LAS VEGAS — Anticipating a boom in international payments and a transformation in the domestic market, Bank of America Corp. is undertaking a major project to integrate its numerous processing systems into a hub it says will be able to handle all of its incoming and outbound payments.
Large banks typically operate a variety of payment systems, which often handle very similar tasks as they route funds from a sender to a recipient. Bank of America is trying to eliminate redundancies by centralizing such tasks as settlement, message routing, and evaluating transactions for fraud.
John A. Jaye, B of A's first vice president of channel technology, said that evolving standards and new government regulations are making the need for a unified payments system even more pressing, because such a system would enable B of A to respond to changes by updating a single system.
With the pace of change accelerating, Mr. Jaye said, "we have to make our systems more efficient."
He said the hub Bank of America is building will include two main components, one to process retail payments and another for wholesale transactions, that will run in parallel and are expected to share many common features.
The long-term project is already under way, and though Mr. Jaye could not say when it would be complete, he said B of A believes it could take the Charlotte company five years or more to overhaul its infrastructure.
"We're not going to drop it right in," he said in an interview this week at the Payments 2008 conference.
Ralph Dangelmaier, the president of ACI Worldwide Inc.'s ACI Americas unit, said that most payment systems have been built individually, using point-to-point connections to connect to other bank systems — connecting a wire transfer system to a core deposit-accounting system, for example, or connecting a fraud-detection system to a check processing system.
But as electronic payments have proliferated, and become more complicated, so have the connections necessary to support them, he said. For one large financial client, the flow chart representing its payments systems "looks like a plate of spaghetti," he said.
ACI makes some of B of A's payments systems.
Edward Woods, a senior analyst at Celent LLC, the financial research arm of Marsh & McLennan Cos. Inc.'s Oliver Wyman consulting unit, said these systems will only grow more complicated as banks encourage people to use electronic payments for more types of transactions, and regulatory and technical changes take effect.
Banks can no longer use "baling wire and duct tape" to update their systems as new specifications are implemented, he said.
"This spec is changing. That spec is changing. New competitors are coming in," Mr. Woods said. "It's going to take a much more strategically-thinking bank to do all these things."
In just the past month, two major changes have been announced that are likely to drive up volumes for international wires and automated clearing house payments, but will also require banks to update their systems. The Federal Reserve banks said last week that they would change their wire transfer formats to include remittance information, and last month a banking organization said it was developing a way to send ACH payments between the United States and Europe, using the IAT entry code.
Mr. Jaye said B of A is using service-oriented architecture to develop reusable modules for its payments hub.
The final goal is to create a five-layer technology separating its payment systems into discrete modules:
- Channel management, for processing all payments regardless of how they arrive at the bank.
- A file processing layer, to manage customers' payment data.
- An infrastructure layer, to provide message routing and to integrate with other hum elements.
- A business services layer, to control various payment-execution systems, including risk monitoring, a payments warehouse, fraud detection, and compliance with agencies such as the Office of Foreign Assets Control.
- Clearing and settlement systems at the back end that can process any kind of transaction, including checks, credit and debit cards, wires, and ACH files.
The file processing and messaging elements will be early priorities, and will enable B of A to develop the business services that can then be plugged into other elements of the payment hub as they become available, Mr. Jaye said.For example, the clearing and settlement system might have been considered a latter-stage project, to be enabled when the infrastructure-level services are ready to use them. However, Mr. Jaye said, "IAT happens before then."
The IAT format for international ACH transactions takes effect in March 2009, Mr. Jaye said, and will impose some new requirements for B of A's ACH system. "You never had to do OFAC checking of ACH before."
