Payments services hub explained
“Payments services hub” can mean different things depending on who you are talking to and what time period you’re looking at in payments industry history. The term first appeared in the analyst community to describe the consolidation of systems supporting Fedwire and ACH processing, helping large financial institutions bring together their commercial payment operations. This complex consolidation was feasible because both systems operated in similar windows (the time in which the network can accept and process a payment), allowing banks to align cut-off times and run their large overnight batch processing operations, reconcile their internal core systems—and be ready to do it all over again when the window opened the next business day.
Today, “payments services hub” represents an even broader concept, combining not just heritage payment types like ACH and wires, but also supporting the new real-time payment rails including TCH’s RTP® network, the reverse debit networks Visa Direct and MasterCard Send, as well as forthcoming networks like FedNow. A payments services hub is a single centralized platform to connect the financial institution to multiple rails and centralize payment management and operations. These new platforms, like everything else in this new era of payments, are cloud-based, enabling them to rapidly scale as unknown volumes turn into tomorrow’s revenue streams.
The new real-time and faster payment networks are all built on the modern ISO 20022 standard, making the transition from the traditional payments services “hub” space to the modern platform discussion even more imperative. The new payment ecosystem also means financial institutions have more choice when it comes to participating in new rails or networks. Choice doesn’t necessarily mean one rail is better than the other or that the FI won’t be able to support a specific use case if the FI chooses one option over another; however, it is critical that choosing to offer one rail over another doesn’t lead to a dead end if a year, three years, or ten years down the road there’s a need to pivot. Having flexible rail options creates opportunities, including smart routing capabilities, that can’t be ignored. The result—smarter, faster payments.
New options present a challenge for financial institutions—how to offer various payment products without confusing the end-user? An end-to-end payments platform simplifies both the front end and the back end, which creates cost savings and opens up revenue opportunities. For instance, a bank may have to pay more to make an immediate payment but can charge their customer for the expedited payment. Smart routing can also imply ‘least-cost routing’ made popular with debit transactions. However, smart routing goes beyond choosing the cheapest rail to ride, balancing time, dollar value, and consumer and FI preferences.
Modern payment services hubs, or as we refer to them “flexible payments platforms”, are important for the future success of financial institutions. They deliver future proofing so functions and features, as well as new rail connectivity for processing, can be added without full rip and replacement of point solutions. As a result, financial institutions can reduce transaction costs, and more importantly be set up to stay ahead in innovation.
Alacriti’s centralized payment platform, Cosmos, provides innovation opportunities and the ability to make smart routing decisions at the financial institution to meet their individual needs. Financial institutions can take full ownership of their payments, and control their evolution with ACH, Wire, TCH RTP, and FedNow, all on one, cloud-based platform. To speak with an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com.
