COMMENTARY: As Banks Adopt Real-Time Payments, Disconnects Can Trip Them up

By Debra Campbell and Steve Fortson

As the banking industry moves toward real-time payments, there are some practical technology considerations that are too often being overlooked, most notably, a growth of fragmented and unstructured connections between the legacy mainframe and the service-oriented architecture (SOA) platforms.

Unfortunately, what we are seeing in the market is that some financial institutions, in their race to become more tech-savvy, are putting aside the basic tenets of balancing and settlement of the enterprise.

With the legacy core systems increasingly being replaced with SOA platforms, there can be a significant loss in control over the handoff of transactions from one system to another. In the mainframe world, software systems were available to check job schedules and have jobs run at specific times to produce posting files and balancing/settlement reports. This made it more apparent to mainframe console operators when files were late or jobs were not executed, triggering the creation of posting files and reports for balancing and settlement.

With SOA platforms supporting part of the enterprise, there is very little, if any, of this type of “control” between applications.

As a result, there is often a rise in out-of-balance conditions, balancing issues, and missed deadlines, all caused by fragmentation between legacy mainframe systems and SOA platforms. As the industry continues to move toward faster payments and real-time processing, the ability to reconcile will only become increasingly disjointed without a more enterprise-centric approach.

Complicating matters more, banking regulators are also scrutinizing the “settlement order,” so the emphasis is not just in balancing each application, but in overall “bank settlement.” This presents a significant challenge for financial institutions as it relates to a lack of enterprise bank-settlement capabilities.

In particular, banks have increasingly moved away from mainframe applications and job processes that allowed greater control over their financial and audit position with regard to the Federal Reserve and federal regulations.

Applications implemented in an enterprise environment tend to focus only on “balancing” their specific application. This offers little or no control in the handoff of transaction files or key customer information files when leaving one application and entering another (i.e. work-in-process G/L accounts should be out of balance if one application sent its file but the other application did not receive the file).

To counter this, financial institutions should leverage platforms that offer real-time dashboard and real-time processing capabilities across multiple channels within their environment. Additionally, there should be an accumulator structure in place that can accommodate multiple entries (i.e. bank mergers) and applications across multiple processing days, paired with the ability to automatically generate consolidated general-ledger settlement entries. Fully compliant audit and reporting features should be in place to support regulatory requirements.

In the shift to real-time processing, balancing/settlement becomes an increasingly important feature for competing in the marketplace. While application balancing is the key to successful departmental or application-system functions, it is still the end-of-day position for overall enterprise bank settlement that either alerts management of issues or assures them of their position to avoid costly write-offs.

Finding this balance requires a centralized mechanism for balancing and settlement that positions financial institutions to operate more efficiently and profitably and respond appropriately to the ever-changing laws governing federal audits.

—Debra Campbell is senior consultant at Software Corporation International (SCI), Concord, N.C.  Steve Fortson is head of sales at CV Systems LLC, Houston.