, PIN Debit and Proprietary Card Networks.
- Retail Payments: Facilitating the back-office processing of payments received by merchants at either a store-front or a website that involve the capture, processing and settlement of consumer payments. Payments are processed PIN Debit Networks , Proprietary Card Networks and ACH System.
- Bill Payments: Provides a mechanism for consumers to pay against debt obligations they owe to credit card companies, utilities, mortgage companies, and other companies. A large percentage of payments are processed via the FedACH network.
- Commercial/Interbank Payments: Majority of high dollar value funds interbank transfers and treasury payments for intraday settlement is concentrated in limited number of electronic systems that are used principally to transfer large-dollar payments between banks. Payments are processed over networks that include FedWire, CHIPS, and Swift.
IT Framework Components
To ensure your financial institution has a scalable reference architecture for an effective payments application service and infrastructure, the components below should be incorporated into your information technology framework.
- Interaction Services: To support the view layer, leverage a commercial portal as the foundation for payments process interface with consumers, and incorporate a collaboration layer to enable processing between people, processes, and information. Interaction Services supports message entry, disputes, investigation, and user access services among others.
- Process Tier: Establish a framework for process models with underlying rules engines to cost effectively orchestrate and automate business process transaction requests. This component provides a common enterprise-wide definition of payments processes.
- Access Services: Gateway services are important to supporting integration with external partners and third-party processors. Ensure a file transfer capability is in place for real-time clearing and settlement systems. Provide an integration channel that supports switching and routing of transactions initiated from the portal to various payment services. Leverage this capability to connect with trading partners, treasury services and to common payments gateways and networks.
- Functional Services: The essential components include the application logic, process orchestration, account validation, In the area of compliance, fraud, and risk.
- Enterprise Service Bus – As a key component of the connectivity services layer, this component forms the orchestration base for providing a stateful and highly scalable payments message service.
- Common Services: Integral to the common services tier is the service-oriented architecture (SOA) framework to provide a scalable integration layer. SOA industry software product for implementation of an integration layer enabling payment orchestration and connectivity.
- Information Services: Essential to managing diverse data and content (structured and un-structured) in a unified manner. This layer consists of a Payments Data Warehouse that enables a “single view” with supports data federation, replication, aggregation and publishing. Support for Content Management, information storage, ETL processes are important dependencies for this service to be successful.
- Security & Governance: Manage and maintain consistent application scanning and policy testing to ensure systems and applications are secure. Ensure identity management capabilities are in place to manage identity flows across services.
Hopefully, this provides you our high level thinking on the essential components for a scalable payments architecture framework. Please provide us any feedback that you may have.