In the past decade, the payments industry has experienced more change than in the previous 40 years. The number of payment options for consumers is multiplying, and the adoption of real-time payments is soaring.  

While this is an exciting time for the payments industry, financial services companies are facing tough challenges as payment processing requirements become increasingly complex—especially in the back office. In a recent PaymentsJournal podcast, BHMI’s Chief Technology Officer, Michael Meeks, and Director of Software Engineering, Jon Protaskey, along with Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, spoke about these challenges.

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The Historic Role of the Back Office

Backoffice transactions are largely hidden. After a payment has gone through a front-end system for authorization, the back office takes over and performs several key functions. It settles the transactions among the financial entities involved and reconciles them with various sources, such as front ends and network clearing files. The back office also charges the appropriate fees, handles transaction disputes, supports transaction research, and allows real-time financial positions to be viewed. 

Thirty years ago, when banks were first moving from cash to digital payments and cards, the ecosystem was different. The legacy systems that were built decades ago are just not capable of meeting today’s payment demands. Those systems were written with an isolated perspective and minimal requirements, then added to and pieced together over the years. The gaps in the operation still often require manual processes to be in place. 

At that time, nobody could have projected the transaction volumes seen today. As a result, there was no expectation for real-time processing or real-time data access for decision-making. Everything was handled in batches, and the need to support non-card-based transactions wasn’t even an issue. These historical card-based systems were written to support ISO 8583, not the new standard of ISO 20022—which makes it hard for back office environments to adapt and put the new requirements into their systems. 

“We have seen many organizations quickly upgrade their front-end client interfaces, but they have been a bit slower to upgrade outdated back office systems,” Bodine said.