Michael Bellacosa, BNY Mellon’s global head of payment and transaction services at BNY, believes that the aftermath of the financial crisis demonstrated that businesses with a nimble perspective can stay in front of market forces.

“It’s really hard to predict exactly what is going to be needed each step of the way, but if you have that ongoing engagement with clients and have the right systems in place to meet needs as they arise, you can always stay in front,” he says.

“The market’s always going to move a little bit slower when there are major changes, so there’s always opportunity to move quickly enough to be able to stay in front of the various market demands, which we’ve seen over the last 10 years.”

In this series of articles, Finextra Research looks at Capgemini’s 2010 World Payment Report to appraise their accuracy or lack thereof, with insights from expert voices in the payments space.

Prediction - “Banks need to decide to what extent payments are core for their business, since the reality might prompt banks to think far more radically, and perhaps more quickly, than expected, about their payments strategies.”

While there appears to be a great deal of variety in the extent to which banks have decided that payments are critical to their core business, Bellacosa’s belief is that banks have decided “almost entirely” that they are.

“There may be a couple of cases on the fringes where this wasn’t necessarily the case, but I think for almost all business activity, ultimately, there's a lot of payment transaction flow that needs to take place,” he says.

“It's pretty core to a lot of what banks need to be able to do and it's very important part of what their customers expect of them to be able to support.”

Bellacosa points out that there have been a handful of cases where banks chose to outsource certain capabilities, but in general whatever different broad strategies there were between different institutions, the conclusion was much the same: that payments were an important part of banks’ core business.

Prediction - “The ‘Wait and See’ approach is passive and could result in the bank progressively losing clients and market share over time. Such an approach could ultimately prove more expensive than making a decision to invest and take proactive governance of this area of business.”

It is certainly true that once new competitors entered the space, the established players found themselves having to play catch up, particularly when the new entrants were targeting specific, niche, retail-based services.

Their success then triggered the incumbents to pay a lot more attention to certain areas of their business, particularly at the front end and the experience they were offering clients.

Bellacosa acknowledges that a number of these institutions were appearing to take a ‘wait and see’ approach, but this was largely because of circumstances and not intention.

He believes that much of the last 10 years, banks were preoccupied with “core, big-ticket issues” relating to regulatory factors and focus risk resilience, which meant their concentration was more centred on their back-end infrastructure.

“There were just a lot of other things to focus on over this period of time and so they took their eye off some of the client experience components,” he says.

Prediction - “Partnerships can support revenue focused strategies, filling the technological gap— and consequently addressing the more onerous customer demands. Insourcing/outsourcing can reduce running and compliance costs, improving efficiency and obtaining scale on specific segments, geographies or services.”

Bellacosa describes this prediction as “spot on”, seeing the insourcing/outsourcing as a “really great model” in financial services.

Banks are able to expand what they can offer in the market, aligning their capabilities with what certain, niche segments may they need.

Bellacosa provides the example of BNY Mellon servicing various healthcare providers through partnering with firms that can help with structuring the complex formatting requirements associated with remittance data and the flow of payments in the healthcare industry, which is highly specialised activity.

On the flipside, Bellacosa explains how BNY Mellon has been active in helping bank clients connect to the real-time payments network in the US, aiming to provide seamless, low cost access to the infrastructure.

“So, it works both ways,” he says.

“We're looking for partners to be able to enhance our specific functionality and services to our clients, while we also do that on behalf of others to enhance their service.”

Prediction - “It may prove extremely impossible for banks to leverage partnerships and/or develop insourcing/outsourcing options without payment hubs. In fact, hubs fully enable the execution of revenue-focused and cost-focused initiatives, and both are required in order to achieve more with less.”

Payment hubs were, according to Bellacosa, a “very hot issue” back in 2010, but believes they are now less critical versus how payment services are actually built.

“If all the functionality is buried in the payment hub and you can’t expose it to end users, it has limited value,” he says.

“The more important aspect is more around the enablement of services that have to be called upon by other functions.”

He believes over the years more value has been demonstrated by “orchestration layers” that allows for formatting adjustments, routing functionality, transaction enrichment and decisioning capability.

A payment hub, therefore, is less critical than what needs to be built around it and how accessible the various functions are within payment systems. This determines how they can be used in either partnerships or direct client access.

BNY Mellon CEO Todd Gibbons will be speaking at Sibos 2020 on October 7th. For more info, click here.