Is your back-office ready for real-time payments?

BHMI’s Concourse Financial Software Suite was the winner of the “Best Real-Time Payments Solution” category at this year’s PayTech Awards.

Today’s payments companies need back office payments processing to be fast and agile.

FinTech Futures speaks to BHMI chairman, Dr. Jack Baldwin, about what comes next in the industry.

FF: What major trends have you seen in the market in 2020, especially during these unprecedented times?

Jack Baldwin: The most pronounced trend has been a dramatic increase in digital payments. Individuals and organizations are buying and selling electronically because face-to-face commercial transactions are difficult or impossible due to COVID-19 restrictions. Payment rails supportive of digital payments, like credit cards, debit cards, and digital wallets, have all seen increased use. There is also increased interest in account based real time payment systems.

Incidentally, because of the increased focus on digital payments, there has also been increased interest in faster digital payments. Being able to initiate a payment transaction and have it be safely processed within an ever decreasing amount of time is receiving more attention from financial institutions. This is one of the reasons why financial institutions, particularly smaller institutions, want the Federal Reserve to accelerate the rollout of its instant payment FedNow network.

FF: What are the major issues your clients and prospective clients face when trying to boost the speed of their back office reconciliation and settlement processing?

JB: Today’s payments companies need back office payments processing to be fast and agile, but generally, back office systems cannot match the real time capabilities of fast payments front ends. For example, a typical back-office system creates batches of funds transfer transactions and processes them at specified periods of time – sometimes every few days, sometimes daily, sometimes multiple times per day, but never in near real time.

This means these back-office systems will never be able to provide the real-time processing and reporting needed for complete faster payments processing. With its continuous processing architecture, Concourse can. Concourse processes transactions regardless of type and source and provides users with results and reports for viewing almost instantly. Its high level of automation can also increase efficiency and dramatically reduce costs.

So typical back office operations like reconciliation and settlement can only produce results that are available at the end of one or more periods of a processing day. Concourse reconciliation and settlement modules can produce evolving positions throughout the day on a transaction by transaction basis.

FF: Can you tell us a little bit about Concourse and why it is designed for real-time payments?

JB: Certainly. Each module of the Concourse Financial Software Suite is architected for continuous processing. And because of its continuous processing architecture, Concourse can accept payment transactions, store them in its repository, and process them to completion in near real time with no transaction batching occurring before final payment processing begins. This works whether Concourse is providing funds movements or not. If it is the former, movement instructions are generated for each payment transaction as it arrives.

If another, outside system is moving money for a payment transaction, Concourse will still process the transaction right up to the funds movement stage without causing funds to be moved. Either way, all details and impacts of the payment transaction are recorded in the Concourse repository – settlement positions are automatically adjusted, summaries are updated, connected networks receive appropriate updates, and fees (if any) are calculated. Furthermore, users who wish to monitor transactions and their effects on positions can do so within seconds of the processing of a single payment transaction.

Concourse also has an industrial strength rules engine embedded throughout the solution set that is powered by user-configured rules. This gives Concourse the flexibility to accommodate a very wide range of processing situations without needing to make changes to its code.

FF: The issue of chargebacks and disputes appears to be a growing one for market participants. What are the contributing factors to this, and how can it be mitigated?

JB: As the volume of digital transactions has increased so has the number of disputes. This is to be expected even if the percentage of transactions being disputed does not increase.

These transactions do not involve face to face interactions between customers and merchants – they have more of an “anonymous” quality to them. This situation probably contributes to an increased number of friendly fraud transactions.

The best way to prevent such incidents is for merchants to document every phase of a sale from ordering to final delivery so they can challenge claims of non‑delivery of purchased items. Also, maintaining a transaction history of individual buyers can be used to identify those customers who frequently dispute purchases and who could be friendly fraudsters.

FF: You indicated that one of the modules in your Concourse Financial Software Suite product set handles chargebacks and disputes. Can you tell us something about Concourse’s disputes capabilities?

Would love to. Just like all of the other Concourse modules, Concourse – Disputes has continuous processing, rules‑driven capabilities. All transactions are accepted and incorporated into Concourse’s repository in near real time. Original payment transactions are added to the repository, but Concourse is also able to digest all amending transactions and automatically incorporate them as part of a transaction life cycle. For example, adjustments, presentments, and secondary presentments are all logically tied back to the original payment transactions by Concourse’s rules engine. This information is then available in the Concourse repository for research, reconciliation, and dispute processing in near real time.

Concourse provides disputes interfaces for all major card networks and has the most automated interfaces to Visa and Mastercard in the market today. In addition, BHMI tracks all of the new mandates issued by Visa and Mastercard and updates Concourse rules to support the new mandates. Concourse customers can sign up for BHMI’s mandate subscription service so they can be guaranteed that their disputes processing procedures will be fully compliant with card network mandates.

FF: FedNow, the Federal Reserve’s real-time payments platform, is under development with a 2024 launch earmarked. What kind of difference could it make to the US payments market?

JB: FedNow provides an alternative option to traditional payment channels that some individuals and organizations will find appealing. This could include individuals who need to make payments quickly to avoid overdrafts or other penalties or individuals who need to move money that can be accessed immediately.

Recipient businesses could receive unrestricted funds immediately, which improves their cash flow and reduces the need for borrowing. Other businesses that need to dispense large numbers of payments quickly, like insurance companies paying damage claims, would be obvious beneficiaries of an instant payment network.

FedNow will not necessarily eliminate the need for other payments options. But it is anticipated that the instant payments capabilities offered by FedNow will find increasing appeal and acceptance by individuals and organisations over time.

FF: How much room to grow is there for faster payments?

JB: Faster payments have a great future and faster payments volumes have been growing steadily. However, in many parts of the world, real-time payments have not grown as quickly as some experts have predicted. There are several reasons for this fact. In the United States, RTP is the only true real-time payments network in the country.

BHMI chairman, Dr. Jack Baldwin.

Because it is owned and operated by some of the largest banks in the United States, a number of financial institutions have been reluctant to sign up with RTP because of concern that the network would be operated to the advantage of the owner banks and the disadvantage of the other banks. FedNow should ease those concerns since the Federal Reserve is considered to be an “honest broker”. It should be noted that RTP has recently announced that holders of 70% of demand deposit accounts in the US can now access the RTP payments network.

In Australia, the New Payments Platform (NPP), real-time payments network has experienced slower growth than expected because financial institutions have been slow to join the network. The delays don’t appear to be attributable to reluctance on the part of financial institutions to join up with NPP, but seem to be related to the speed of NPP interface implementation projects. However, the net effect is some banking accounts cannot be used in NPP funds transfer transactions because the accounts are inaccessible.

Ubiquity is a factor in the growth of faster payments. In both of the cases cited above, not all banking account holders can participate in faster payments transactions because their accounts are not accessible to the payments network. However, account access to faster payments networks will grow. And as this process continues, the convenience, speed, and finality of immediate payments will accelerate faster payments growth.

BHMI is the winner of the “Best Real-Time Payments Solution” at this year’s PayTech Awards. Click here for more on this year’s winners!