As the number of channels available for payments is dramatically increasing, so too is the need for the payments back office to support true omnichannel capabilities and provide the ability to readily support new payment methods such as real-time payments.
To learn more about how a leading payments processing company met this challenge by “future-proofing” its back office, PaymentsJournal sat down with Kate Knudsen, Senior Project Manager at BHMI, Rui Margato, Head of Information Technology at Payshop, and Sarah Grotta, Director, Debit and Alternative Products Advisory Service for Mercator Advisory Group.
Faster, easier, more options
Although the payments industry was already rapidly changing pre-pandemic, the onset of COVID-19 triggered a veritable explosion of mobile payment usage. Consumers have more choices than ever when deciding how to pay for things. Payments can be initiated through universal payment apps such as Apple Pay, Google Pay, and Samsung Pay, or through apps that use QR codes. Consumers can also use direct debit, which in the U.S. is primarily used for bill payment. Old-fashioned payment types, such as paying by check or cash, are still in use, even among those who might consider themselves “tech-forward.”
Each consumer’s preferred method will invariably boil down to which is the most convenient. “It’s a great time to be a consumer because you have an incredible amount of choice,” said Grotta. But beneath every surface layer of user interface, there are potentially multiple payment networks necessary to make a payment happen. “That choice certainly creates a great deal of complexity beneath that user interface layer,” continued Grotta.
Whenever a payment is made, it flows into a front-end system for authorization. Once the payment is authorized, the back-office system takes over. Back office refers to functions which customers never see, such as transaction reconciliation, settlement processing, and dispute management. “Ideally,” said Knudsen, “back-office systems should provide access to current, or rather timely, transaction data. What we are seeing in the industry is that payments are being authorized in real time, and that’s a significant advancement in the industry, but back-office systems are not keeping up with those real-time front ends.
“The problem is that most back-office systems are batch-oriented and cannot match the real-time capabilities of front ends,” Knudsen explained. Most legacy systems were designed for card-based payments. If back-office systems only process payments in large batches at certain times of the day, certain payment positions will be left hanging, unprocessed and inaccessible, sometimes until after end-of-day settlement. Modifying these systems to support newer digital and account-to-account payments requires massive and expensive re-engineering.
ISO 20022 represents a particular challenge for adopting new payments systems, according to Knudsen. “For decades, we’ve used ISO 8583 for card-based transactions. However, ISO 20022 is an emerging standard being used by faster payment networks around the world. The U.S. has been slower to adopt this standard, primarily because of the costs and complexity of implementing it in these legacy systems.”
Payshop found a solution in BHMI and Concourse
Payshop, a Portugal-based payments institution with a retail footprint of more than 7,000 locations, has been “aggressively expanding [its] omnichannel capabilities to adapt to the needs of e-commerce, digital payment gateways, and to keep up with the ever-growing demand for digital payment solutions,” said Margato. He continued: “Having more than 20 years of history, we found that our biggest challenge was our highly fragmented back-office landscape, with disparate systems handling different payment services, and a lack of a unified solution to manage all payments regardless of the originating channel, scheme, or authorization type.”
Payshop’s main goal, therefore, was to integrate all payment services managed by its legacy vertical application stacks into a single unified back-office solution. In addition to retail, internet, mobile, and partner acquisition channels, Payshop wanted to expand into new markets such as B2C, microbusinesses, and the emerging API economy, as well as card payments.
To meet those needs, Payshop selected BHMI and its Concourse Financial Software Suite as the impetus for their new payments back office. Concourse is a powerful and flexible back-office software solution for the processing of electronic payments such as credit card, debit card, ATM, POS, and mobile transactions. Payshop can load payment transactions into Concourse from a variety of sources, and from there, Concourse offers real-time views of payment transaction data and settlement positions. “Transaction research, fee and commission assessment, settlement, and dispute processing are all unified in Concourse,” Knudsen said. “Payshop is seeing their back-office transformation vision come alive.”
“Concourse is our central back-office solution for all transactions,” agreed Margato. “Regardless of the underlying attributes—channel, payment service, payment method, etc.—all transactions are fed into Concourse once they have been authorized, in near real time when necessary. Concourse then manages all post-authorization processing: validation rules, fees and commissions processing, settlement and clearing, as well all post-settlement events: disputes [and] corrections.”
Payshop specifically outfitted Concourse with a SEPA ISO 20020 loader, a loader for domestic SIBS card transactions, and UMTF (Unified Meta Transaction Format) transactions. As a result, Concourse is
now the unified back-office solution that Payshop was looking for.
Future-proofing to meet all foreseeable outcomes
Setting up a back-office system that will satisfy the most complex use cases foreseen by marketing/product stakeholders is no easy task. However, Margato argued that it is better to do the mental exercise of “future proofing” up front rather than postponing the effort until later. “It engages everybody on design decisions,” said Margato, and “a bad design decision in this phase can have serious adverse consequences for the project.” Margato urged companies to aim, whenever possible, “for rules-based processing and/or parameter-based configurations.”
“Concourse is highly configurable,” Knudsen confirmed. “With that powerful feature comes the responsibility of ensuring the immediate need is met and that you’re not painting yourself into a corner.”
Back-office projects can face a myriad of challenges. As important as it is for companies to ensure their back office can support omnichannel capabilities, BHMI has found that its customers rarely use net new resources for their back-office implementations. “Customer team members must do their ‘day job’ as well as work on the new implementation,” said Knudsen. The Payshop team successfully faced this challenge and many others by combining 1) a clear vision of their desired business outcomes, 2) a solid knowledge base, and 3) engaged and empowered decision-making. “It takes time, energy, engagement, and smarts,” Knudsen concluded, “That’s Payshop.”