Managing Payments Risk
Banks are compelled to make real-time payments decisions and execute payments based on the existing relationship with corporates. However, because of multiple systems and, generally, the lack of a real-time single view of limits, managing and making payment decisions is time consuming with added complexity due to prolific and new regulations, which often results in poor customer experience, escalating limits and operational cost.
Operational challenges typically faced by banks on a daily basis for payments processing include:
- Leveraging customer balances and limits across accounts – but within the customer relationship
- Lack of single customer view for limits across the customer relationship and products, including cross-currency and cross-border positions
- Lack of real-time consolidated view of exposure
- Managing exposures in terms of risk concentration, e.g. customers, industry sectors, geographical blocks, currencies, etc.
- Lack of configurable business rules for e.g. balance checks
- Release of referred payments based on criticality/priority
- Auto-release of payments based on funds availability and incoming credits
- Audit trail for funding decision for payments
- So-called temporary increases in Daylight Overdraft, to facilitate the release of payments, which become permanent.
The Model Payments Environment for Managing Risk
Banks need an automated decisioning engine that performs real-time credit checks by aggregation of balances and limits across account groups and relationships, and applies rules to reach an informed but automated credit decision within seconds or faster.
A single, enterprise-wide view of the client need to be presented to payments operations, with data pulled across multiple processing systems or locations.
Such an ideal environment enhances STP and eliminates, or at least reduces, manual intervention – hence slashes costs – plus facilitates more effective payments processing with a more efficient outcome, thus enhancing the customer experience, protecting the limits and reducing operational cost.
Smoother payments execution – fit for purpose to deliver a better experience for today’s demanding customer – will assist banks with:
- Payments Decisioning
- Limits Management
- Business Rules and Orchestration
- Exceptions and Investigations
- Payments Automation for Higher STP.
- Benefits – A Case in Point
Through centralised exposure tracking, a Tier 1 bank in UK is now able to make informed credit decisions. Automated and informed pay/no-pay decisions for payment requests is able to reduce credit risk. With better utilisation of limits and credits across business lines, the bank is able to reduce the number of rejected payments. The bank is also able to reduce marginal cost of processing, thanks to fewer referrals, a higher STP rate and better exception management.
In the first go-live, STP rates were improved by over 25% covering 65,000 payments in one month. This best practice payments execution provides the ability to process a peak load of 110,000 transactions per day, with better liquidity usage and within existing credit facilities for their corporate clients.
What banks want for smoother payments operations
Best-in-class banks appreciate the merits of opting for a processing environment that provides a single view of limits at an enterprise-wide level:
- A rules-driven system with real-time decisioning capabilities – as a generic decision making engine
- Configurable rules engine that allows easy modification of business rules
- Automated retry to handle improved balance or increased limits without resubmission – improved credit risk management
- Supports comprehensive monitoring with a complete audit trail for all decisioning processes
- Control of all overdrawn sweeps
- Authorisation of payments off-line – mitigate risks.