Kristin R. MoyerThe financial crisis has already had far reaching impacts and consequences on consumers, financial institutions and the vendors that serve them. Even before the crisis, payments was in flux due to regulatory change, account and transaction volume growth and the need to contain costs while leveraging payments to drive revenue and retain customers (see “Three Delivery Models for Card Processing” and “Banks’ Retail Payment Operations at a Tipping Point”). Since the crisis began, the financial industry has been restructured as a result of significant merger and acquisition activity as well as government intervention. Consumer spending habits have changed in many parts of the world, with consumers turning to debit cards (particularly in markets like the US, UK) in order to better control their spending (see “Banks Must Invest in Payment Systems to Win Back Customer Trust”. The sunset of Base24 is driving significant change as well.
Because of these things and more, I believe that accelerated change is about to take place in all aspects of card payments operations. Evidence is mounting to support this belief. Many banks and processors have begun a process of re-evaluating all aspects of their card operations, including applications, processing centers, strategic sourcing and network brand choices.
Consolidating card-based applications and processing centers is a natural evolution to a transformational architecture: the payment services hub. Gartner has written much on the payment services hub (PSH) – what it is and why it is important (see “What’s in a Payment Services Hub: Building the Next Generation of Banks’ Payment Architecture” and others). The value of the PSH will be its ability to act as a centralized, rule-based engine for all payments (including card-initiated transactions). Selected card processes and services will become part of the PSH as payment-specific services (for example, regulatory compliance check, check account funding), some will be common enterprise services (for example, authentication, authorization, origination) and others will be card-specific services (for example, plastic management).
In short, the PSH eliminates the need for many of the functions of card management software. The future of card management systems (particularly closed, end-to-end solutions that support large chunks of functionality like the “front-end,” “back-end”) therefore becomes dim.
Category: payments Tags: card management software, payment services hub, payments, psh
2 responses so far ↓
1 Rajeev August 13, 2009 at 2:24 am
Well said article. I also believe that there are quite regional matters to address which may impact the overall card infrastrucutre and processing decisions. Add to it, the convergence in the finance/telco/transport is altogether another dimension that will make this space interesting. So, blessed are we living in the interesting times!
Rajeev
2 Wynand February 24, 2010 at 11:37 am
I agree that more and more banks are outsourcing their card processing, and in many cases we see lost opportunity due to this trend, however I would not go so far to say Card Management Software is on the road to extinction.
Even though card business is being outsourced, doesn’t mean that cards stop being managed. In the long term this trend may simply lead to a shift in customer demographics for Card Management Systems, thus possibly less banks, and more PSH service providers…
That being said, innovative and leading banks may not easily move away from their own processing services, as cost reduction is not the only dimension to success in the card business. Strategy, time to market and differentiation must not be under estimated.
While PSH certainly have their place and do provide good value, you get what you pay for, the lowest common denominator. The services provided by a PSH are mainstream and nearly identical for every party making use of that PSH. Thus say goodbye to strategic advantages, and brace yourself to compete only with price, branding and marketing.
PHS is a good model for some segments of the markets, just as McDonalds is a good restaurant model, however in the end one McDonalds is the same as the next – having identical strengths and weaknesses, and offering the same products.
Put two identical businesses offering exactly the same services next to each other, and in order to compete they will be forced to a price/marketing war (or merger/acquisition), and in the end there will only be one…
The other challenge with PSH service providers is lock-in; while this may or may not be designed into the PSH business model, it is part of the nature of the business, since essentially you outsource your entire cards business operations, and your business processes will naturally align to you PSH, which may be operating completely different from the next PSH.
If you ever tried switching payment processors, or tried upgrading or replacing a core banking system, consider what is involved when trying to switch between PSH service providers, it may just be easier to sell the business and start a new one. Selecting a PSH service provider is a marriage, and if you are not happy at any point down the line, it’s going to cost you to get out.
Wynand Vermeulen
Manager Finance Solutions
Bell Identification
http://www.bellid.com
PS: Bell Identification is the market leader in Smart Card Management Systems