Key Takeaways from New Aite-Novarica Study on Payments Modernization

Throughout this blog series, we’ve been highlighting various key takeaways from Aite-Novarica’s latest white paper, “Effective Preprocessing: The Path to Faster Payments Modernization.” In this third and final edition, we’ll review the importance of FI’s enhancing management and servicing capabilities, and why intelligent routing solutions present a unique opportunity to deliver new value to business customers.

Enhancing Transaction Management and Servicing

With the adoption of new payment rails comes the need to enhance how FI’s view, research, and receive transactions and messages across all relevant payment channels. More specifically, FI’s are in need of a simplified, interactive view on which to review customer instructions, payment details, system interactions and status messages in order to dissect and mitigate problem payments more efficiently. Further, such enhancements should allow for a more thorough and active understanding of shifts in payment behavior, ideally through the generation of easily accessible analytics related to payment traffic and categories, and an optimized ability to track the status of payments in real time.

For example, staff will need the ability to evaluate new FedNow^® transactions and, when applicable, determine if they are being held up by fraud rules, Office of Foreign Asset Control (OFAC) sanctions or other restrictive filters. Because the FedNow system is new, certain issues will be inevitable, making an FI’s ability to perform root-cause analytics for all payments and channels more important than ever.

In short, to truly take advantage of the analytics component of modernization, from both a compliance perspective and as it relates to the opportunity to provide new value to customers, FI’s will need to integrate an intuitive dashboard that allows staff to easily identify and interact with transaction data.

Businesses Need Banks to Offer Intelligent Routing

While the ability to translate files can allow FI’s to help businesses integrate new payment channels more efficiently, there is still the need to enhance processes related to the scheduling, delivery, and tracking of payments across an organization. Additionally, the evolving payments landscape complicates the process of matching payment initiation instructions to the processing capabilities of each recipient party. By sharpening capabilities through intelligent routing, businesses can more easily identify channel and timing gaps to reduce errors and returns, and ultimately save money on related service expenses.

Typically, businesses process accounts payable (AP) in batches, approximating the timing of delivery to align with vendor terms. By sending out a batch of payments all at once, a company can operate with a sense that its various obligations are being paid on time as the result of a single process; however, when an AP system produces a native payment file, it often includes all payables regardless of channel or transaction type, resulting in different delivery dates and times for each payment within the batch, and creating timing lags that can reduce the company’s working capital.

Moreover, the usual process of segregating payments into a batch is incredibly time consuming and requires that each individual payment is appropriately classified before AP can be processed. But similar to reducing the burden of transacting on new payment channels through file translation, FI’s can offer intelligent routing solutions that streamline the categorization and execution of AP transactions. For example, an FI with these capabilities would be able to accept a single mixed file, apply intelligent logic, and route payments based on least cost, fastest delivery, or account and customer preferences.

In addition to streamlining the AP process, intelligent routing can be viewed as a promising component of modernization as it relates to proving ROI. Overall, a truly intelligent solution should be able to determine, and solve for, the most relevant enhancements to business processes, including cost savings, operational efficiency, risk reduction, and ISO 20022 compliance and integration.

Interested in further exploring the topics covered in this series, and learning how your organization can optimize its journey toward payments modernization? Download the full white paper.