Is the perfect wave coming?

When it comes to outsourcing in payments, I am currently somewhat reminded of a surfing competition in which the participants keep paddling around in vain, looking for the right wave. The calm seas are partly due to many financial institutions that regard payments as their core business and shy away from outsourcing at the centre of their own business activities. On the other hand, the supply side of appropriate services has been limited so far - so no dice there either. Equens Worldline is currently the only company to offer complete business process outsourcing (BPO) in payments. The banking operations centre BCB, a subsidiary of Deutsche Bank, is in the process of withdrawing from the market.

Regulation compels changes

But now the surf – i.e. the market – is starting to stir. For one, there is the pressure to change. Due to regulation and technical requirements, it has become immense. New requirements by the regulatory authorities are almost constantly rolling in towards financial service providers. Implementing them keeps the IT departments permanently on their toes, especially since they result in no small tasks. Most new regulations entail the same effort on the IT side as the implementation of a new SEPA standard, for example. The core business suffers from this, especially since IT experts are not exactly available in abundance, so staff increases are only possible to a very limited extent.

Technical requirements exceed current system capabilities

This shortage on the personnel market also indirectly plays a role in the second cause of the need for change: the technical pressure. The demands on banking IT have changed fundamentally. What is now in demand is 24/7 service and, above all, real-time capability. This "instant" phenomenon of needing to execute and track payments immediately and instantly presents banking IT infrastructures with huge challenges. Depending on which legacy systems are still working and which head monopolies possess the relevant knowledge, a technical outsourcing solution can become more and more economically appealing – and other trends are moving towards outsourcing, as well.

Technological leaps boost supply

The supply side is also making waves in the market water. Platform solutions in particular, but also connectivity technologies, have made such leaps in recent years that a number of providers are entering the market surrounding payments outsourcing. As a rule, these are specialised service providers, for example software providers like us at PPI for technical outsourcing or financial service providers like Broadridge for a complete BPO. The latter, for example, rely on their appropriate experience in the securities business. 

Regulatory authorities discover service providers

Experience and know-how are important because supervisors are also tightening the reins on external service providers for payments of financial institutions. Due to national and European regulations that have already come into force or are in the planning stage, financial institutions are forced to expand the circle of service providers to be supervised, to watch them closely in the future and to check to what extent the partner can actually guarantee their services. This goes as far as direct provisions for contract creation. Providers of outsourcing solutions could soon receive a visit from the authorities, too. In the future, the latter may want to check to what extent the companies also comply with the regulations that apply to financial institutions and whether they are in a position to fulfil their reliability assurances.

Who will ride the wave?

We hear that the first banks have already taken advantage of the stronger surf to ride the wave towards outsourcing. Others have already set foot on the board, at least to stay in the picture. Even if many of the industry's big players tend to forego riding the outsourcing wave and many public or cooperative players have already hopped aboard with their associated data centres anyway, the call of the outsourcing surf grows louder and louder. Who will answer it?

Yours,
Hubertus von Poser