Misys Payments Insulator system
Following the launch of the Misys Payments Insulator system, Elliott Limb explains the dangers of leaving payments processing unchecked
Misys has launched the new FusionBanking Payment Insulator—what was the thought process in the run-up to this?
The payments industry has always been about straight-through processing (STP) and making sure we can move money around effectively. But, when you start to prioritise, risk is really the top priority, followed by cost, and then revenue.
Depending on where they sit in the payments cycle, firms tend to focus either on revenue, through innovation, or on cost, through process re-engineering. They tend to ignore risk, which should actually be the top issue as the impact of a payment failing can be catastrophic. If the wrong payment is placed at the wrong time, all sorts of things can go wrong, so we wanted to find a way to de-risk payments, and to deal with crises when they do arise.
How does the insulator work?
It’s a very simple, thin technology that sits between the payment hub’s processes and the wider payments scheme. Just before a payment goes out the door of the bank, it identifies any issues, and captures those payments.
For example, most banks have multiple payments systems. When it comes to making maintenance changes to them, the bank might know 90 to 95 percent of what will happen when it makes that change, but there is still the 5 percent risk that any changes will have unexpected impacts further downstream. There will be tests ticked off and operational acceptance, but that’s all in a test environment. Once it goes live, if something goes wrong with the first few transactions, you can reverse the change, but you can’t undo those transactions.
When a change is made, the insulator can just catch the first 10 transactions and put them to one side, so the bank can make sure they’re working as they should be before they go out to the market. It’s very simple, but it could actually make a huge difference, because it’s not only the impact that a failed payment could have on the market and the downstream effect, but there is also an internal cost for fixing a mistake. That could be recycling liquidity or moving payments, or anything else, but it will certainly be costly, and must be reported to the regulators.
What are the practical applications for financial institutions?
One of the most effective things is the ‘big red button’, which is a strategy for unexpected market events. In the event of a major market crisis, such as the collapse of Lehman Brothers, it’s hard to know immediately what to do. Large institutions know they have to do something.
Pulling the plug completely isn’t practical, but they probably can’t just let everything go on as usual, either.
Using this technology, firms can put together a simple script or a workflow to identify anything with, for example, ‘Lehman’ in its narrative, anything with that bank identifier code, or with that international bank account number, and those payments will be placed into a holding queue.
An institution can see exactly what its liquidity position is, it can see the risk, and it can capture and hold anything this is coming in to the bank as well. Part of the problem with the Lehman crash was that six to nine months after the actual event many were still untangling payments processes and trying to figure out their positions. If something of that magnitude happened again, the insulator would have the capability to pick up that data, send it to the regulator and prove immediately what its position is.
Banks can cover off that market and clearly show everything that has been stopped before it was processed. If every bank had done this in 2008, then things might not have collapsed quite so dramatically.
How does it manage changes to infrastructure, or the introduction of new payments methods?
The system can actually be used to facilitate this. Immediate payments are starting to roll out around the world, and implementing new mechanisms can be a very big project, especially in markets where they haven’t changed anything for years.
Banks that are switching over will have a moment where they flick a switch, take a deep breath and hope that both old and new systems work as planned.
Of course, there will be a lot of testing, but the insulator can help to reduce risk, and also make these changes faster and cheaper.
Firms can migrate certain payment types on to the new system, but keep them running smoothly through the old system, and as the messages come back, they can be fed in to the new system as if they’ve gone through both.
When the bank flips the switch, it can then do a gradual, staggered changeover, starting with low-value payments, feeding them through the system and checking them, and then moving on to higher figures.
This way, institutions can see exactly what is happening and what the potential issues could be.
In terms of innovation, it can also be used as a kind of sandbox. With financial technology start-ups and disruptors coming in, many banks don’t know how to fit new capabilities into their infrastructure.
In theory, the insulator would allow a start-up to plug in to the infrastructure, but seal it off so that any payments it processes are captured until it’s clear they’re not affecting anything else.
Live testing has previously been very difficult in banks—the options were either just to hope everything works, which is a surprisingly popular choice, or to actually code new rules in to the sanctions systems—but if this affects any payments mistakenly, the fines and reputational damage can be horrendous. If firms can accept that change is going to happen, and that things are going to go wrong, then they can control it. It’s managing the implications that is fundamental to success.
