What can we learn from Sweden’s domestic payment system quandary?
The Nordics have a unique model for domestic payment processing, but some of the upheavals in the system provide a lesson for other countries debating faster, upgraded payments initiatives.
Owned by the eight largest banks in Sweden, Bankgirot is the clearing house for domestic payments in Sweden, and provides the banks with payment product and billing managed services via their BG Faktura system. All of the payment transactions are assigned Bankgirot event codes, and via a third party, BEAN, Bankgirot also provides “translated” reports to the banks on those cleared transactions. All of which comes at a subscription price.
Here’s the upheaval: One of the big four Swedish banks announced in 2014 that it was bringing its pricing and billing functionality in house rather than reinvesting in the required upgrades to BG Faktura’s pricing and billing system to extend its lifetime (the current as-is end of life is in 2020).
The $7 million upgrade price tag for the rest of the banks to upgrade the Bankgirot system was too costly, and in 2015, the member banks agreed not to reinvest, letting the system run its course through 2019.
The rest of the banks are now faced with a choice of how to price and bill for domestic payments, since their current solution is set to retire in just a few years time.
What’s a Swedish bank to do now?
Given that BG Faktura is on life support, Swedish banks have a few years to find a new approach. One solution is to bring pricing and billing for domestic payments in house, to create a future proof solution to transacting domestic payments.
Any bank considering this approach needs to include the following criteria to ensure a truly future proof solution:
1) The solution should be input agnostic.
Any data feed from any payments system should be easily consumable and accepted in any format that system produces, be it ACH, cards, digital, mobile, even blockchain. What’s more, it should be able to accept all of the current Bankgirot event codes without having to remap them to the bank’s system.
2) The solution should allow for rationalisation of event codes, simplification of the payment products catalog, and flexible pricing.
Rationalisation, simplification, and streamlining product offerings benefits the bank, allowing it to grandfather obsolete products, and create new ones by bringing full product ownership back to the bank. A flexible pricing rules engine that can use existing, un-remapped event codes also allows the bank to create customized bundled offerings and conditional (relationship) pricing.
3) The solution should be able to capture revenue leakage
The right solution should accurately reflect the actual events associated with a payment, crucial when dealing with fee-based revenue, as inaccuracies can result in revenue leakage. The billing solution should also offer true transparency across a customer’s accounts, especially relevant for SME and Corporate customers with any level of hierarchy that benefits from account data aggregation.
4) The solution should have built in reporting
A flexible pricing and billing system should have reporting functionality baked in, with easily customisable reports that know where to pull the data from, and is data input agnostic. It should also be able to pull data from across all lines of business.
5) The solution should be able to scale across the enterprise
Any new solution should be looked at through the enterprise lens, especially relevant to containing, even reducing, operational costs. A truly future proof solution will allow the bank to collapse multiple billing systems onto a single platform. In Sweden, this means the cost of the BG Faktura managed service goes down to a smaller annual maintenance cost funded not by a single line of business, but by the enterprise.
While not every domestic payment rail system is going through the dramatic change Sweden is experiencing, the lessons from this paradigm shift are universally relevant to all banks looking to capture fee-based revenue and provide an unsiloed view of customer transactions.
Enterprise pricing and billing is a strategic initiative, giving the bank a refined approach to product offerings. And the best future-proof solution encompasses the five functionalities outlined here.
By Ghela Boskovich, director, global strategic business development, Zafin