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Payment Hub Design(…or how IT helps solve the credit crunch) Gary Farrow IET / BCS 7th Sept 2010
Agenda•   Payment Hub Overview•   Capability Model•   Payments Hub Spectrum•   Design Issues    – Service Granularity    –...
Agenda•   Payment Hub Overview•   Capability Model•   Payments Hub Spectrum•   Design Issues    – Service Granularity    –...
Payment Hub Architecture               Schemes/3rd Parties                         Link/                                  ...
Payments Hub Justification                                                                                 •   Reduces int...
Agenda•   Payment Hub Overview•   Capability Model•   Payments Hub Spectrum•   Design Issues    – Service Granularity    –...
Payments Capability Model                                        Diary            Mandate       IntelligentFlow Control   ...
Agenda•   Payment Hub Overview•   Capability Model•   Payments Hub Spectrum•   Design Issues    – Service Granularity    –...
Payments Hub Spectrum                                           Position on Spectrum   Pure                               ...
Agenda•   Payment Hub Overview•   Capability Model•   Payments Hub Spectrum•   Design Issues    – Service Granularity    –...
Service Granularity                           •   Service granularity refers to                               the nature o...
Technology Selection                                   Payments Hub SpectrumMiddleware                       Framework    ...
Canonical Data Zone                                                • Canonical Data is a standardised                     ...
Canonical Data Design Issues                                             •   Legacy integration is a neat example         ...
Architectural Tension                                            Package     Client                                       ...
Agenda•   Payment Hub Overview•   Capability Model•   Payments Hub Spectrum•   Design Issues    – Service Granularity    –...
Moving through the Spectrum                                Position on SpectrumPure Middleware                            ...
Agenda•   Payment Hub Overview•   Capability Model•   Payments Hub Spectrum•   Design Issues    – Service Granularity    –...
Liquidity Monitoring                           £(Millions)           BACS                                  CCCCL          ...
Consequences of PoorLiquidity Management Payments Schemes   – Deferred Net Settlement   – Underwritten by the Bank of Eng...
Agenda•   Payment Hub Overview•   Capability Model•   Payments Hub Spectrum•   Design Issues    – Service Granularity    –...
Review•   Payment Hub Overview        Understand what a Payments Hub is        Benefits it can provide•   Capability Mod...
Thai                                Traditional Chinese           Russian                                                 ...
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IET NW Region - Payment Hub Design

A presentation to the UK IET North West Region on design issues for Payments Hubs.

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IET NW Region - Payment Hub Design

  1. 1. Payment Hub Design(…or how IT helps solve the credit crunch) Gary Farrow IET / BCS 7th Sept 2010
  2. 2. Agenda• Payment Hub Overview• Capability Model• Payments Hub Spectrum• Design Issues – Service Granularity – Technology Selection – Canonical Data Zone• Traversing the Spectrum• Liquidity Problem• Review 2
  3. 3. Agenda• Payment Hub Overview• Capability Model• Payments Hub Spectrum• Design Issues – Service Granularity – Technology Selection – Canonical Data Zone• Traversing the Spectrum• Liquidity Problem• Review 3
  4. 4. Payment Hub Architecture Schemes/3rd Parties Link/ Characteristics Business • Integration ServicesBACS FPS ATM/ CCCCL Partners VISA – Routing – Transformation – High throughput Gateways Channels • Payments Business Services – Liquidity monitoring Payments Payments – Liquidity information provision – Scheme cap monitoring Payments Hub – Point of control of other services Payments • Payments Process Execution Payments – Payments process orchestration Core Banking Core Banking Ledgers Ledgers – State management Legacy Finacle – View of payments state Decouples ledgers from mechanics of payments processing 4
  5. 5. Payments Hub Justification • Reduces integration complexitySchemes – SxL problem reduced to S+L Payments Hub – Complexity reduction since not all schemes connect to all ledger – Complexity increase due to financial controlsAccounting Ledgers / • Supports ledger migrationProduct Systems roadmap • Supports business strategy of Business New Acquired acquisition Treasury Legacy Line Platform Bank • Architectural simplicity Mortgage Cards Inter GL – Single payments process – Use of a single ‘canonical’ data form Total Number of Ledgers (ISO20022) 9 – Master data management issue 8 reduced (CIF, ISCD) 7 6 2008 2009 2010 2011 2012 Case for a Payments Hub is compelling 5
  6. 6. Agenda• Payment Hub Overview• Capability Model• Payments Hub Spectrum• Design Issues – Service Granularity – Technology Selection – Canonical Data Zone• Traversing the Spectrum• Liquidity Problem• Review 6
  7. 7. Payments Capability Model Diary Mandate IntelligentFlow Control State Machine Services Management Routing Destination Enrichment Repair Router AlmanacDetermination Services Services SettlementTransformatio AML Service Fraud Service Excess Control n (Façade) (Façade) Management Accounts Payment Account Account Liquidity Funds Control Message Validations Posting Monitor Origination Capabilities are apportioned but how ? 7
  8. 8. Agenda• Payment Hub Overview• Capability Model• Payments Hub Spectrum• Design Issues – Service Granularity – Technology Selection – Canonical Data Zone• Traversing the Spectrum• Liquidity Problem• Review 8
  9. 9. Payments Hub Spectrum Position on Spectrum Pure PaymentsMiddleware ‘Engine’ •Routing •Record Validation •Payments Almanac •Payments state •Mandate •Intelligent scheme •Transformation •File validation •Diary management management management routing •Payments •Enrichment •Coordination of •Payment repository ‘value-add’ services origination •Bank •Fraud •Customer reconciliation data •AML reconciliation •Auto-Repair data •End-end process control •Store & Forward Increasing Functional Richness 9
  10. 10. Agenda• Payment Hub Overview• Capability Model• Payments Hub Spectrum• Design Issues – Service Granularity – Technology Selection – Canonical Data Zone• Traversing the Spectrum• Liquidity Problem• Review 10
  11. 11. Service Granularity • Service granularity refers to the nature of the service interactions between Hub and LedgersCoarse Fine Grained • Scenario shows a simpleGrained payment pattern • Granularity affected by: – Capability of Hub – Nature of product systems • Modern banking packages have rich capability – Coarse grained services • Legacy systems provide disaggregated services – Fine grained services 11
  12. 12. Technology Selection Payments Hub SpectrumMiddleware Framework EnginePure middleware product Pre-build sub-flows, Payments Pre-built scheme levelsupporting messaging/ Repository, Scheme processingtransformation transformations, Stateless/ful Black box component,Stateless Grey box component Stateless/fulLow technology cost Standard based, Low implementation cost ifRelative low cost Modular ‘out of the box’implementationBuilding enhanced functions is Customisation can still be Customisation cycle slowcostly extensive Black box component High product costIBM MQ / Message Broker, IBM Enterprise Payments FundtechOracle (BEA), Platform, Clear2Pay, Dovetail 12
  13. 13. Canonical Data Zone • Canonical Data is a standardised Scheme representation of the key data Specific Format – ISO2002 credit / debit transfers – Base24 real-time payments • Canonical Data Zone is the architectural layers that make use of such data – Objective: Reuse of common processing steps • Hub should process payments The Canonical Zone using canonical data • Ideal world target system should System also process payments in the Specific Format same canonical format Canonical data standard is best defined as an extended version of a recognised standard 13
  14. 14. Canonical Data Design Issues • Legacy integration is a neat example BACS STD18 – Three necessary transformations – BACS-Canonical-Legacy • Package integration The Canonical Zone – Core banking system vendors offer scheme modules that already use scheme specific format – Transform BACS-Canonical-BACS (- Internal) • Package design principle BACS – Use ‘out of the box’ STD18 – Scheme specific interfacesUniversal Scenario – Driver against Hub• Merger / acquisition Legacy • Hub design principle• Migration Format – Integration ‘heavy lifting’• Different systems for – Minimise transformations different product – Ideal Canonical Data is an enriched types standard form – Driver against package principle 14
  15. 15. Architectural Tension Package Client Vendor Low cost Module Sales Speed to market Customisation development Future proofing Country Specific Modules Package principle System Architectural Elegance / flexibility Integrator Deliverability Minimise risk 15
  16. 16. Agenda• Payment Hub Overview• Capability Model• Payments Hub Spectrum• Design Issues – Service Granularity – Technology Selection – Canonical Data Zone• Traversing the Spectrum• Liquidity Problem• Review 16
  17. 17. Moving through the Spectrum Position on SpectrumPure Middleware Payments ‘engine’ •Product (re-) •Risk & •Solution Governance Selection Compliance •Policy compliance •Supplier re- •Payments •Paradigm alignment selection Services Directive Implications of moving through the spectrum are significant 17
  18. 18. Agenda• Payment Hub Overview• Capability Model• Payments Hub Spectrum• Design Issues – Service Granularity – Technology Selection – Canonical Data Zone• Traversing the Spectrum• Liquidity Problem• Review 18
  19. 19. Liquidity Monitoring £(Millions) BACS CCCCL  Liquidity varies 60 50 – Intra-day 40 20 0 -50 – Inter-day 0 -20 -100 – Monthly cycles due to corporate -40 -150 bureaux services ATM/LINK/VISA FPS  Settlement risk 200 150 – Distorted due to Agency Banks 100 100 – E.g .Northern Rock 0 50 -100 0  Treasury – Monitors Cash / Liquidity position Net Liquidity Position periodically 200 – Plans for Cash Management based 100 on known liquidity position 0 – Optimises financial investment and -100 borrowingLiquidity monitoring and information services are required for pro-active management of liquidity 19
  20. 20. Consequences of PoorLiquidity Management Payments Schemes – Deferred Net Settlement – Underwritten by the Bank of England One lump or – Require daily settlement payments via two? Real Time Gross Settlement Once settlement figure are known scheme participating Banks have ~20 minutes to make a CHAPS payment Missing a settlement payment is not desirable – Repetition will result in scheme expulsion – CxO will be ‘invited for tea’ at the Bank of EnglandPayment Hub is the architectural component to provide liquidity monitoring services 20
  21. 21. Agenda• Payment Hub Overview• Capability Model• Payments Hub Spectrum• Design Issues – Service Granularity – Technology Selection – Canonical Data Zone• Traversing the Spectrum• Liquidity Problem• Review 21
  22. 22. Review• Payment Hub Overview  Understand what a Payments Hub is  Benefits it can provide• Capability Model• Introduced the Payments Hub Spectrum• Design Issues in placement on the Spectrum – Service Granularity – Technology Selection – Canonical Data Zone• Issues in traversing the Spectrum• Liquidity Problem – How a Hub can monitor liquidity• Solved the Credit Crunch?  Not quite…..  But by designing Payments Hubs for our major banks I hope IT make a small but important contribution 22
  23. 23. Thai Traditional Chinese Russian Gracias Spanish Thank You English Arabic Merci French Obrigado Brazilian PortugueseGrazie Danke Italian German Simplified Chinese Japanese 23

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