Thinking the Unthinkable: Banks Relinquishing Control of Their Payments Infrastructure

by Gareth Lodge, May 23, 2013
Industry Trends
Global, EMEA, North America

Abstract

Banks’ budgets continue to be constrained, yet more demands are being placed upon their spending. For a growing number of banks, a significant shift in how payments processing is delivered is needed.

The banking industry has weathered a tough period. The future, while brighter, will bring its own challenges, according to the report, Thinking the Unthinkable: Banks Relinquishing Control of their Payments Infrastructure.

Payments account for a significant proportion of banks’ costs, but they offer little opportunity for differentiation. Indeed, payments strive for standardization, to ensure high levels of straight-through processing. For some banks, the shift will have to be more than the traditional approach of “trying to do more with less.” Instead, they require a change that will be as much of a mind shift as a technological shift. Celent believes that this answer will be a form of outsourcing, with cloud computing offering the most scope for change. For payments, that will require a change in attitude.

Parts of the payments industry are already outsourcing, such as the cards business. At the same time, banks are already utilizing cloud computing in related areas. In core payments processing, outsourcing is rarely considered. Yet without a more radical approach, banks are unlikely to achieve more than incremental changes.

“Payments have traditionally focused on operational efficiency, yet if everyone focuses on the same thing, it is even harder to differentiate,” says Gareth Lodge, Senior Analyst with Celent’s Banking Group and author of the report. “Focusing on a different value discipline may give a bank an edge over other banks.”

This report studies how shifting focus to what banks wish to achieve, rather than starting with preconceived ideas of what are acceptable options, can create significant opportunities for differentiation. It looks at how cloud computing may help banks find that area for differentiation.

This 29-page report contains six figures and two tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Tylor Tourville
ttourville@celent.com
Tel.: +1 617 424 3284

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

1

The Forces of Change

3

Standardization to Create a Business

7

Beyond Retooling

9

Outsourcing in Payments

10

Moving from Outsourcing to Best Sourcing

13

Introducing Cloud Payments to Payments

14

The Opportunities for Cloud in Payments

15

 

Agility

15

 

Commercializing Payments

15

 

Supplying Peak Capacity

16

 

Variable Pricing to Control Volume Flow

16

 

Insight and Analytics

16

Challenges to Wider Adoption of Cloud Computing

17

An Action Plan for Banks Considering Outsourcing

20

 

Step 1: Choose a Strategic or a Tactical Response

20

 

Step 2: Build the Right Team

21

 

Step 3; Decide on the Form of Outsourcing

21

 

Step 4: Build the Business Case

21

 

Step 5: Choose the Partner

22

Leveraging Celent’s Expertise

23

 

Support for Financial Institutions

23

 

Support for Vendors

23

Related Celent Research

24

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