Food for Thought About Sourcing
One thing is for sure: growth for financial institutions will not come by only investing in existing activities, such as payments. While its objective is to lower prices for the customer, the single euro payments area (SEPA) requires considerable investment in adjusting systems and processes. Not surprisingly, there is mounting discussion regarding the sourcing of activities that can be performed more cheaply, and hopefully better, by third parties.
Payments are one of the core services that a bank provides for its customers. However, what is the point of building and maintaining systems and procedures independently when these systems and procedures have to comply with the same SEPA standards that apply to all European banks? Full or partial outsourcing of payment processing is becoming an increasingly interesting alternative, but it is imperative that banks make the right choices. Consultants can play an important role here, by analysing every aspect of a bank’s processes, and jointly determining where outsourcing could achieve benefits and solve problems. This can then be achieved through anything from standardised solutions to full outsourcing, including labelling of client-specific services.
The arrival of SEPA is an opportunity to develop solutions for the entire bank payment processing chain. These solutions consist of a variety of service modules that together cover the whole of this chain. Banks can outsource parts of the chain in different combinations.
SEPA transactions currently account for only a very small portion of payment volumes in Europe. But even after the large-scale migration to SEPA, country-specific functionalities will still be needed. Banks in the various European countries will, partly at the request of their own customers, want to at least continue to provide the current service level in their domestic markets. SEPA must not result in lower service levels, anywhere. Consequently, Equens has chosen the core clearing and settlement mechanism (CSM) services as the basic component for its portfolio, extended by a wide range of optional value-added services. These are geared to the various service levels that the different European countries have become accustomed to.
Sourcing processes are time-consuming and require building a relationship of trust, whether they involve a standardised service or full outsourcing – rightly so, in my opinion. Banks want extremely solid sourcing partners who can guarantee long-term continuity. This in turn provides sufficient scale in the processing market. We know from experience the extent that banks can benefit from economies of scale by sharing substantial parts of the infrastructure. Sufficient scale leads to economies of scale that facilitate a low cost price, but also result in an earnings model that leaves room for investment in innovation and keeps systems and processes compliant with regulations. This allows the needs of the bank to continue being met.