As banks adopt more channels and services, technology is playing a vital role in ensuring that payments are processed efficiently and accurately. Whether an institution is a card issuer, acquirer, or dedicated payment processing house, it has to be confident that its systems are not going to give it any problems or downtime.
Levels of payment card use are increasing, meaning that issuers and acquirers are having to make sure that the systems they put in place are equipped to cope with future volumes.
James Massey, general manager of BPC MEA, says that BPC's SmartVista product is designed with scalability in mind. "It's based on open platforms, it's modular and it lets people grow from small to large with no change of software whatsoever, so that the same software you could run on a laptop can be used on a 64-processor HP Superdome with absolutely no change or migration," he says.
"It's modular, so it's very easy for us to add new features as we go along. Compared to some of the old products on the market, I think it makes a big difference."
Massey points out that some early processing software had no multi-currency or multi-language capabilities, meaning that it had to be patched.
SmartVista comes with those features and its modular format makes it easy to add functionality.
"It creates savings because on one side you need less hardware and fewer people to run it so that the total cost of ownership is lower," says Massey. "The other saving is that you're not going to have to go through a costly migration at any point in your growth."
The trigger for such a migration is often a merger or acquisition, something Massey predicts will be happening with more frequency in the region.
"We're starting to see it in places like Egypt, with the denationalisation of the banks, and when you've got to bring all these different systems together, you find there's a constraint on how quickly you can do the M&A for the bank," he says. "These sorts of costs are the hidden costs of systems."
Of course, there are still some banks in the Middle East that have not automated their back office processing systems at all. Abdelhamid Suboh, director, financial services, MEA, Logica CMG, says: "Just automating these processes would immediately give them huge advantages in terms of expediting the process and in terms of cost savings.
"In other cases, we'll find banks that have implemented outdated systems and outdated processes - often complicated ones that take time and take many people to implement. By re-examining these processes and implementing more up to date systems you immediately introduce efficiencies in the processes as well as cost savings for the bank."
Lu Zurawski, director, cards and consumer payments, global financial services, Logica CMG, adds: "There's definitely a trend towards de-duplicating processes across different product lines. At one end of the spectrum we have banks that are automating for the first time, but there's also in this region some banks that have seen the opportunity to bring together different product lines and share operations across two product lines. For example, cash management in the corporate business banking sector sharing those processes with the merchant acquiring card business."
One significant way to reduce inefficiencies in payment processing would be to eliminate cheques. "Cheques are less in use these days and I think over time they will disappear," says Suboh. "Most countries have implemented cheque imaging and cheque clearance systems. They have to provide these facilities as long as cheques are in use."
The extinction of cheques could be hastened by the introduction of MasterCard's PayPass and Visa PayWave systems, in which cardholders do not have to swipe their cards or enter a PIN for low-value transactions, but can simply tap their debit card against a reader. These cards are pre-paid, pre-authorised and pre-approved, making them suitable for the mass market. Although these could become popular in the region, chip and PIN is still to see widespread adoption in the Middle East.
Kamran Siddiqi, General Manager for Visa International Central and Eastern Europe, Middle East and Africa (CEMEA) in the Middle East, says: "Technologies such as the chip and PIN platform allow customers to reap multiple benefits like enhanced security and faster transaction times. This is convenient for consumers and also for merchants who can complete transactions faster. Merchants can choose to partner with certain banks which offer chip and PIN cards to offer incentives for shopping with them through loyalty schemes."
Visa's system is capable of conducting 6,800 transactions per second, and it is making efforts to increase the speed of its service. "Visa strives to improve its service and works with partners such as Etisalat to improve the speed of the connection and ensure faster transactions which benefit both merchants and cardholders," says Siddiqi.
"These advances in card acceptance technology have made it possible for card transactions to rival or surpass the speed of cash transactions in some instances."
A survey conducted by Visa in March found that 34% of companies questioned in the CEMEA region were planning to increase their use of corporate payment cards and decrease their reliance on cheques in the next 12 to 18 months.
Companies said they believed corporate payment cards would reduce costs and enable greater cash flow management as a result of more transparent financial data for payables and receivables.
OpenWay is working with Procco Financial Services, a payment processing services operation based in Bahrain, to deliver the backend environment for a Shariah compliant store card. Full production will start in a couple of months.
"The first card-based financial products to be supported by Procco will be unique and truly Shariah compliant," says John Dolton, CEO of Procco and senior partner at The International Investor (TII), the finance house behind it. "This required a partner and provider whose software could provide greater flexibility and scalability than normally available."
Procco will also be taking OpenWay's application to support loyalty application programme transactions. "With the introduction of smart cards, the card business is becoming a necessity of life more than ever before due to its convenience and security. There are so many things you can do," says Kamran Khan, chief operating officer, Openway Middle East.
"There is a big vacuum in this market for new applications. Not many banks have introduced corporate credit cards, lodge cards, or cash cards but OpenWay has a good product to help them."
Khan believes that instant issuing, pre-authorised debit cards and gift cards - cards that come pre-loaded with credit for the recipient - are the next big growth opportunities for issuers and acquirers. OpenWay has solutions to support the processing of all of them: MasterCard uses its solution for pre-authorised debit cards and for PayPass.
Growth in the cards sector is proving to be good for business, and OpenWay hopes to close three major deals in the GCC by the end of the year.
While the cards sector is growing, there are reasons why most of the region has not yet switched to EMV chip cards.
Chris Woods, channel sales manager, EMEA, security solutions and services division, Thales, explains: "It's much easier to go straight from nothing to smart cards, and that's what's happening in places like Pakistan and India. They're taking the opportunity to migrate straight from nothing to chip.
"It is a costly affair, you have to modify the ATM machines, the POS terminals, issue the cards, and issue the infrastructure to acquire smart card transactions, so it's not an insignificant investment for the banks."
Part of this investment lies in readying their data and the systems that will process it.
"Last year we introduced a new version of P3, a data prep solution which makes it easy for banks to migrate from magnetic strip to chip," says Woods. "We introduced a new version last year which catered for the domestic debit application in Saudi Arabia. The banks that are running the pilot scheme now will be using something like P3 to generate the card data required for the chip. There's a whole host of data on the chip that you never had to consider before."
In the UK, card issuers publish their fraud statistics, which made it easier for observers to see that there was a business case for adopting a more secure card payment system.
Woods points out that Middle East banks do not disclose their fraud statistics, so it is not easy to tell whether their losses justify the substantial investment required to implement chip and PIN.
"The mandate from Visa and MasterCard is in place now and it means that if you acquire a transaction and it's supposed to be on chip, then any problem with that transaction is no longer the responsibility of the issuer, it's the responsibility of the acquirer," says Woods.
This is driving developments in authentication for internet banking transactions, including handheld wireless devices that generate a one-time PIN when a chip card is inserted. The PIN is then used online to verify internet banking transactions by the cardholder. Thales also offers challenge-response solutions for mobile phones, requiring the user to react to a prompt for authentication.
Channels might be becoming more secure, but there will always be customers who dispute some of the transactions on their statements.
James Woolworth, head of business solutions and marketing for processing solutions provider ACI, says: "We spoke to our customers in the Middle East and they told us the biggest need they had was for a dispute management system.
"Card markets tend to operate at fairly low margins, and these things are often very manual in nature: someone has to answer the phone, someone has to type in the details, and someone has to check the history of the customer. Anything you can do to automate that process really brings very quick returns back to the bottom line."
ACI is launching a software that will automate the complex processes involved in resolving disputes, a solution that has not been widely available before.
Woolworth also foresees other challenges for payment processors, based on his experiences in Europe, which introduced the Single European Payments Area (SEPA). With talk of a single GCC currency - however far off that might be - he has considered what might be involved in preparing for a similar scheme in the Gulf.
"People think SEPA is a technical challenge - it's not, it's an infrastructural challenge," he says. "It's going to change the nature of the business and suddenly you're going to see different people move into the market in the same way that's happening in Europe. We see big processing houses like First Data realising that the opportunities in one market are better than in a series of disparate markets. Thus it presents a challenge and an opportunity for the banks, and especially the national processors, people like SAMA, Knet and Benefit.
"If they have the right organisation and the right software then they're in a position to get much more business than they are at the moment."
It seems the same could be said of issuers and acquirers.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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