Lu Zurawski, Consumer Payments Lead EMEA at ACI Worldwide
The corporate world, including banks, is really the last bastion of the analogue age. Things are built around batch processing, (large amounts of data processed on a scheduled basis). There are windows for nightly updates and resource planning systems that do not require 24/7/365 attention. To update this batch technology, organisations will have to develop their business processes accordingly and the mentality that created them. This all forms part of the ongoing digital transformation of the industry.
Many of a bank's corporate customers are also in the midst of this transformation. They understand that knowledge is power, and they want that information to be transparent and available in real-time. Empowering these customers with the real-time processes they demand, and in many respects have come to expect, now sits fundamentally of the digital transformation mission. For banks, the ripple effect of real-time goes all the way to frontline sales, and it's the information generated from real-time payments that allows banks to upsell high-value services.
Public sector and also the power of real-time
The world is currently misinterpreting and massively underestimating the positive effect of real-time. The biggest indicator comes from a traditionally staid source; the general public sector. Many central infrastructures and government departments at the heart of modern digital experiences are unfortunately still running on batch-based systems, having to use clunky workarounds to deliver anything like the real-time experience they should be providing on the front end.
However, we are seeing some progress, along with the migration of public services to real-time visibility comes a brand new truly-connected digital ecosystem. Irrevocable real-time payments and non-financial real-time messages such as balance enquiries will become the baseline standard for interactions using the government. No longer will applications disappear right into a black hole of bureaucracy. Current processes are in least batch-based, if not entirely paper-based, meaning that even if a visa or license application is made in a digital environment sheathed inside a real-time facade, the fact is once the details are submitted it falls from the real-time rails.
Frustrations exist within the corporate space too, however the unacceptable experience tends to be at the small business end of the spectrum. Treasury or cash management happens to be 'fast-in, slow-out', but this disbursement has been at the expense of the smallest player within the chain. The negative effect of opaque payments and inaccessible information has been disproportionately slanted towards SMEs. But those whose cashflow – and eventually their business – is most crushed in the present model stand to gain probably the most in the era of real-time.
Working capital management goes into hyperdrive with real-time information flows, and transparency of knowledge in real-time for both the 'little guys' and their banks reveals access to release funding and provide liquidity services that maximize profitability whilst keeping the lights on. Most small businesses go bust because of income issues caused by their biggest customers, not because their business model is flawed.
High-end corporate customers stand to gain too. They might not suffer the same cashflow issues thanks to their huge in-house 'banks', but these massive treasury and finance departments are still hugely paper-based. The efficiencies gained with data-rich messages will drive value to the bottom line, and real-time transparent information will drive improved business decision-making.
Governments partly may be driving towards real-time simply because they see the impact that the big mankind has on the productivity and profitability of their nations. The largest players can slow the flow of business to a trickle. The UK government is in the midst of addressing the issue with proposed laws to make it easier for SMEs to access invoice finance. The federal government has estimated that at any one time approximately lb1 billion is owed to smaller businesses. Invoice finance allows a company to raise funds by assigning the right to be paid to a finance provider, typically for 80% of the value of the invoices.
In a real-time and open payments and knowledge ecosystem, the quicker you adopt the mentality and technology the greater you will see value realisation. Even a large bank can grow its treasure by creating certainty in the total value of that pile, and therefore investing it wisely.
In technological terms, a middleware layer is needed to stack the building blocks of real-time. Implementing a smart middleware layer built specifically for payments and mission-critical systems enables the orchestration, translation and transformation of payment messages to onboard or offboard data within a message flow without impacting existing processes and payment flows within the bank.
Banks need to be able to accept messages in almost any format and translate them to meet their internal needs while returning messages to the external ecosystem in the modern global standards. With a two-sided canonical model, banks can pay a data-rich message, extract and convert the salient information for his or her various internal systems, orchestrate those new simple messages out to internal systems, accept the return messages and convert them back to a data-rich format, or translate them into another simple message for another internal system.
Without the magic of the middleware banks are still stuck in monolithic applications. But with an intelligent layer to enable new use cases banks can develop them one-by-one, rather than trying to reach a vital mass of use cases to push an initiative forward.