Unified payments processing is the solution to banks’ crushing compliance burden

The speed at which regulators and customers expect them to process payments is ramping up, too. Real-time payments need to be processed end-to-end in 10 seconds or less. Within that small window, banks need to apply a number of security and compliance checks, which are becoming more stringent all the time. They must also be able to regularly report on those checks after the fact, and on their handling of suspicious anomalies. This might be easy to do when there are only a relative handful of real-time transactions. But wherever they’re mandated, managing the speed, scale, and resilience of payment systems becomes a major operational challenge.

It’s little wonder, then, that two-thirds (66%) of bank payments executives surveyed by Datos Insights for a recent study cited “staying ahead of regulatory change as being of high or critical importance when considering modernization of their payments offerings.

Legacy systems leave little room for maneuver

Payments are already highly regulated, and yet banks face a steady stream of new mandates or requirements. Meanwhile, resources and budgets are under strain from other equally pressing industry initiatives. Take your pick from the migration to SWIFT MX standards, card scheme mandates, PCI, or EMV standards updates.

Legacy and fragmented payments infrastructures are the main barrier to banks’ adapting to compliance requirements in a streamlined and effective way. Developed over decades and made up of multiple, siloed components, these systems are inflexible and cannot be modified to accommodate new rules or regulations easily. They don’t integrate well, so it’s difficult to get the unified view of transactions and customer data demanded by AML and KYC requirements. It also means that real-time transaction monitoring and the detection of suspicious activity are a seriously heavy lift. And meeting regulators’ strict reporting deadlines is usually a continuous and expensive grind of manual data monitoring and reconciliation processes.

The case for consolidation

The previously referenced Datos Insights’ research shows that 94% of bank payments executives expect their institutions to make moderate to significant investments in payments technology over the next 24 to 36 months for commercial and retail payment.

Where should payment executives invest this incoming windfall?

At the headline level, they can ease the compliance burden by transitioning to a consolidated and updated infrastructure. Putting everything all in one place—initiation, routing, processing, clearing and settlement, reconciliation, and reporting—is the key to automating and simplifying compliance and responding more easily to change. It is also the key to accelerated client onboarding and rules engines that allow for automated KYC and AML checks. Secondary benefits would include avoiding the duplication of expensive fraud and compliance software and staff for each payment method.

Longer term, bringing payments into a unified platform paves the way to both faster innovation and stronger compliance – a balance that’s often difficult to strike.

Cloud calling

Banks are likely to turn to the cloud in search of an infrastructure that offers the flexibility to meet new demands and the resilience and scalability to handle growing volumes.

Datos Insights found that 78% of payments executives deemed a cloud-native solution that can be deployed in a private cloud environment of high or critical importance.

This approach would enable banks to respond rapidly to new regulations. It would also facilitate the integration of third-party services and emerging technologies needed to stay at the forefront of compliance.

Streamlining compliance is a strategic business
imperative

Key to the business case for payments modernization are the challenges that banks face to meet regulatory requirements for faster payments, enhanced transparency, and improved risk management.

But investing in a modern, cloud-native, unified payments processing platform is also in complete alignment with wider organizational goals around reducing operational costs, improving agility, and accelerating innovation.

In that light, it might even be possible to describe payments modernization as relatively low-hanging fruit given the potential upsides: greater operational excellence, enhanced customer satisfaction, and a stronger overall competitive position.