Banks face payments factory dilemma or disintermediation

Delegates at the HPS conference in Marrakesh debated the ‘payments factory’ concept

As the payments industry adjusts to the gradual demise of interchange fees, banks will face declining profits. That means data will have to be used more effectively to squeeze out the remaining opportunities. But it also means they face a dilemma between building their own services and outsourcing.

“The established players haven’t kept pace with the new entrants in the payments industry,” said Gary Frank, chief information officer at First National Bank South Africa, speaking at the recent  HPS conference in Marrakesh. “For smaller players, it’s way more efficient to use a payments factory, such as that provided by PowerCard and others, than to build their own processing abilities. But the result is that banks are being disintermediated by small alternative competitors using dashboards to compete more effectively than us.”

PowerCard is HPS’s suite of payments processing systems which includes tools for authorisation, clearing and settlement, merchant acquiring, card issuance, mobile banking, payment and transfer, e-commerce, online security, POS services, ATM services and web portals for issuers and acquirers.

During a panel discussion focused on the need for banks and financial institutions to bring payments services to market faster than ever before, Frank highlighted the increasing need to process payments the same day and the need to support these abilities with timely data. But that can be a problem, especially for large banks running multiple internal systems. For Barbara Rivera, vice president at Puerto Rico-based  transaction processing business Evertec, this leads inevitably to a dilemma, in which difficult choices will have to be made about the bank’s internal processes, its use of services from vendors, and whether or not to outsource parts of the payments chain.

“Having multiple platforms means you don’t have stability,” she said. “A single platform is preferable, but independence from the vendor is important too because you don’t want to be totally reliant on just one company.”

The concept of a payments factory became one of the key issues of the debate, with several speakers saying that it is the ideal solution for payments, in which all tasks are handled by a single system. In February, First National Bank signed a deal with  HPS to usw PowerCard to modernise its merchant acquiring business.

“PowerCard is becoming a payments factory,” said Mohamed Horani, chairman and chief executive at HPS in Morocco. “This kind of technology was previously only available to the big players. Now that’s no longer the case. PowerCARD is multi-currency, multi-language and it works in 28 countries. But we are not pushing for everyone to come back to HPS for everything. We do respect customers’ independence.”

Naim Almos, assistant chief executive at Jordan Islamic Bank, who said that his bank is building its own payments factory. However, not everyone was convinced by the idea of having a single service provider. One delegate in the audience objected to the concept, pointing out that as a retailer “you can’t find” a single vendor that can provide an answer for everything the retailer wants to do. Meanwhile, Almos himself added that it is important for a bank to be independent from the vendor – especially when your bank has specialist needs that may not necessarily be met by every vendor.

“For merchants that are not compliant with Islamic Sharia principles, they have to be excluded,” added Almos. “There are no other restrictions.”

Other banks are building up their own payments processing abilities. France’s Credit Agricole is a notable example. After 40 years of using its CEDICAM payments processing subsidiary purely for Credit Agricole business, CEDICAM opened its doors as a commercial company in 2012. The platform gained custom from other banks, including HSBC in France, which subcontracted its payments chain to Credit Agricole through the service. Other companies such as McDonalds, Total and Amazon are also users.

“We decided to build a payment platform for Europe a single platform that can work for large volumes. We want to reach 15 billion in next two years,” said Thibaut Faure, business development manager, Credit Agricole France. “The new platform allows us to innovate and have cost savings. The more transactions you have the more affordable the cost will be. We process about 100 billion transactions a year. Implementing a new solution took a year and a half. We reduced that time with the new platform. After hundreds of millions of euros it will be implemented this year. We believe its worth it. In the next five and ten years, only the biggest platforms will be true payment factories that can do this kind of work.”