Evolution of Payments and the future ahead
Banks in Canada are modernizing their payment processing platforms to align with the ambitious plans set forth by Payments Canada, our national payment operator. These modernization efforts aim to enhance the speed, security, and efficiency of payment systems in the country. By modernizing their payment processing platforms, Canadian banks are taking advantage of innovative technologies, such as open banking, real-time payments, and potentially richer remittance information which travels with the payment to provide faster and more convenient payment experiences. Internal modernization facilitates seamless integration with the new systems and infrastructure being developed by Payments Canada, ensuring interoperability and collaboration within the national payment ecosystem.
The capabilities of a payment engine are common across payment types
This article showcases the capabilities of a modern payment processing platform from the perspective of a business architect, and the notion that all payment engines are in fact ‘cousins’ – Each seems to be processing a different type of payment, but the steps each performs are shared. No wonder payment providers such as Bottomline Technologies, Fiserv, and FIS can offer a single processing platform that can do it all.
What’s in a modern payment processing engine?
A payment processing engine is a central component in the payment infrastructure of banks and financial institutions. It is responsible for facilitating and managing the flow of transactions from initiation to settlement. Here’s a high-level business architecture of a payment engine:
Transaction Initiation
The payment processing engine receives transaction requests from various channels such as online banking, mobile apps, point-of-sale systems, or third-party payment gateways. These requests include payment details like the payer, payee, amount, and payment type.
Validation and verification
The engine performs essential checks to ensure the transaction details are valid and complete. It verifies account numbers, authentication credentials, available funds, and compliance with regulatory requirements. It may also perform anti-fraud checks and risk assessments to mitigate potential issues.
Routing
Once the transaction is validated, the payment processing engine determines the appropriate payment route based on factors like the payment type, destination, and intermediary banks involved. It may interact with payment networks, clearinghouses, and other financial institutions to establish the necessary connections for processing the transaction.
Integration and connectivity
Payment processing engines need to integrate with various internal and external systems to facilitate processing, including core banking platforms, payment gateways, third-party services, and external payment networks. Seamless integration enables efficient data exchange, enhances interoperability, and supports scalability.
Processing and Settlement
The engine orchestrates the necessary steps to process the payment. This includes initiating fund transfers, coordinating with other parties involved in the transaction, and updating account balances. It ensures that funds move securely and efficiently through the payment ecosystem, adhering to predefined rules and protocols.
User Interface
The engine enables bank front-line staff and operations teams to manage payments including capabilities such as payment initiation and tracking, account management, correspondent bank management, setting up notifications and alerts, and reporting.
Payment management and exceptions
In case of exceptions or errors during the payment process, such as failed transactions or rejected payments, the engine provides mechanisms to handle and resolve these issues. It may trigger notifications to relevant parties, initiate retries, or facilitate customer support interactions.
Others
A robust payment processing engine incorporates features such as stringent security measures to protect sensitive financial data and ensure secure transmission of transactions in the form of reports and extracts. It adheres to industry standards, and regulatory requirements (such as PCI DSS for card payments), and employs encryption, tokenization, and other security practices to mitigate risks associated with payment processing.
Recommended next reads
What’s next?
Here’s a start:
The benefits of having a single base architecture in modern payment engines
Modern payment processing engines which use a single shared architecture can offer several benefits, including:
Enhanced Efficiency
A modernized payment processing engine is often designed with advanced technologies and optimized workflows. It can handle higher transaction volumes, process payments faster, and improve overall operational efficiency. By leveraging automation, streamlining processes, and reducing manual intervention, modernization can help reduce processing times, minimize errors, and enhance the overall payment processing speed.
Scalability and Flexibility
As payment volumes and customer demands increase, a modernized payment processing engine can scale to meet the growing needs. It provides the flexibility to handle a wide range of payment methods, including traditional card payments, digital wallets, mobile payments, and emerging payment technologies. Modernization allows for the integration of new payment channels and the adoption of industry standards, ensuring adaptability to changing customer preferences and market trends.
Improved Security and Compliance
Security is a paramount concern in payment processing. Modernization enables the implementation of robust security measures to protect sensitive payment data, prevent fraud, and ensure compliance with industry regulations and data protection standards. Upgrading to newer encryption protocols, tokenization, and faster fraud detection technologies can significantly enhance the security posture of the payment processing engine, fostering customer trust and reducing the risk of data breaches.
Better Customer Experience
A modernized payment processing engine can contribute to an improved customer experience. It enables seamless and frictionless payment experiences across various touchpoints, such as online platforms, mobile applications, in-store payments, and self-service kiosks. Modernization can support features like real-time payment authorizations, simplified checkout processes, personalized payment options, and intuitive user interfaces, making it easier and more convenient for customers to make payments.
Advanced Analytics and Insights
Modernization often involves the integration of data analytics capabilities into the payment processing engine. This allows for the collection, analysis, and utilization of payment data to gain valuable insights. By leveraging analytics, organizations can identify customer behavior patterns, detect trends, optimize pricing strategies, and make data-driven business decisions. These insights can help improve revenue management, enhance customer targeting, and drive overall business growth.
Integration with Ecosystem Partners
Modernized payment processing engines can easily integrate with other systems and ecosystem partners, such as financial institutions, payment gateways, fraud prevention services, and reconciliation platforms. This enables seamless data exchange, streamlined reconciliation processes, and collaborative efforts to combat fraud and manage financial operations efficiently.
The challenge in maintaining aging payment systems
Banks encounter significant challenges in maintaining various legacy payment engines for wire transfers, real-time payments, EFT (Electronic funds transfers) transactions, and other payment types. The key challenges include:
1.Complexity arising from the sheer number of systems involved, each catering to a specific payment method. These systems often date back several years or even decades, built on outdated technologies that may lack interoperability. As a result, integration and data synchronization between these disparate systems become arduous and error-prone processes. Tweaking the integrations alone cost millions of dollars per year due to complexity.
2.The maintenance of multiple payment engines demands considerable resources, both in terms of financial investments and skilled personnel. Banks must allocate funds to ensure the continuous functioning of these systems, including software updates, security patches, and hardware upgrades. Additionally, employing experts proficient in different technologies is essential to address any issues that may arise.
3.The compatibility of these legacy systems with modern regulatory requirements and emerging industry standards presents a significant challenge. As regulations evolve and new payment mechanisms emerge, banks must invest considerable effort in updating their legacy systems to comply with changing rules and to stay competitive in the rapidly evolving financial landscape.
The maintenance of diverse legacy payment engines poses formidable obstacles for banks, requiring substantial investments, skilled resources, and ongoing efforts to adapt to changing industry dynamics.
