By Steve Ranger, 20 January 2006 16:25
NEWS
Banks will up their spending on technology as a result of the European payments directive which is soon to come into force.
The Single European Payments Area (Sepa) is aimed at driving down cross-border transaction costs by 2008, and banks will have to upgrade their systems if they want to bring payment costs down, according to analyst Financial Insights.
Rachel Hunt, programme manager of the analyst's European banking service, said in a statement: "Sepa is forcing many banks to rethink payment strategies because charging less for payments will require greater automation and integration to maintain margins. Dramatic cost efficiencies will therefore be required, improving operational costs by 50 per cent in some cases."
A more harmonised banking sector across Europe will mean that domestic banks will be less able to defend their national markets and that the current trend for cross-border mergers and acquisitions will intensify, the analyst predicted.
The next step for the implementation of SEPA was scheduled for January 2006, when retail cross-border payments of up to €50,000 would have to be treated as national payments, although this has now been pushed back until 2008.
The analyst said: "Nevertheless, many banks in the region must now either contemplate investing in legacy payment system consolidation or choose third-party offerings."
Financial Insights said enterprise payment investments (such as integration, consolidation, process workflows and enterprise databases), will be key drivers for payment processing IT spending, which will grow faster than overall IT spending at 5.5 per cent up to 2009.
Hunt said: "To remain competitive, banks need to focus on greater efficiency and lower operational costs of payments processing infrastructures. They should plan replacement and consolidation of siloed legacy systems and standardise business processes across payment types."
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1. Julian Dobbins, Micro Focus
Rachel Hunt is right to point out that banks need to consolidate siloed legacy systems in order to maintain margins following the introduction of SEPA.
However, while legacy hardware may need replacing, we must then ask what is to be done about the applications running on that platform. After all, it is the applications that fuel the business, touch customers and help deliver products and services to new markets.
IT infrastructure, including computers and packaged software are IT commodities available to everyone, but applications the IT group has written are unique to that bank’s way of doing business. These applications embody data, processes, rules and concepts uniquely intertwined with the people who run the business. This is ultimately what distinguishes one bank from its competitors. In the well-worn analogy, the bathwater (the legacy platform) is dispensable, but the baby (the application) is not.
Moving applications to low-cost Linux, UNIX or Windows platforms can reduce or remove mainframe operating costs currently locked up in IT infrastructure budgets, enabling margins to be maintained.