24 July 2018
Ready in time for Instant Payments by outsourcing the back-office processing engine
Doing it yourself, buying or outsourcing? These are the options for many banks when it comes to innovating their core processes, such as processing Instant Payments. In 2019, it must be possible to process these transactions real-time, but because these payments are made with a different scheme, they require an adaptation to the underlying payment infrastructure. “However, many banks have not yet adapted their payment infrastructure, which means they risk not being ready for the introduction of Instant Payments in time”, explains Erwin Vroege, expert at equensWorldline. “Outsourcing the back-office can help with this transition.”
Instant Payments enable banks to process transactions within seconds on a 24/7/365 basis. In order to benefit from this advanced technology, banks need to update their systems, because the whole payments chain needs to support the instantaneousness of payments. The transition to SEPA made banks update their systems to new standards, the next step is to speed up the payments. To achieve this, it is necessary to modernise the payment industry in line with the rest of the digital world and this comes with the need for big investments.
The transition from traditional transactions to Instant Payments is a large investment for banks. “An Instant Payments transaction has much higher demands and much more impact on a bank than traditional transactions”, explains Vroege. “Banks need a system that is available at all times, but that also means that the underlying systems and processes must be so, too. You also need a 24/7/365 support desk and qualified, knowledgeable staff that can work with the advanced system.”
Vroege: “The introduction of Instant Payments requires much more effort than traditional batch processing, so it is very understandable that banks pose the question whether they want to integrate Instant Payments within the bank itself.” This large investment is a major hurdle for banks, because, they often look at the cost-benefit analysis. Processing payments is an essential part of payment transactions, but for banks it is not a distinctive feature: every bank must be able to do it. The more transactions you process, the cheaper it will be, but many banks do not have the scale size nor achieve the volumes to make a good enough business case.
A good business case is important in these turbulent times for banks, because they want to be certain that they are investing in the right innovation. This is important, because in addition to Instant Payments, there is much more happening in the payments industry. For example, banks have to deal with changing customer requirements, regulations are becoming stricter, banks are threatened by competitors who are often not in the world of banking (such as fintechs) and they get competition from new technologies, such as blockchain. Vroege: “Banks are under a lot of pressure from these changes and are looking for ways to be and to remain relevant to their customers.”
Because of this relevance, many banks are now looking at the option of outsourcing certain services, so that they can focus on their distinctive character, such as customer service and functionality for the end user. Core processes, such as processing payments, happen out of end users’ sight, which is why banks are doubtful whether they should focus on them. Outsourcing those processes removes the complexity, reduces costs and allows banks to free up resources to focus on front-office tasks.
Payment service provider equensWorldline helps banks by taking on certain internal processes, such as the instant payments engine in a Software as a Service (SaaS) model. This means that equensWorldline provides the infrastructure, software and hardware to banks to process instant payments. Some banks already made the choice to outsource processes to equensWorldline. Commerzbank recently announced that equensWorldline will be in charge of processing their Instant Payments. The Degussa Bank AG in Germany decided last year to make use of the equensWorldline payments processing back-office platform, because it provides a wide range of real-time monitoring and processing functionality, including Instant Payments.
Current and future demands
The instant payments engine is just one part of the Payments Processing Back-Office services. Other services are SEPA and Domestic Payments, High-Value Payments, Multi-Currency Payments, SWIFT Services and Compliance Services. These services are modular, which means they can easily be scaled to meet current and future demands. This provides banks with flexibility in selecting the services they need, when they need them.
“The time has come for banks to review their services and decide what they want to do in-house and what they can outsource”, explains Vroege. “It is wise for banks to focus on what truly makes a difference in this digital world. These are the reasons why customers come and stay with them. The underlying processes must simply work, without the customers knowing or noticing. We can relieve banks of these processes, so that they can focus on offering a great user experience to their clients.”
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