Challenges in Payments Clearings
Simplification - a definite objective for banks with global coverage
Global banks face a challenge in their support of the evolving clearing and settlement ecosystem. This is compounded by the proprietary nature of their customers’ payments initiation process and the emergence of API/DLT based alternatives to the traditional RTGS and ACH paradigm. The challenge is compounded by:
- Having to utilise discreet locally deployed payment engines
- Having to integrate with legacy systems which are costly to change and adapt
- The high cost of maintenance
Global banks therefore look to rationalise the number of these systems by introducing a global centralised payment processing and orchestration Hub. But this centralised approach still does not address the plethora of local or domestic clearings and adding these complex rules into the centralised hub only complicates the hub configuration. Adding a new clearing or modifying it means a retest of the entire hub and makes it largely inefficient.
Expanding the reach – a need for local or regional banks
Local and regional banks have direct clearing memberships with local clearings and use the traditional SWIFT based correspondent banking network model to provide global reach capability. Although secure and reliable, this route presents obstacles to maintaining a competitive edge as:
- Sending individual SWIFT payments is perceived as expensive
- The model does not provide flexibility and economy of scale which local banks might need in certain high volume corridors such as; USA-LATAM, USA-China or UK-India
- Their core payment engines are highly geared towards local clearings
Local banks attempt to address these disadvantages with an international ACH model via partner banks that provide ACH capabilities in the countries they want to reach. However, this would require revamping or reengineering their existing payment engines to manage existing clearings and provide files in the formats stipulated by these providers. The file formats and confirmations from these providers are diverse and this would mean complicating the payment engine and making the process inefficient when it comes to changing and adding new providers.
A constant and growing challenge – the pressures of regulatory compliance
Regulatory compliance is a common requirement for both the global and local banks alike. As clearings venues and facilities and regulators make changes in their respective countries, each change means a change to the core central payments processing hub – this inevitably means large testing efforts and upgrades are required. In support of this, a large part of the annual budget continues to be allocated to fund regulatory changes which would otherwise be focussed on growing the business.
A Solution to this multi-faceted set of challenges and problems
In final analysis when considering these challenges, the ideal solution is a single system which sits between the bank’s centralised payments processor and the various clearings, partner banks and SWIFT. Such a system will need to have a plug-and-play model in which the business can readily add new countries and/or partners and easily handle all the nuances of the endpoint - making the centralised payments hub agnostic to its destinations, be it a clearing house, a partner bank or SWIFT.
VolPay Gateway, part of the VolPay Suite of payments processing products meets this challenge head on by providing an agile, efficient and cost effective way of managing the clearings in a centralised standardised application.