The adoption of faster payments, one of the most anticipated trends in the payments industry, has reached a critical point. Due to the demand of faster and better payment methods, the adoption of faster payments is inevitable, meaning that it’s no longer a question of if adoption will occur, but when.
However, in order for this widespread overhaul of the U.S. payments industry to happen, processors, networks, and bank technology providers must understand and overcome a variety of challenges. To aid these parties, Mercator Advisory Group partnered with BHMI to publish a research brief titled “Is Your Back Office Keeping Up with the New World of Payments?”
The report reviews the current payments landscape, discusses the pros and cons of adoption for industry participants, and suggests methods for successful end-to-end implementation of faster payments.
What are faster payments?
As the name implies, faster payments is a term that broadly refers to a payment method conducted faster than its legacy counterpart. The Mercator report uses Same Day ACH (SDA) as an example. SDA transactions are completed within a single business day, making it faster than standard ACH transactions, which can take up to three business days. Since SDA uses the same file structure as traditional ACH, it doesn’t require much effort to adopt.
Although SDA is relatively easy to adopt, adoption of real-time payments, a subset of faster payments, presents more of a challenge. Here it is important to differentiate between posting (when the funds are made available for the payee to spend) and settlement (when the actual money is transferred between financial institutions). Real-time payment methods often have real-time postings (or near real-time), while settlement can still take place overnight.
The need for an end-to-end view of transactions
Although the expense of creating faster payments networks in the U.S. currently falls on the companies building them, businesses hoping to utilize the networks likely need to make some investments, too.
This is especially true for the large number of companies that rely on back-office systems and processes which are decades-old and unequipped to handle faster payments. If these companies try to adopt faster payments without updating their back-office infrastructure, they run the risk of creating a bottleneck in the system. As the report concluded, “no matter how fast the payments move along the network, cumbersome back-office processes will slow down the ‘last mile’ into cash posting.”
In order to offer secure and efficient real-time transaction capabilities to customers, there are several critical steps needed to adapt back-office infrastructure. The report identified seven areas where adjustments to the back-office technology might be needed to take full advantage of real-time payments:
- Architecture to enable continuous processing while maintaining batch support
- Visibility across enterprise transactions with the ability to dynamically adjust business rules
- Automated reconciliation and immediate settlement processing
- Real-time monitoring of transactions and financial positions
- Control and flexibility to analyze and restructure pricing parameters
- Automated workflows for managing transaction disputes
- Data extracts for custom reporting in both real time and batch
A failure to update back-office infrastructure in these areas would result in a business being unable to offer customers a genuine real-time payments experience. As customers grow to expect real-time payments experiences, companies unable to provide them will be less competitive.
Preparing your back-office for real-time payments
Businesses that have outdated, legacy back-office systems aren’t consigned to missing out on real-time payments. In fact, there are a variety of approaches to creating an optimal environment for modern payments.
One approach that Mercator’s report covered is corralling transaction data into a central suite of processing software that can integrate with both internal and external systems, regardless of how complex the systems are.
A product that exemplifies this approach is the Concourse Financial Software Suite™ from BHMI, a fintech specializing in back-office optimization. Concourse provides modular solutions for the various components of the transaction lifecycle, for both traditional and real-time environments.
By having continuous processing architecture and a rules-based infrastructure, Concourse is well suited for the changing world of payments for a variety of reasons. It supports traditional and faster payment methods while allowing users to continuously load data from all transaction sources into a centralized repository.
The report also sketches out the following capabilities of BHMI’s Concourse:
- Instantly perform back-office processing as soon as data arrives in system
- Access real-time transaction and processing activity
- View the complete and current life cycle of every transaction
- Easily support new and changing processing requirements
- Perform fast and accurate settlement processing and reporting
- Automatically reconcile transaction data to ensure data integrity
- Facilitate chargeback and dispute processing for any type of payment transaction
- Assess any type of fee or commissions on any type of transaction
- Seamlessly support new and upcoming payment methods
With faster payments becoming more common and sought after, businesses must get ready to embrace the future. For companies that rely on outdated back-office legacy systems, adopting faster payments methods will prove challenging without first investing in the requisite software. Those who do make such an investment will reap the benefits and remain competitive in the shifting payments landscape.