© CELENT

Thinking The Unthinkable: Banks Relinquishing Control Of Their Payments Infrastructure

Celent Webinar10 September 2013

Gareth Lodge, Senior Analyst

A recording of today's webinar and copy of the presentation will be available to Celent clients on our website at http://reports.celent.com/login.asp

2© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Before we start…

• This webinar is based on a report published recently by Celent:

“ Thinking The Unthinkable: Banks Relinquishing Control Of Their Payments Infrastructure”, May 2013

• A recording of today's webinar and copy of the presentation will be available to Celent clients on our website after the event at http://reports.celent.com/login.asp

• If you have any follow-up questions about the presentation, please contact Ken Kilduff at kkilduff@celent.com

3© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Agenda

• Where We Are Today

• Thinking Differently

• The Path Forward

4© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Competitive Differentiators For Transaction Banks

Fraud / risk reduction

Multi-language / local language service

Other

System availability improvement

Service coverage (regions / countries)

Speed / efficiency of service

Cross-border capabilities

Cost competitiveness

Quality of service

Comprehensive service / product menu

0 5 10 15 20 25

123

5© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Budgets for New Investments Remain Constrained

2011 2012 2013 2014 2015$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

$51,336,690,592.7 $51,547,374,429.8 $51,763,977,046.2 $51,948,277,046.2 $52,206,340,889.0

$7,731,443,710.9 $7,697,216,956.2 $7,699,910,327.3 $7,738,813,826.3 $7,688,813,579.0

Maintenance New Investments

US

$ B

N

6© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Payment Systems Usually Look Like This

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Payment Services Hub – A Vision For Payments Architecture

• Credit transfers• Direct debit• Credit card• Debit card• …

• SWIFT• ISO 20022• Domestic RTGS• Domestic ACH• SEPA Direct Credit• SEPA Direct Debit• …

• Branch instructions

• Online• Mobile• ATM• …

• Corporate• Retail • Other FIs• Bank internal

departments• …

• Outgoing payments• Incoming payments• Batch• Single real-time• Refund• Rejection• …

X X X X

Instrument type Standard/ scheme Channel Customer Transaction types

Customer notification and reconciliation

ExecutionAuthorisationClearing

preparation (CSM selection)

Validation, compliance, repairs and

storing

Instruction receipt, payment object

creation and prioritisation

1 2 3 4 5 6

1

2

3

Delivered as services, drawn from and available to either within the PSH or other areas in the bank (SOA)…

… with ability to customise workflow by any dimension of A or payment characteristics (BPM)

… and with sophisticated monitoring and alerting capabilities (BAM)

4 … reliably at large volumes and throughput

5 … with appropriate security, access control and audit trails

A

B

C

Ability to manage, on a single platform, any…

… and deliver core payment functionality

… under key conditions

8© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Your Spaghetti Will Now Magically Look Like This!

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Thinking differently

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Radical Change For The Better

• All conform to ISO standards

• Quiet revolution started in 1956

• Has driven price down from $5.86 to $0.16

• Industry worth $6.5 trillion

11© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Value Drivers Of Success

• Operational efficiency – Doing a sufficiently good-quality job (not necessarily high quality) at the lowest possible cost,

with companies competing solely on headline price.

• Product innovation. – Innovation is often thought to be sexy new gadgets or processes, such as mobile payments.

However, it could be as simple as packaging or designing products differently from the way others on the market do. Perhaps one of the greatest product innovations was the Gold card in the cards market. Indeed, a sign of success is that other companies copy an idea. Innovation therefore has to be continuous.

• Customer intimacy. – This discipline requires putting the customer at the center of everything the organization

does. It could include delivering world-class customer service or simply developing products that allow customers to build their own products, segmenting to the power of one.

12© 2013 CELENT, A DIVISION OF OLIVER WYMAN

A model for success?

13© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Payment services hub – a vision for payments architecture

• Credit transfers• Direct debit• Credit card• Debit card• …

• SWIFT• ISO 20022• Domestic RTGS• Domestic ACH• SEPA Direct Credit• SEPA Direct Debit• …

• Branch instructions

• Online• Mobile• ATM• …

• Corporate• Retail • Other FIs• Bank internal

departments• …

• Outgoing payments• Incoming payments• Batch• Single real-time• Refund• Rejection• …

X X X X

Instrument type Standard/ scheme Channel Customer Transaction types

Customer notification and reconciliation

ExecutionAuthorisationClearing

preparation (CSM selection)

Validation, compliance, repairs and

storing

Instruction receipt, payment object

creation and prioritisation

1 2 3 4 5 6

1

2

3

Delivered as services, drawn from and available to either within the PSH or other areas in the bank (SOA)…

… with ability to customise workflow by any dimension of A or payment characteristics (BPM)

… and with sophisticated monitoring and alerting capabilities (BAM)

4 … reliably at large volumes and throughput

5 … with appropriate security, access control and audit trails

A

B

C

Ability to manage, on a single platform, any…

… and deliver core payment functionality

… under key conditions

14© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Where Do You Draw the Line?

Online (retail)

Online (corporate)

Host-to-host ATM Treasury

(bank) …

Channel integration

CSM integration

RTGS ACH SWIFT Card networks STEP2 …

Hig

h-c

are

en

gin

e

Lo

w-c

are

en

gin

e

Cor

e b

ank

ing

Car

ds

…

Payment orchestration

layer

Payment processing platforms

4

4. Vertical payment services hub

15© 2013 CELENT, A DIVISION OF OLIVER WYMAN

The Path Forward

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Controlling The Cloud is No Longer Seen As An Issue

APPROACH 2010 SURVEY 2012 SURVEY CHANGE

Security 1 1 0

Regulatory exposure 2 2 0

Governance 3 8 -5

Skills 4 3 +1

Interoperability 5 5 0

Cloud awareness 6 6 0

Business case 7 4 +3

Changing business processes 8 7 +1

Source: McKinsey

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My Exciting Bed Time Reading

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What Could Cloud Do For Your Business?

• Agility

• Commercializing payments

• Supplying peak capacity

• Variable pricing to control volume flow

• Insight and analytics

19© 2013 CELENT, A DIVISION OF OLIVER WYMAN

1

2

3

4

5

Choose a Strategic or a Tactical Response

Build the Right Team

Decide on the Form of Outsourcing

Build the Business Case

Choose The Partner

Starting on the right foot

20© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Conclusion

21© 2013 CELENT, A DIVISION OF OLIVER WYMAN

Thank you!

• This webinar is based on a report published recently by Celent:– “Thinking The Unthinkable: Banks Relinquishing Control Of Their Payments Infrastructure”,

May 2013

• A recording of today's webinar and copy of the presentation will be available to Celent clients on our website after the event at http://reports.celent.com/login.asp

• If you have any follow-up questions about the presentation, please contact Ken Kilduff at kkilduff@celent.com