By Kate Knudsen, Senior Program Director at BHMI
As the payments space changes rapidly, banks, merchants, and processors are updating front-end platforms to meet the growing demand for new, fast payment methods.
However, many still struggle to keep pace and remain hampered by back-office payment processing systems that lack the flexibility, inoperability, and speed to function in a modern payments environment.
While many have traditionally viewed back office systems as cost centers that produce no value, a modern system offers many benefits that can indirectly impact the bottom line. Enhanced customer service, improved employee satisfaction, greater efficiency, and better chargeback management can all help unlock new sources of profit.
Back-office costs and expenses
Back office systems are critical to processing payments. Once a transaction is authorized on the front end, the back office performs essential functions such as reconciliation, settlement, fee processing, and dispute management.
While organizations have recently upgraded their front-end systems, many still use decades-old technologies in their back office. Some have concerns about the migration process or worry that a complete “rip and replace” of their entire back office system will negatively impact their operations. Believing that they shouldn’t try to fix what seems to be working, they often view the back office as a non-revenue producing cost center that should be left alone. As a result, they delay updates with the perception it’s costly, time-consuming, and unnecessary to evolve in today’s rapidly changing ecosystem.
However, holding onto these antiquated systems comes with costs, especially maintenance, fixes, and integrations. A study by IDC Financial Insights found that such expenses are rising nearly 8% annually, and global institutions are projected to spend over $57 billion on outdated systems by 2028. The inefficiency of these systems also leads to lower productivity and higher labor costs as payment processors must go through labor-intensive, manual processes to perform standard back office operations. Additionally, years of piecing together point solutions have left these organizations with “Frankenstein” IT systems that make compliance difficult.
Organizations may be comfortable with their legacy systems, but finding the talent to operate, manage, and repair them is becoming more difficult. As programmers with experience and deep knowledge of legacy systems age out of the workforce, younger programmers are training on modern platforms. A lack of talent and poorly documented bugs also create security issues that could lead to significant financial liabilities in a data breach. Additionally, the inability of these legacy back office systems to scale or quickly adapt comes with significant opportunity costs as organizations cannot capitalize on the latest payment trends.
Finding profit opportunities
Financial services companies that only look at the back office as a cost center leave many opportunities on the table. Seamless, efficient, organized payment operations can help support a profitable and effective business. A modern payment platform enables long-term benefits such as cost reduction, increased efficiency, and greater agility to adopt the latest payment methods.
Updating the payments back office offers many advantages, such as:
- Improved Customer Service
The inefficiencies and slow performance of legacy systems can lead to a poor user experience. A modern back office offers a faster and more seamless experience in all aspects related to customer service, including payment processing, transaction research, and dispute resolution. - Improved Employee Satisfaction
An updated back office can improve the employee experience by eliminating manual processes, reducing the risk of operational errors, and providing access to the information they need when needed. - Reduced Costs
It can reduce costs by managing all payment methods in one unified system with a continuous processing architecture that processes data as soon as it arrives. - A Centralized Transaction Repository
Putting all data and transactions in one repository also offers several benefits. It supports data enrichment, real-time decision-making power, custom rules-based automation, and value-added service. The collection of this data also allows for valuable insights into transaction trends and customer behavior. - Better Chargeback Management and Reduced Losses
Modern payment processing systems also offer an opportunity to consolidate and automate chargeback management, which reduces dispute management costs, ensures compliance with regulations, and controls financial risk.
- Preparedness for Future Payment Methods
Finally, upgrading the back office can help organizations prepare for future payment methods. It enables organizations to stay ahead of the competition by easily supporting new and changing requirements as soon as they are available without the high cost of code changes and new configurations.
From cost center to profit center
Holding onto legacy back office systems in today’s rapidly changing payments landscape costs organizations more than they realize. It is now time to view the back office not as a cost center but as an opportunity to improve efficiencies, enhance the customer experience, adopt new payment methods, and grow profits.
Payment organizations should look for flexible solutions that support all payment types and data sources and have an architecture to improve back-office functionality. This enables banks, merchants, and processors to improve their entire payments ecosystem, find new opportunities, and adapt to future trends.
About the Author
Kate Knudsen is Senior Program Director at BHMI. She has been
in the payments industry for more than 30 years and is currently
leading back-office modernization projects for large financial
services companies.
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