ACI Worldwide's Payment Industry Media Centre

Integration mitigation

2012-02-15T09:36:00.002Z

In an increasingly commoditized payments world, it is no surprise that banks seek to differentiate their payments offering. Technology is usually the key enabler in creating competitive advantage, but soaring IT integration costs can all too easily derail the bank’s efforts.

Banks are being squeezed. They are caught in the vice of increasing competition, rising customer expectation and more regulation on one side; and falling prices with changing volume patterns on the other. And we can add innovation, flexibility, cost reduction and enhancing the end-user’s experience as simultaneous aims.

Unfortunately, the costs associated with IT integration make decisions on investment in new technology more difficult, as there is greater uncertainty regarding the payback period.

One answer may be to mitigate the integration issue by buying, for example, a front-end to back-office payments system, complete with fraud capability, from a single vendor : pre-integrated and with guaranteed interoperability. Time and cost saving aside, there are real benefits to be gained in terms of payments visibility and real-time information, which can form the basis of true differentiation. Add to this, easy-to-use self-service enrollment forms that provide immediate access to online services, and banks may well have a competitive, and more importantly, profitable offering for their corporate customers.

Paul Styles
Solutions Consultant
ACI Worldwide

The Payments Hubbub

2011-11-24T16:09:00.001Z

There has been much debate and discussion about what banks actually mean when they speak of a ‘payments hub’ and how that might be implemented. What is often overlooked is that the concept of a payments hub (also commonly known as a payment factory) is gaining traction in the corporate world, as companies seek significant gains in financial efficiency.

The implications for a bank can be far-reaching, as it can be expected to consolidate various payment types, pass them through the most efficient settlement method possible, and to deliver information on those payments to the accounting and accounts receivable systems of the company in a timely and comprehensive manner. On the accounts payable side, the aim is to automate the invoice handling process and to apply straight through processing. And fraud detection and payment security are growing concerns.

As banks grapple with the need to transform their payments operations, they would do well to heed the requirements of their corporate customers and ensure that, as the banks aggregate their payment business services, a tighter integration between their own corporate front-end systems and their back-office payment engine is an explicit goal.

The emphasis should be on systems interoperability – payment engine to online banking to the corporate’s own payments hub. In that way, the bank is positioned to provide extra value to its corporate clients. And puzzling over what a bank payment hub actually is becomes something of a redundant exercise.

Paul Styles
Solutions Consultant
ACI Worldwide

Regulations: heads, you win; tails, I lose.

2011-11-03T12:01:00.001Z

The proposals to update the Mifid directive governing European financial markets is just the latest in a slew of regulatory initiatives to hit the financial services market. The increase in regulatory attention in the financial markets is a global phenomenon, and shows no sign of abating in the foreseeable future. And given the backdrop of the current economic climate, it is no surprise that these regulatory imperatives are eating into the banks’ innovation budgets.

Innovation obviously implies a change for the better, and that is only achieved by investment. There is a general air of disillusionment surrounding financial institutions at the moment, and that can quickly translate into actual dissatisfaction at the point of service. That is especially the case in payments, which is one area where the banks are actually seen to be doing something with the customers’ money.

To counter that, banks should continue to invest and innovate in their payments business. Payments system transformation can enhance bank and customer relationships, as well as create new revenue streams, both of which should be high on the list of priorities of any bank. The regulations will continue to come – that is no excuse for inertia.

Paul Styles
Solutions Consultant
ACI Worldwide

The customer is always right

2011-09-21T12:52:00.001+01:00

It’s a fact that when it comes to banking and payments, customers have high expectations of reliability, efficiency and dependability. This has not changed over the decades.

What makes it more challenging for banks today is the speed at which transactions occur, along with the sheer growth of the number and complexity of payments. More and more payments are being executed in real time as more customers use online services and mobile banking, moving away from ACH to immediate payments.

Real time processing for customers means real time everything—real time status information, real time settlement, real time balance positions, real time response to questions, real time resolution to problems – especially in the light of regulations concerning liquidity such as Basel III that demand a intra-day view of liquidity.

Adding in the development of more payment destinations, more settlement paths and more originating channels increases the complexity of the transactions – and the information that accompanies them.

However, banks can differentiate themselves in the amount and timeliness of the information around the payment itself, and it is this that will help one or two banks stand out from the crowd in the future. The question is – which banks will it be?

Craig Ramsey
Wholesale Solutions Lead

Hubs. Time to make them work

2011-09-20T11:30:00.001+01:00

Payments hubs have been a talking point for a number of years now. Once envisioned as the 'silver bullet' for payment system consolidation, the reality has become somewhat different.

I've talked to a lot of different banks over the past few months, including some at Sibos, about the status of the hub projects they have undertaken. The overwhelming message I'm hearing is that many banks have built their hubs from the 'technology up', so to speak.

They have consolidated systems and data because the technology will let them do it, rather than to meet their specific business functionality. They then have to bolt on additional components to let them actually manage the payments and add value to the entire processing chain. This has resulted in unnecessary complexity and has decreased resilience and manageability of the environment. I hear of banks having to rethink or even abandon their hub projects because it has either proved too difficult, too expensive or the business benefit has simply not materialized

Now, don't get me wrong, this certainly isn't the case everywhere - there are some banks who have delivered the hub concept successfully and are providing real value to the business. But they do seem to be the exception rather than the rule.

I know there has been debate in the industry recently about the future of hubs, but I don't think they are going away. And nor will the debate. But, I do think there will be a rethink about how these projects should be approached and the business side of the bank will need to have greater input to make sure the finished solution really does make a difference.

Craig Ramsey
Wholesale Solutions Lead

Final countdown to Sibos

2011-09-15T12:55:00.001+01:00

It’s hard to believe that Sibos is upon us again. It doesn’t seem like almost a year since we were all in Amsterdam. (Although they do say that times goes faster as you get older, so maybe that’s to blame…)

In a world where so much is ‘virtual’, I must confess to a small stab of guilt at the thought of so many people travelling from around the world to come together in one place. And then I remember that I thought the same last year, and the year before – right up until the moment the doors opened on day one.

Every year I hear from the banks that I talk to that Sibos is invaluable as a place to come together, share ideas, hear what others in the industry are doing, participate in debates and learn from their peers. The fact is that most customers, whether consumers or corporations, are only interested in how their bank competes in their domestic market and make decisions based on domestic comparisons. However, there will always be some customers who are looking for services outside of their country, and domestic players need to be able to compete with global or regional banks.

Naturally, global and regional banks have an advantage because they are able to share ideas more easily between country organizations. Therefore, purely domestic banks need to be proactive in their drive to learn from other countries – and this is where the truly international nature of Sibos adds value that just can’t be seen elsewhere.

While there is no need to compete globally to be successful in payments, it is important to understand what is going on globally - and the only surefire way of achieving that is to meet and engage with industry players from around the world, every year.

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Transforming payments into a profitable business

2011-08-23T13:54:00.002+01:00

Transaction banking is now receiving the respect it deserves as a sustainable source of revenue and vital customer touch point. In fact, in 2009 global payments revenues were $900 billion – double that of our worldwide airlines. However, financial institutions face significant obstacles on the path to profitability given that the global payments landscape comprises a collage of local payment systems and practices that have evolved over time. These legacy systems are costly to maintain and lack the flexibility to create new services quickly and efficiently.

In addition, while legislative initiatives, such as SEPA, seek to promote harmony and competition, in practice they can actually increase the cost of doing business instead. The challenge therefore is to cut costs and increase business agility. To achieve this, financial institutions need to take a new approach.

In doing so, banks need to look at several factors such as how they can build economies of scale, the efficiency of processing and the extent to which a financial institution can wrap value-added services around core payment propositions. Focusing on the added-value aspects of payments that facilitate service differentiation are often a prime source of competitive advantage. Banks need to understand the detailed composition of their payment activities to ascertain those accounts that are likely to provide liquidity and those likely to consume it, which requires a thorough examination of all business processes and systems. It is also essential that systems be capable of meeting tactical needs and strategic objectives. While it can be difficult to address both simultaneously, bank risk producing ‘siloed’ systems environment that in the long run is unlikely to be commercially sustainable.

An increasingly common response to these challenges has been the deployment of payment hubs. An agile payment hub is flexible, processing transactions in real time and batch, across multiple payment instruments; and it enables monitoring, management and customisation, using standard processes and messaging.

Another opportunity to do things differently is through legislative initiatives, such as SEPA which can also serve as a great business enabler. Increased legislation and globalisation have challenged traditional business models and relationships. At a bank level, a standardised framework offers a robust transactions framework on which to hang other services that corporate clients are willing to pay for and in this sense, it is crucial for banks to understand how corporate customers use their services and how these services relate to the overall corporate strategy. Take corporate liquidity management; customers expect real-time status reporting on payments in a multi-currency environment.

Over time, transaction banks must build flexible operating models that support a consistent global service level across all segments if they are to profit from transaction banking. The acid test for banks will be to rise to these challenges without interruption to existing business processes. However few banks can achieve this without assistance nor can they succeed by simply replicating solutions that have worked for others. While banks can certainly learn a lot from each other, given the complex nature of today’s payments landscape, it will be the prime function of IT to enable a profitable business. In this sense, global software partners will provide a vital conduit through which to develop and implement best payment practices designed to help banks achieve their commercial objectives profitably and sustainably.

Barry Rhodes
Head of Transaction Banking, EMEA
ACI Worldwide

Let us go then, you and I, to Sibos

2011-08-03T14:04:00.001+01:00

Sibos once again fast approaches, the programme is largely set and delegates can begin to plan their week in Toronto in some detail. As the recent financial crisis is no longer centre stage, the overall themes for Sibos recognise that the focus is shifting to the future and that the industry is grappling with new questions, especially around the implementation of regulation in a way that is sustainable, cost-effective and delivers safeguards; and how banks can adapt to changing customer expectations and keep pace with an increasingly open and inter-connected world. And nowhere are such questions more relevant than in payments.

The regulatory landscape is changing rapidly, bringing with it new demands for compliance, audit, transparency and control. The Single Euro Payments Area (SEPA), Basel III and the Durbin amendments to the Dodd-Frank Act, for example, change the cost base of many bank payment systems. Worldwide, greater risk controls and new strict liquidity management and capital adequacy requirements will require further technological capability in addition to the systems already supporting data protection, privacy regulations, anti-money laundering, and know your customer (KYC) requirements.

Banks’ corporate customers’ want real-time everything, and individual customers’ lives are increasingly becoming digitised. So customer expectations are also changing rapidly.

Faced with such challenges, it could be argued that the payments industry has a limited window of opportunity to transform its electronic payment systems. If today’s payment systems are siloed, non-compliant, inflexible and uncommunicative, the payment system of the future is the opposite. Whereas legacy processes and architectures effectively disable new initiatives and strongly limit the ability of any financial institution to be proactive, advanced systems and architectures facilitate the achievement of both revenue-raising and cost-reducing strategies.

Sibos is simply the pre-eminent place to consider, debate and progress such issues. Let’s get to it!

Paul Styles
Solutions Consultant
ACI Worldwide

Innovating to better compete with existing and new players

2011-06-17T10:06:00.001+01:00

The need to develop new customer propositions has become more important recently because of the new market entrants that many claim are eroding the traditional bank’s business in the payments space. It is a common topic of conversation at industry conferences, but in reality these new entrants invariably work with banks to deliver final settlement. The far more pressing concern is that these new entrants are talking directly to customers. What’s more, as new players push harder to offer competitive banking services, we can expect legislative demands to be increased and the playing field to be leveled. To ensure innovation, it is important to explore and establish ways of working alongside these new players.

Part of the challenge here is that banks are not often regarded as innovators or leaders of innovation. New entrants find it much easier to adopt these titles, and are able to move with greater agility and come up with unique propositions. Traditional banking houses are still thought of as being the safest environment to move money in, but this level of trust needs to be seen alongside innovation.

Small value cash and card retail payments between consumers are the target, and person-to-person (P2P) payment service providers like PayPal and now Facebook are already strong competitors in this space. However, as already noted, revenues are low for these types of payment.
Remittance services are also popular among a significant consumer cohort, and payment companies are keen to offer services that front-end the traditional banking systems. The key target of international payments – those with high value and strong revenues – are the ones that really need protection. Critically, that will only happen if the banks provide the products and services that customers want to buy.

Thus, banks should not shy away from working with these new players, particularly as they can still take the most important role, that of settlement. Since settlement must be performed in a secure, risk-free and guaranteed manner, traditional banks are still best placed to provide it. Currently, only the banks offer that platform, alongside the legislative constraints of doing business. Banks should provide exemplary settlement services, ensuring that the new players are treated as well as any other customer. In this more diverse marketplace, banks need to ensure that their innovation is directed towards providing a seamless service to all existing and potential customers, regardless of the nature of the contact point.

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Innovating the customer proposition for true differentiation

2011-06-16T12:19:00.001+01:00

A broad range of activities – and not just cost cutting – must be adopted if a financial institution’s market share is to be maintained and managed, and are imperative if market share is to grow.

Consider a scenario in which every organization provides the same processing to ensure regulatory compliance. In this situation, there is little a customer can do to determine which bank is deserving of his business, other than price. Conversely, a bank that is able to clearly differentiate its product offering has a unique selling point that can attract and retain lucrative customers. Banks also offer value-added services to their clients as a means of moving away from commodity pricing and into accurate pricing for the real value that has been added.

Innovation in payments is invariably not about how the payment is processed. Ancillary services to payments are frequently more important to corporate customers: the provision of loans and liquidity, availability of data in real time, or pooling services and general cash management. It is the total offering that creates a fully rounded customer proposition, and whichever is chosen, the role of payments is to support these activities. Banks should therefore ensure that their payments service is able to facilitate these key areas.

Craig Ramsey
Wholesale Solutions Lead, EMEA
ACI Worldwide

Let’s hear it for the payments big boys

2011-05-25T10:30:00.003+01:00

Since the financial crisis, supervisors across the world have been trying to work out ways of dealing with banks deemed to be ‘too big to fail’. The most obvious solution (and the most simplistic) is to chop them up into manageable bits so none are too big or interconnected to be allowed to fail, because the current received wisdom seems to be that banks that are smaller and more modular are less of a risk.

But from a payments perspective, there are two counter-arguments to this approach.

Firstly, the big banks that operate, and offer payment services, internationally are actually made safer by their geographical spread – there is no concentration of risk on any one particular economy. And that’s an important element in terms of regaining customers’ trust.

And the second point is that the banks that operate and provide payment services internationally offer clients something that others cannot:
- A consistent level of service across all points of contact,
- The benefits of payments’ best practice from their widespread experience,
- Better management of their clients’ cash across borders.

So there are good and sound reasons to applaud the big banks’ revival of interest in the unglamorous business of taking deposits and processing payments. We need big banks to do this. Mind you, they’d better have the right systems in place to do it properly...

Paul Styles
Solutions Consultant

Taking action against the burden of legacy systems

2011-05-19T11:34:00.000+01:00

We know that most financial institutions are burdened, to a greater or lesser degree, by siloed legacy payment systems. Part of the problem is that the limitations of this architecture of legacy infrastructure are not immediately obvious. Individual systems function, and function well for the most part. But although they serve their individual purposes now, there is little to suggest they will be able to work together to support financial institutions as they adapt their business models to the demands of a new decade.

The sheer volume of transactions that these legacy systems are expected to handle continues to grow – placing ever growing pressure on already creaking infrastructure. The financial crisis has dramatically accelerated the pace of change and has placed acute pressure on legacy systems. It brought about unprecedented levels of consolidation and tremendous regulatory change, and is accompanied by a fast-paced revolution in technology and a changing customer demographic.

Furthermore, the payments industry is no longer the exclusive domain of established financial institutions and traditional payment processors. New entrants from non-financial industry sectors are making their presence felt and challenging long-held notions about the payments business. These new entrants have been enabled by customer-friendly regulations and fast-emerging technologies, and are gaining ground in traditional B2B and B2C spaces as well as creating and fulfilling an electronic P2P payments environment.

These new entrants come without the baggage of years in the payments space. They offer new products and services, carefully targeted and often fulfilling a niche demand, without having to compromise because of their technological limitations.

The convergence of payments and consumer technology favorites is indicative of another critical factor facing financial institutions. Consumer’s lives are increasingly digitized. Customer expectations are therefore changing rapidly. Younger customers in particular are used to services delivered online and in real time and expect similar levels of service from their financial institutions. Traditional banking brand strengths, like reliability and security have less meaning for the next generation of customers for whom speed and convenience are the key brand values, with reliability and security considered hygiene factors. And legacy systems cannot always meet these expectations.

The payments industry is therefore at a tipping point. Financial institutions need to be more proactive in the payments evolution while managing crisis-driven business pressures and new regulatory and compliance imperatives. First of all, they will need to make some prompt decisions about how to redesign or accelerate their revenue-focused and cost-focused payments strategies. New pressures threaten to overwhelm the legacy systems on which the payments business has been built.

Louis Blatt,
Chief Product Officer
ACI Worldwide

Saying goodbye to the old…

2011-03-23T08:58:00.001Z

I blogged earlier this week about the importance of payments and banks adding value for their corporate customers, which is being highlighted at IPS. Electronic payment volumes are still increasing and banks have to look at how they are being managed and processed.

But for many institutions this can be easier said than done. The past 30 years have seen literally billions of dollars spent on payment systems, and the payments infrastructure within many financial institutions is siloed, with different payment types often having their own systems, information, processes and people to support them. It isn’t uncommon for a medium to large financial institutions to have between 60 and 100 individual systems to process payments.

However, the cost of maintaining these systems; the downward pressure on the per-transaction fees that banks can charge; and the need for speed in responding to innovation in the market, is leading many banks to look at their payments landscape and start to consider how it can be evolved to become more consolidated and efficient.

We’ve heard lots of talk about payment hubs in the past few years, and while I agree that consolidation is key, it end goal isn’t just about getting all of your payments onto one system, it must be about intelligently and effectively bringing together processes and technology to reduce inefficiencies and increase flexibility. It doesn’t really matter if you go from 100 systems down to 5 or ten rather than just one, if you have delivered significant benefits at the same time.

But getting there isn’t easy. In most financial institutions it isn’t a case of throwing out the old and bringing in the new, it is a more gradual evolution , but the end goal is still the same – efficient technology and infrastructure on which the bank can deliver the processing functionality, flexibility and scalability it needs today and into the future.

Craig Ramsey
Wholesale Solutions Lead

Will transaction banking please step forward?

2011-03-22T09:25:00.000Z

The provision of payments is a fundamental function of banking, practically as old as money itself. But since the introduction of cheques more than 350 years ago, the payments landscape has been evolving continually, due to changing customer requirements, competition, legislation and technology.

The speed of change has increased in recent decades, putting more and more pressure on the banks, but the function of making and receiving payments has never really had its time in the limelight. But now things are changing, with a renewed focus on payments and the revenues that can be generated from what is a stable and relatively predictable business line, with growing volumes. However, legislation such as SEPA is driving down the per-transaction revenue that can be generated, so to be successful and stand out from the crowd, banks need to apply their expertise on their customers and the market to create propositions that add value to basic payment processing.

One key example of this is in the corporate payments world. For businesses, payments are of little interest in themselves, they are part of a bigger picture of transactions being completed, and also the wider liquidity position of the organization. Banks need to find ways to add value to their customers, for example by making payments easier to initiate and available at short notice; by providing real-time reporting and management information; and by offering a consistent payment experience globally – and many banks are looking externally for an experienced partner to help with this process.

Anything that banks can do to add value to their corporate customers, and build a relationship that is more akin to a partnership than a customer/supplier, then the greater the opportunity for the bank to continue to run its payments function as a revenue generator.

Craig Ramsey
Wholesale Solutions Lead

Per Ardua Ad SEPA

2011-02-16T14:29:00.001Z

SEPA is due to become a full-blown regulatory event once the end-dates are set by legislation. The first reaction to any regulatory change is generally that of ‘response’ – dealing with any required change. And that is often the minimum to achieve compliance.

Yet this is set against a background of revenue challenges; as the Boston Consulting Group has identified (“Banks must retool payments businesses as revenues dip” – Finextra 08.02.11) global payments revenues - which typically constitute a third to a half of most banks' total revenues - fell at a compound annual rate of seven per cent from the end of 2008 through to 2010.

That makes it more important than ever for financial institutions to move towards easier, cheaper, more efficient and more effective payments. As the Boston Consulting Group reports: “In Western Europe, given its highly evolved infrastructure, the focus will be on refining operating models”. However until recently, holistic thinking about payments platforms was difficult. Payments businesses were organized in functional silos, each with their own requirements, issues and approaches. The silo approach may have been inevitable in the past, given how payments types developed, but it has blinded businesses to the overall value of their combined systems.

SEPA is the ideal ‘market event’ to enable banks to justify action and seize the opportunity to refine their operating model for payments. ‘Response’ is not enough – a strategic approach to transaction banking has to be the way forward. No-one said it would be easy but now is the time to act.

Paul Styles
Solutions Consultant
ACI Worldwide

What will it take to get to SEPA?

2010-10-27T10:42:00.000+01:00

The challenges of regulation for SEPA were made clear in the "SEPA 2010" session at Sibos today when the European Commission declared that "moving from self-regulation to regulation is not a small step but a major challenge”. In a sense, that sentiment comes as no surprise at all, given how far we've already travelled down the road to SEPA.

The sad thing is that this Sibos session yet again showed how far we have yet to go. Communication around SEPA is seen to be key and needs to be stepped up dramatically. It is, however, being pitched as a shared responsibility. I was heartened though to learn that the intention of the EC is not to lead to a re-fragmentation of the market.

Mind you, I can't help feeling that the SEPA initiative is a major project which still has no clear project manager. The benefits of SEPA will undoubtedly come - we just have to remain patient for a while longer.

Paul Styles
Solutions Consultant
ACI Worldwide

Can Africa learn lessons from SEPA?

2010-10-26T12:40:00.001+01:00

It's very interesting to see that Southern Africa plans a SEPA-style payments harmonisation and that they consider that learning from the experience in Europe could be very useful. Something that immediately springs to mind is to treat self-regulation with caution. In Europe, we are now actively seeking regulatory intervention to set an end date for the withdrawal of the legacy payment instruments as the SEPA initiative feels as though it is stalled without that. Self-regulation simply did not deliver.

On a different but related point, I have just emerged from a Sibos session on 'Rebuilding Trust', and the issue of self-regulation came up in that discussion, with one panellist declaring that, in the context of recovery from the financial crisis, "self-regulation is over". The concept of self-regulation just doesn't have many fans at the moment. And there are many calls for closer collaboration with the regulators. How things have changed.

But it may be a salutary lesson for Southern Africa. The regulators should ensure that the appropriate framework is in place. Then the banks can concentrate on ensuring that they act in the interests of their clients as they deliver harmonisation, rather than merely reacting to a political impetus. There can be huge value in such initiatives - the trick is in delivering it.

Paul Styles
Solutions Consultant
ACI Worldwide

Wire transfer fraud – who’s responsible?

2010-10-22T18:05:00.008+01:00

I recently wrote about the risks that banks face with respect to the alarming scale and sophistication of today's wire transfers. Related to this is the issue of acccountability and responsibility.

While mitigating risk is both the financial institution's AND the customer's responsibility, it is often the customer authentication measures which fall short and opens up the point of penetration/attack. On their end, however, financial institutions are beginning to push the boundaries and implementing advanced technologies to provide predictive and early warning alerts to mitigate wire and ACH fraud.

With wire and ACH fraud, financial institutions are not only vulnerable to high-value fraud, but also to multiple points of loss across a corporate customers' account. Once "in" criminals are able to access and undermine the systems across the financial enterprise channel -- from wire transfer through corporate checking accounts, to CDs and corporate cards. To combat this, financial services companies are increasingly looking to electronic payment systems companies to provide sophisticated systems that deliver a combination of predictive analytics and user-defined rules to stop fraudulent activity. This form of software solution proactively manages and mitigates risk by monitoring and identifying changes in customer behavior patterns across the ecosystem of financial services products to cut off cross-channel fraud in real time. It also helps a financial institution's fraud operations rapidly recognize attacks from schemes such as identity theft, ACH kiting, skimming, account takeover and money laundering. By using an advanced fraud detection system that analyzes wire transfer transactions in real- and near-real time, financial institutions can augment current processes and resources to screen for high-risk activity and take action -- even before the money leaves the bank.

Monitoring ACH and wire activity not only mitigates financial risk by reducing overall fraud loss, it also mitigates reputational risk in terms of protecting the financial institution's brand equity, customer loyalty and customer satisfaction. So, while protecting against wire and ACH fraud is both the bank and corporate customers' responsibility -- arguably it is the financial institution that "risks" the most. Given this, banks and their partners should take protective measures and implement intelligent, customer-centric risk management solutions to cut the cords of wire and ACH fraud.

Cleber A. Martins
Business solutions analyst for Risk Management Solutions at ACI Worldwide

Understanding today’s wire transfer risks

2010-09-28T17:05:00.003+01:00

While the rise of wire transfer and ACH (automated clearing houses) fraud is not news, the pure acceleration rate, scale and sophistication of corporate wire and ACH fraud is alarming. For example, the FBI recently took the step of issuing a cyber security advisory in response to the growth of unauthorized and fraudulent multi-million dollar wire transfers from business and government entities to overseas locations.

Wire transfers, previously one of the more secure environments within a financial institution’s operations, pose the greatest risk of loss to a financial institution. The transfer speed, potential size of such losses and the inability to recover funds once they are transferred to the destination institution all leave financial institutions vulnerable to significant risk.

To fully understand wire transfer risk, it is important to analyze the origin and the destination of the wire transfer. Many financial institutions allow business and consumer customers to initiate wire transfers in-branch, over the phone or online. In general, wire transfers originating from branch locations are the least risky as fraudsters are generally reluctant to put in a personal appearance. Despite this, it is important that branches have a documented authentication process, including requirements for multiple forms of ID or signature verification. Financial institutions usually require individuals initiating a wire transfer request over the telephone - typically corporate customers - to be authorized to initiate wires on behalf of the company for the particular accounts. These individuals must be able to provide appropriate security codes or correctly answer previously established security questions. Yet, internal employees, both within the bank and the corporation, may gain access to account information and passwords to overcome such security barriers.

Similarly, financial institutions that allow customers to initiate wire transfers online open themselves to risk by fraudsters who are able to circumvent online authentication measures. Many banks are turning to multi-factor authentication techniques such as “something you have” (e.g. a token), “something you are” (e.g biometrics) as well as “something you know” (e.g. a password) to help prevent fraud of this type. They also are using techniques such as IP profiling to identify fraudulent access. In fact, multi-factor authentication becomes a critical weapon in a bank’s arsenal as criminals continue to develop increasingly sophisticated techniques to conduct fraud.

Criminals have figured out ways to bypass the need to “break” a user’s authentication, such as deploying a Trojan or some other type of malware to perform man-in-the-browser attacks. These can be completely invisible to the user, who accesses the online bank account and makes a payment as they normally would, but behind the scenes the fraudster can redirect the funds to their own account and even change the amount of money being transferred.

So how can banks best protect their customers from the multiple entry points of today’s wire transfer risks? The key is an enterprise risk management system that tracks customer behavior patterns such as time, frequency, amounts and destinations of activity. Then when customer activities show variances or anomalies, the system can issue an alert to stop the suspicious transaction in its tracks. Such a strategy delivers an optimum detection rate and minimum false positive ratio.

Financial institutions face a growing burden to protect their customers from fraud, protect themselves from fraud losses and comply with mounting national and international regulations. Ironically, while combating fraud, financial institutions are also being pressured by customers and regulators to improve the speed at which payments and transfers reach beneficiaries’ accounts, with many countries now at a near- or real-time process. This rapid availability and transfer of funds creates additional challenges in terms of recognizing and shutting down fraud before it is too late. Are you prepared to guard against today’s wire transfer risks?

Cleber Martins
Business Solutions Analyst of Risk Management Solutions at ACI Worldwide

SEPA Widdershins

2010-09-15T13:44:00.001+01:00

The European Payments Council (EPC) recently achieved its 8th birthday. Back in 2002, the road to SEPA probably looked fairly straightforward – the EPC would develop the payment schemes and frameworks necessary to realise SEPA, and market forces would ensure a smooth transition from the fragmented payments landscape of the time in Europe to the calm waters of a single payments area. The European banking industry would deliver the basis on which SEPA would be built, the rest would fall into place as a matter of course, and the end-user would be Very Happy.

The reality is however that it hasn’t really worked out like that, and the general lack of progress has produced recent ripples throughout the political and regulatory structures. And we’ve all adopted the mantra: “we need an end-date”.

So where does ‘widdershins’ come into this? The term originates in the 16th century and means essentially ‘in a contrary direction’. This is a good word to use for SEPA – we will get there but not perhaps in the way we originally expected. We just need to be flexible and agile – and we can extract the value that there really is in SEPA. Widdershins is not something to be feared.

Paul Styles
Product Marketing Manager - Wholesale Payments

Sibos calling

2010-09-08T11:51:00.002+01:00

It’s that time of year again. The banking industry is preparing for its yearly outing to Sibos, which brings together the financial industry for an entire week to meet, discuss the top issues of the day and generate new opportunities. This year’s event is being held in Amsterdam and coincides with our 35th anniversary as a company.

We’ll be celebrating on stand C203 while building on our heritage and expertise to campaign for a new approach to achieve real payment agility through the adoption of a new industry-wide framework known as the Payments Maturity Model. This framework acknowledges that non-cash electronic payments are now the mainstay of banking, but that to gain overall cost savings, improve margins, better manage risk, speed time to market with new products/services, and support true "markets of one" with their payment systems, financial institutions need to move towards "payments hubs".

At the moment this is difficult because many institutions lack clarity regarding the status of their current payments systems, and the value that will be achieved by a further investment in technology. This is why ACI has worked with Aite Group to develop the Payments Maturity Model which can assess a bank’s current position, provide direction on the order and types of activities needed to progress to the next stage, and assist with creating the business case necessary to invest in that stage.

To explain the Payments Maturity Model further, ACI will hold a Sibos session entitled Introducing an Important Industry Tool — The Payments Maturity Model (PMM). This will be held in Community room 4 on Monday 25 October between 11:00 and 12:30. Here our Chief Product Officer, Louis Blatt, will be joined by Nancy Atkinson, senior analyst from Aite Group, and industry experts to debate the future of the payments industry and the move towards payments maturity.

While the industry gears up for yet another mammoth event, we hope you get the time to join us at that session and also plan a visit to our stand. See you in Amsterdam.

Paul Styles
Product Marketing Manager - Wholesale Payments

Who has accountability for Liquidity Management?

2010-08-25T16:40:00.004+01:00

Very few banks have mastered the art of accountability when it comes to liquidity management. Corporate treasury and finance generally are responsible for the function in most institutions, depending on the purpose for which liquidity is being managed, but often neither has it firmly in its domain.

A lack of clear accountability may help explain why there has been, at least in the United States, little focus on solving challenges to payments liquidity – challenges that can lead both to inefficiencies that add unnecessary costs and delays in workflows and to incurring borrowing charges in the intra-day market due to accidental overextensions around operations funding.

Challenges also exist around settlement aspects that could lead to banks’ unfortunate exposures to counterparty failures, as well as around being able to provide information corporate customers need around their liquidity positions.

Dealing with the fall-out from the credit crisis, of course, has played a role in keeping this issue on the back-burner. Yet the credit crisis has also changed the nature and scale of the liquidity management challenge. But what’s at stake here ultimately amounts to nothing less than global competitive advantage. Think about this: In a world where real-time information drives everything from stock trades to web advertising decisions -- and soon enough even energy usage – many banks’ payments liquidity decisions are based on what was going on at the close of business yesterday, or what happened this time last week, last month, or even last year.

Banks must create an environment of accountability that will enable them to move from performing macro-level payment decisions through manual integration of data from disparate sources, to a real-time understanding of their own and their customers’ positions in order to be best-in-class at responding to today’s market dynamics.

Tony D. Smith
Strategic Consultant for the ACI Worldwide wholesale banking products

Financial transactions tax sparks debate

2010-08-10T16:08:00.003+01:00

As we have seen in the media this week, EU proposals for a tax on financial transactions have created a storm of debate in the last 24 hours – mainly focusing on political issues. While the full details of the proposed tax are still unclear, it is obvious that a tax on financial transactions – or payments between banks – would be detrimental for a number of reasons.

While it is important that we all pay taxes to ensure proper funding of public services, a financial transactions tax on banks is bad news for Europe as a whole. With the growth of electronic payments, banks have been able to reduce their costs and help their customers get access to funds quicker and more cheaply than ever before. By taxing this process, we run the risk of reducing the liquidity of the European economy as banks look to minimise their exposure by conducting fewer transactions. And a lack of liquidity was ultimately a prime cause of the financial crisis. With banks only just starting to post profits, we should not jeopardise the recovery in Europe.

It is also important to note that this tax may also hamper the ability of nations to adopt SEPA – the Single Euro Payments Area initiative – which the EU is itself pushing. It seems that the EU is seeking to promote the growth of payments with one hand through SEPA, only to put the brakes on with the other by threatening a tax on SEPA transactions.

I’ll be watching the news closely in September when Janusz Lewandowski, EU budget commissioner, makes his full recommendations about whether such a tax will be introduced.

Paul Styles
Wholesale Payments

SEPA – who will step up to the challenge?

2010-07-23T11:21:00.001+01:00

Comments from Gerard Hartsink in the latest EPC newsletter underline the plight of the SEPA Schemes – ultimately that we're in danger of ending up with a politically-driven mess. At Sibos 2008 I blogged that to achieve success, a third party body needed to step in to oversee the SEPA project. Almost two years later, what this newsletter highlights more than ever is that SEPA is a huge and complex undertaking which still lacks a central project manager.

The key factor that has been missing from the start is the engagement of all stakeholders. But who can bring these disparate parties together? The role of the EPC by its own admission is restricted to representing the banking industry alone: "Self-regulatory efforts by the European banking industry cooperating in the EPC are exclusively aimed at defining the business rules and standards governing the SEPA Schemes and Frameworks and to engage the banking industry in the process of implementing these Schemes and standards"(EPC Newsletter).

So who is left? The only feasible option at this stage is the SEPA Council that met for the first time in June 2010. This new body is likely to bear the responsibility of representing the various stakeholders, but we are yet to see any concrete measures or progress in that direction. Ultimately, if the politicians are compelled to move the goalposts at this late stage in the game, the SEPA Council is the organisation that will have to step up to the challenge of ensuring that SEPA remains true to its original vision and finally becomes a reality.

Paul Styles
Product Marketing Manager - Wholesale Payments

SEPA and white elephants

2010-06-07T09:02:00.002+01:00

If one was to take a spectator’s view of SEPA progress to date, one could be excused if the image of a white elephant flashed before one’s eyes . . . . .

We had a memorable white elephant in the UK not so long ago : the Millennium Dome. It was central to the country’s celebrations at the turn of the millennium, but there was little clarity on what exactly it was for, and whether anybody really needed it.

The project managers were often at odds with the authorities (in this instance, the UK government), which resulted at times in there being very little control over the progress of the project, which ended up costing far more than originally planned. And when the Dome finally opened its doors, far fewer visitors than expected actually bothered to turn up.

It’s all turned out nicely now as the Dome has taken on a new life as an entertainment centre, but it was touch and go for quite a while.

The similarities with the SEPA project so far are all too obvious, but it’s certainly not too late to amend that. We just need a concerted effort to gain clarity on what it’s for, and a clear articulation of the business case for all stakeholders so they can justify why it is needed.

Can we look to the project managers to provide that ?

Paul Styles
Product Marketing Manager