What comes to mind when you hear the phrase...

…Back office?

 

Ok, its probably not the most exciting term to ponder. Still, I think its worthy of 3 minutes of your reflection time.

 

In the payments business, there are many different interpretations of what the term “back office” means. However, many of us frequently think of a field of desks or cubes with operators crunching numbers, clicking away on keyboards, staring intently on computer monitors, taking phone calls, shuffling papers, printing reports, and the images of different activities go on and on.

 

One thing I’ve discovered in my time in the payments industry is that the back office is the “undiscovered” and frequently “untouched” part of the business. You may ascribe to the same interpretation as me if you think of back office as the internal daily operational center of a payments operation (either at a bank, a processor, a switch, etc.) The back office operation is frequently responsible for ensuring that a company’s payment service happens accurately. I like to think of the particular area of “settlement operations”. When I say settlement, I mean the process of accounting for the movement of monies in and out of a company as a result of its payment operations – cards, ATMs, branch banking, online banking, merchant transactions. 

 

None of us can disagree then that payments are settlement – and settlement is payments. In fact, those of us in payments are in the “settlement” business. We are, by default, the back office of the commercial world.

 

The alarming part of my discovery is two-fold: 1) everyone is trying to get to the same result, and 2) everyone goes about it differently. Boil this down and it can be summarized by the statement: there is no standard process. It appears that every company creates a process that suites its own needs. And rightfully so, there’s logic and reason in that – after all, we’re talking about the lifeblood of the payments business: money.

 

However, what it does is it creates a “closed system” – no new information comes in, and information within the system is self-contained and restricted. There are no best practices that can be applied, no enhancements or enrichments on any large scale. There’s no evaluation of whether the system can be improved (“don’t fix it if it isn’t broke”). Sure, there are attempts to automate different things or streamline a particular process. Still, in my experience of working in this segment of the business, they are primarily self-serving and do not address any of the core flaws or inefficiencies in the system. If one tries to automate a broken process, one has effectively made the problem worse because now it’s automatically broken!

 

There is another problem I’ve realized. There are few people in the market that intimately understand how a settlement operation works “start to finish”, “soup to nuts”. So, by not having a huge supply of individuals in the industry that can come in and take a look at things and make some qualitative improvements and investments, companies can be stuck with a modified operation from when the time the company first began its operation… (Believe me… I’ve seen this first hand – pencils, paper tickets, carbon copies, green-bar accounting paper, the “atrocities” go on.) Sure, initiatives such as Sarbanes-Oxley, PCI, and other internal governance controls have caused investments. But, are they really “improving” the system? Or just monitoring how things happen today with minor adjustments to create checks, balances, and security?

 

The point of all of this is: we need to dig deep within the industry to find out what requires investment – even if it isn’t broken. We are severely challenged in many respects to innovate and improve margins on existing products and services because the systems that are critical to the value chain of a payment are tucked away deep within the bowels of the company. Few brave souls venture there – even fewer have been successful in opening up the “closed system” to bring about real, quantitative improvements and efficiencies in the system.

 

Now… who would have known thinking about settlement and the “back office” could be so intriguing…?