Profitable and effective businesses require seamless, organized, and efficient payment operations. However, the current panorama of most back-office operations reveals a concerning trend.
Instead of employing the latest software that’s easily adaptable and ready to handle real-time payments (RTP), most companies use legacy back-office systems that are slow and outdated, causing a considerable bottleneck in processing payments. This means increased costs and a loss in revenue.
Payment Operations Generate More Cost Than Profit
The back-office role is to support transaction reconciliation, settlement processing, and the movement of funds. Additionally, it handles disputes and the assessment of transaction-based fees.
A poorly run back office can be the source of significant revenue loss, and payment processing organizations currently lack viable and adaptable solutions to boost profitability.
The Pressure to Provide RTP
Real-time payments can clear and settle instantly with the use of a payment rail. The benefits of RTP are that funds are available immediately, the settlement is final with an instant confirmation, and workflows are integrated. RTP solutions can be used by consumers, merchants, and financial institutions to pay customers or bills, or to transfer money.
Worldwide RTP networks have been developed for nearly a decade, and RTP payments continue to see a surge in growth.
Today, financial services organizations face the formidable challenge of facilitating RTP along with traditional methods of payment. The only way to thrive in this new payment environment is to revamp the payments back office, offering faster money movement and value-added services for customers.
Payment’s Back Office as a Processing Bottleneck
Unlike back-office payment systems, front-end payment systems have easily adapted to RTP. The payments are processed instantly; however, legacy back-office payment processing systems are not suitable for such payments. In traditional processes, transactions are typically batched and processed at scheduled times. As most back-office systems are equipped to handle only batch-oriented payments, a system bottleneck has inevitably developed.
But these aren’t the only obstructions faced by companies with inefficient back-office systems.
Before companies can effectively address and enhance their current payment systems, they must overcome three roadblocks.
Legacy Batch Systems
Legacy batch systems are typically outdated software suites that many companies still use to process payments. Often, these systems are decades old and are ill-equipped to handle modern, 24/7 RTP demands. Although a company can initially process faster payments, thanks to the fast-processing speeds on the front end, a bottleneck inevitably occurs during the “last mile” once the payment hits the back-office stage and the attendant slower processing speed.
Spaghetti IT
Far too many payment organizations are operating with spaghetti IT systems, which are essentially numerous software environments cobbled together. These disconnected batch systems are not only outdated but also lack interoperability. Just to perform standard back-office functions, payments organizations must wade through labor-intensive, manual processes.
Frankenstein Systems
Let’s face it: Software can be costly, and it is little wonder that payment organizations try to make do with what they have. This usually means organizations will piece together their own system, adding and removing parts as they go. Before long, they have an inefficient and slow-moving hodgepodge system that, over time, can end up costing much more than an effective external solution.
If companies don’t make the necessary changes to improve their current back-office system, they could run into problems with scalability, preventing them from expanding their enterprise and sustaining future growth.
The Takeaway
Payments organizations don’t have to look far for the right solution. It comes down to needs. A company considering a revamp of its back-office payment systems should consider the following:
- Look for a solution that supports all payment types and data sources.
- Find a solution that has a continuous processing, API-driven architecture to eliminate bottlenecks.
- Seek a solution that has a configurable workflow engine that liberates company leaders to focus on profit-building tasks.
- Seek a rules-based, configurable system to avoid costly software code changes.
To remain competitive and gain market share, companies need a modern back-office system that’s fast, resilient, and agile. Employing the right back-office payment solution allows companies not only the ability to accommodate faster payment methods but also to be better positioned to adapt in an ever-evolving landscape.
The good news is that recent technology and software advances are providing more options for payments back office modernization. In fact, companies are finding ways to transform their back office from a cost center to a profit center. You can learn more in this recent thought leadership paper from BHMI, a leading software solution provider specializing in the back-office processing of digital payment transactions.