The problem

Even the most advanced financial institutions struggle with issues caused by legacy and disparate software systems.

Invariably, these systems were developed many years ago, at enormous cost to the bank. The banks then had to hire skilled resources run and maintain these systems. Over time, banks have invested enormous amounts of time, money and skills into these systems. The systems are deeply entrenched into the organisation and are extremely complex in their make-up. So most banks today are still trying to find solutions to deal with:

• Multiple product systems (that don’t integrate well)
• Inflexible technologies
• Broken business processes
• Duplicated but independent processes occurring across multiple channels

These systems are entrenched into the day to day operations of the bank. They do not support the needs of a modern, efficient operation, which requires:

• An holistic approach
• Interconnectivity
• Interoperability
• Flexibility
• Easily maintained
• Multi-use modules

To try and keep pace with the competition and meet increased customer demand and expectations, financial institutions spend more time and money on repairing and maintaining these obsolete systems.

Attempts to take part in, and benefit from, new industry initiatives are often hampered by compliance prescriptions and integration challenges.

The Payment Evolution

We have come a long way since the days of bartering and other forms of compensation in exchange for products and services.  This article is not about the history of money, but if you are interested in that topic, you can find more detailed information on Wikipedia.  (https://en.wikipedia.org/wiki/History_of_money)

Cash has provided the major form of payment in the past. Over time, these cash substitutes have become popular methods of exchange:

• bank drafts
• cheques
• credit transfers
• and debit orders

Modern technology and electronic communication have contributed to even more electronic payment methods in use today. These include:

• credit and debit cards
• internet banking payments
• and e-commerce payments
• mobile payments
• distributed ledger systems/Crypto Currencies

Banking Industry Pitfalls

Unfortunately, many systems that are still in use in banks today are unable to interact or communicate with each other. This can be either within the bank’s internal system, or with other banks’ systems.

With increasing demand, attempts have been made to ‘fix’ or ‘enhance’ existing systems. These attempts often lead to more complex systems and can even cause further complications.

What is the solution?

A good analogy to describe the problem faced by banks can be described as being similar to a United Nations conference. In this scenario, you have a room full of brilliant minds, but they are hindered by a language barrier.  Without translators, most delegates would not be able to engage.

This challenge is overcome by using translators. Translators allow the exchange of ideas and conversation that can result in excellent solutions to problems.

Similarly, a standalone system (or ‘translator’) can enable the connection of the variety of channels in the banking industry.  This translator, or hub, solves the communication problem and allows for the flow of information and management of rules throughout the system.

This is just the tip of the iceberg, so if you want to learn more about payment engines, or payment hubs,  please read What is a Payment Hub.