Simplifying day-to-day processes seems to be the goal for most banks and corporates as they seek operational ease in the face of mounting demands on their time and attention from regulators, compliance and political sanctions.
Keeping on top of the latest technological advances is one way many are ensuring competitive advantage. And vendors have been quick to react by offering a various ways for banks to streamline operations and keep on top of changes and updates.
The product base goes beyond trying to make payments, as the need to comply with mounting regulation seems to be creating a new industry of its own.
However, compliance and sanctions software keep up to date but do not remove the need to carry out due diligence, so questions arise about the point of outsourcing in this way if it does not make reductions to the workload.
Providers such as Accuity go beyond just delivering an automated payment platform by offering help with compliance. The vendor has developed a compliance platform to help banks meet regulations around anti-money laundering. And to meet the requirements laid out for counterpart know-your-customer risk, it has software to help with that too.
There are risks that come with outsourcing technology, not least when it is the vendor, rather than the bank, which still ultimately dictates how and where the system can be used.
Falling outside of this can be disastrous, as seen with the recent, arduous six-year case between RBS and Complex Systems over the licence for the BankTrade system.
After ruling that RBS had breached copyright by using the platform, the bank settled with the company and can now use the system. Plans are in place to update the network with its own proprietary software next year.
It outlines one of the pitfalls for banks, that when there are multiple systems in place across numerous departments and jurisdictions, it can be hard to create a homogenized whole.
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Hank Uberoi, CEO at payment platform provider Earthport, says: “A typical global bank is often the result of tens, sometimes over 50, mergers over the years, and as a result can be operating across a large number of different platforms that have never been rationalized.
“Making any kind of change to all these systems is nearly impossible and often what prompts a move is regulatory requirements.”
Some of the banks see the appeal of creating a system in-house due to the degree of control it gives them over their operations, but this is not always the most-straightforward thing to do, as building up a platform that is world-class, rather than just being adequate, can require years of work. And by the time it is ready to implement, some elements could be out of date.
Uberoi says: “The investment needed to create a system is significant. It could take many years and substantial capital to create a system which is comparable to our systems.”
He estimates it could take a bank up to seven years to develop a payment system that meets all of their requirements.
Despite this, many banks are happy to push ahead with implementing their own systems: HSBC has created the HSBCnet service and HSBC Connect; Bank of America Merrill Lynch (BAML) has developed the CashPro network, which includes the Accelerate and Mobile options.
Keeping up to date is not the easiest or cheapest thing to do. And some will still opt to outsource elements, with HSBC and BAML among those who use Earthport’s services.
“The advantage of picking what is out there in the market is that you can choose the best of breed,” says Uberoi. “When systems evolve it is possible to move in and introduce a new system. This is not so easy to do when they are created internally.”
Essentially, external systems should be easy enough to just plug in and pull out if and when the software updates or something better comes along.
The market is in its early stages, and finding something comparable might not be the easiest task. However, it could work out to be the fastest and most cost-effective solution.