Banks face growing demand from corporates for
straight-through payments processing, concludes Aite in two recent
in-depth studies. Author of the studies, Nancy Atkinson, discussed
with Robin Arnfield the implications this holds for banks and
trends in bank and vendor responses to meeting the
Corporations want straight-through
processing (STP) of business-to-business payments. This conclusion
is reached by Aite Group senior analyst Nancy Atkinson who recently
authored two reports probing trends in STP and global wholesale
“Businesses are demanding STP now,”
Atkinson told EPI. “They want electronic invoicing and
payments right through to automated exception reporting, AML
compliance, fraud prevention and updating to accounts receivable,
all done electronically.”
STP involves automation of a large
number of processes including fraud prevention, regulatory
compliance, transaction authorisation, liquidity checking, and
formatting for clearing and settlement. For clients, a key aspect
of STP is the ability to post data about payment transactions
supplied by their banks, into their accounting systems, Atkinson
said. For banks, STP provides cost-savings by eliminating manual
Possible bottlenecks to STP include
exceptions management which entails making sure transactions have
correct reference data for international clearing and settlement
systems; automatically repairing incorrect data; and applying
correct foreign exchange rates.
When it comes to STP implementation
Europe is ahead of the US thanks to compulsory migration to the
Single Euro Payments Area (SEPA), stressed Atkinson.
“SEPA forced European banks to
streamline their payment systems, and they had to make huge
investments to become SEPA-compliant, said Atkinson. “Because,
under SEPA rules, cross-border payment services have to be the same
price as domestic payments, with fees for domestic payments being
very low, the only way to recoup these investments is to offer
value-added services such as STP.”
Hindering STP in the US is the
plethora of systems for individual payments types. One top US bank
payments strategist told Atkinson his bank had 32 different payment
According to Aite, global IT
spending by financial institutions on wholesale payments systems
rose from $2.4bn in 2006 to $2.5bn in 2009 and will reach $2.6bn in
2012. Vendor-supplied wholesale payment systems accounted for $1bn
in 2006, $1.2bn in 2009 and will reach an estimated $1.4bn in 2012
with the remainder of the market being systems developed
Atkinson said that, rather than try
to patch together multiple systems, banks may find the best way to
tackle STP is to outsource their wholesale payments. Another
outsourcing driver is increased need for regulatory compliance,
fraud prevention and risk management, she added.
In her global STP report Atkinson
evaluated offerings of seven vendors: ACI Worldwide, Clear2Pay,
Dovetail, Fundtech, Logica, Misys, and SunGard. These vendors
account for about a third of the global market.
In the report she says even the
largest banks are using vendors’ wholesale payment systems.
Specifically, 29% of evaluated vendors’ deployments were for
financial institutions (FI) with assets of over $30bn. Mid-size FIs
accounted for 37%, small FIs for 33% and credit unions for 1%.
Atkinson highlighted two technology
developments, Web 2.0 and service-oriented architecture (SOA), are
playing key roles in bringing STP about.
Web 2.0 facilitates real-time
updating and display of information on internet-based information
systems, which in turn helps treasurers to access payment status
data in real- or near-real-time. SOA is a component based and
allows discrete pieces of software components- to be reused for
different services, making it easier to integrate different payment
services and achieve STP.
“SOA is being proposed as the next
wave of technology for payments,” Atkinson noted.
“Clear2Pay, Dovetail, Logica and
SunGard have migrated their wholesale payments platforms to SOA,”
Atkinson said. “Fundtech is in the process of converting its
GlobalPay Plus system to SOA.”
ACI is now combining its automated
clearing house (ACH) software with its real-time money movement
solution, Money Transfer System (MTS), and converting MTS and most
of its other existing solutions to SOA, Atkinson added. “However,
ACI has more of a capability to offer STP than other vendors
because it has such a massive customer base. Its Base24 card
processing platform is so widespread worldwide and it’s very strong
in the remittance market too.
“Other vendors have to rely on
banks’ own fraud prevention systems, for example, but ACI has its
own fraud prevention offering built into its payments software. So
this is a strength over other vendors’ offerings, even if ACI is
not SOA-based yet.”
Misys launched a SOA version of its
Payments Manager platform in the autumn of 2009, but didn’t have
any customers for it at the end of 2009, said Atkinson.
“I expect Misys has signed up
clients for the SOA version by now,” she added.
In July and August 2009, Aite
conducted a survey of CIOs at top North American banks and credit
unions about their discretionary IT spending budgets for the next
At first sight, the survey results
indicate a gloomy outlook for investments in STP wholesale
payments. The CIOs said top priority was information security and
fraud prevention, followed by cash management/treasury systems.
Only 1% said they would use their discretionary spending budget for
big investments in ACH and wire transfers.
Atkinson said the survey results
give grounds for optimism, as, in order for STP to become a
reality, a number of different technology investments have to be
“I contend that information
security and fraud management are clearly applied to payments
processing,” she said. “They may reach beyond banks’ payments
business, but they have to be applied to payments as well.
“As for cash management/treasury
systems, a significant part of what they provide is information
about balances in banking accounts, payments activity, and
remittance information associated with payments activity.
“Visibility of payments supports STP by illustrating bottlenecks
or providing insight for corporate end-users regarding processing