Why payment companies must super-charge the back-office

It’s no secret that disruptive FinTechs and Banks have turned the payments sector on its head, and those that have taken a cloud-first approach from the outset have irreversibly changed the banking model

Now organisations in the payments sector are facing a rapidly growing demand for instant access service options, driven by the world becoming more digital and consumers becoming more comfortable with transacting online. This trend is quickly becoming an expectation in the B2B payments space too with not only traditional banks finding themselves in this new digital ‘instant access’ realm; Payments businesses of all kinds are having to pivot to respond to this challenge. Payment Service Providers (PSPs), for example, are transforming the payments space, giving their merchant customers more payment options and consumers the ease they are after. But there is one big hurdle many of these organisations face.

When it comes to cross border transactions, the problem faced by Banks and Payments businesses alike is that the existing correspondent banking network is the slowest and most expensive way to move money for their merchant customers. Banks – especially smaller domestic players – and Payment businesses are being disenfranchised by the traditional correspondent banking network. They need an alternative; a modern solution for the new age of banking.

Traditionally, a cross border transaction costs €50 and takes five days or more. Imagine what could happen if it cost 50 cents and took less than 5 minutes.

The drive to instant payments

There is no doubt that COVID-19 has accelerated digital transformation across all industries, including the drive to online and on-demand banking. The change the pandemic has inspired in financial services is phenomenal. But Banks and Payment businesses with a cloud-based approach already had an advantage over traditional infrastructures.

A cloud-based architecture is highly scalable and provides additional capacity and functionality exactly where it is needed. It also enables organisations to focus on their technology and offering, leaving the hardware configuration to others. This provides agile development and continuous delivery to meet the needs of a global marketplace that is increasingly becoming e-commerce focused.

As communities turned away from physical outlets and cash, they moved quickly to other e-commerce spaces. Payments businesses such as Stripe and Paysafe, have flourished as their offering and speedy checkout services meet the new and growing demands of increasingly savvy consumers. The challenge now is for the merchants serving those consumers to benefit from the same technological advances.

By working with forward-thinking Payments businesses, merchants are increasing their payment offerings to keep up with customer demand and reflect the new e-commerce dominated environment, meaning traditional Financial Institutions are left playing catch-up. What both Payments businesses and traditional banks need is collaboration with a partner who has the technology, the payments network and banking licence to take care of all back-office processes securely and compliantly, enabling them to keep up with this new fast-paced environment.

A ‘super correspondent’ network

Competition in the payments industry is fierce. Customers are becoming more demanding and their expectations for real-time payments, particularly cross border, are increasing all the time. On top of that, they expect a range of services, from lending through to foreign exchange. These factors are adding to the complex range of challenges Financial Institutions face in trying to meet expectations.

Payments need to be processed quickly and they need to be monitored effectively. Payments businesses simply don’t have the infrastructure, and banks operating with legacy systems consistently struggle to upgrade effectively to meet these new demands. The key is to reduce the number of stages in transactions, but that is easier said than done. Crucially, what they require is a ‘super correspondent’ network, one that integrates local clearing and payments schemes. Working with a trusted partner is the quickest way to achieve the desired outcome.

Partnering can also boost regulatory compliance. Specialists can help with back-office and regulatory compliance functions which banks know better than anyone is of utmost importance. If a bank deprioritises these activities or loses focus for just an instant, you can be sure that the regulator will be knocking at the door.

Building in fraud prevention

Payments specialists that are at the forefront of the incoming Artificial Intelligence (AI) revolution will make the best partners for Financial Institutions and Payments businesses. AI is an incredible tool that has the capability to reduce the amount of human intervention needed for transaction monitoring, in turn reducing the amount of false positive alerts which historically have had a detrimental impact on the customer experience.

The traditional rules-based approach to transaction monitoring and AML is built on outdated technology and does not serve Banks or Payments businesses well enough. Using these static behavioural rules which capture only one element of the transaction, the industry sees false positive rates of a whopping 97-99%. AI, however, enhances the precision of the rules which cuts down false positives, in turn reducing operational workload, enhancing efficiency and freeing up resources to focus on other areas such as customer relationships. Soon AI will become the norm, so collaborating with a specialist that is already developing these technologies is key.

What’s more, with increasing online transactions and less reliance on cash, merchants are counting on payments companies and banks like never before, which means anti-fraud and regulatory teams have to be on top of their game or risk reputational damage and serious financial consequences. To help manage the influx of transactions, partnering with a tech savvy payments expert that is innovating in the regulation space will ensure red flags are spotted quickly and more often.

The power of partnerships

For organisations now realising the urgent need to supercharge their back-offices, there is a rapid and effective path to levelling up. The key enabler in achieving this goal is to work with an innovative partner that not only offers sophisticated technology, but a banking licence as well. Collaborating with a licensed partner ensures that solutions are backed by active, intimate expertise.

But there is a further crucial factor to consider. By leveraging the capabilities of a partner whose solutions are built in the cloud, Financial institutions can access the best options for managing cross

border payments, FX and regulation. From banks to PSPs, this approach will not only ensure customer satisfaction, but help them stay competitive in an ever-changing market.

About the Author

Anders la Cour, co-founder and CEO of Banking Circle. Banking Circle is a next-generation provider of mission-critical financial services infrastructure leading the rise of a super-correspondent banking network. Banking Circle is a fully licensed bank able to deliver financial infrastructure at low cost, compliantly and securely. Banks and Payments businesses can now access real-time payments allowing them to seize market opportunities without having to commit to significant investment in their own internal infrastructure.

Featured image: ©mstandret