Analyst

Commercial Payments: From Many, One

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Banks and their commercial clients are faced with an enormous amount of complexity when it comes to payments. Differing payments formats, competing standards and the need for global companies to bank with institutions in every market they serve contribute to tremendous inefficiencies and high costs. Throw in the added complexities of cross-border commerce and everyone is left with an expensive, overly complicated mess.

All the major players - banks, corporations, regulators and vendors - are attempting to standardize and simplify the commercial payments process. But, everyone seems to have a different idea as to the best way to do so. And, as the pace of global commerce continues to explode, the need for a unified corporate payments solution is only intensifying.

Boston-based Celent estimates that cross-border payments comprise 8 percent of total global payments volume. And this will increase in the near future, according to Celent senior analyst Jacob Jegher.

As a result of the globalization trend, more than ever before, banks are attempting to "squeeze revenue out of their payments infrastructures," says Tony Smith, cofounder and chief research and development officer with Framingham, Mass.-based IntraNet, a global wholesale payments service provider. "There's a strong move toward rationalizing their data centers and redundant back-office systems. [Payments] is one instance where it's good to have one application serving all your branches worldwide."

"Banks are looking for ways to eliminate duplicate systems," adds Joe Lott, director of payments for Palo Alto, Calif.-based HP. "This is all being driven by compliance, M&A activity and cost reduction."

The inefficiencies of running separate systems for each payment format (e.g., checks, ACH, wire, etc.) are not lost on banks. Currently, "You have a dedicated system for each process," explains Jens Hanker, a Germany-based partner in the financial services solutions...