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Study Calls for Standardization of XML-Based Bill Payment Systems

The financial services industry appears to be lagging behind other industries in embracing extensible markup language standards for payment-related demands of electronic commerce, according to a recent study from The TowerGroup here.

But the financial services industry is now beginning to recognize the vital role XML will play in electronic payments, according to the consulting company.

Across the financial services industry, e-payment standards have reached only an interim stage in their evolution. Banks and industry bodies are tending toward a tactical approach, experimenting with the implementation of XML-based specifications to address industry pain points and create new online opportunities.

The TowerGroup's research explores the impact that XML standards will have on different sectors of the payments arena, as well as some of the major initiatives already underway. Highlights from the research include:

* XML-based schemes add value by streamlining interaction between organizations. Within an organization, they can serve as a bridge between front-end channels and back-end payment processing, customer support and legacy systems, and provide a range of other processing efficiencies.

* Automation is the most important driver of XML adoption in payment applications. XML will be widely used to streamline Web-based business processes, facilitate payment communication and reduce expenses. It will also offer value by simplifying interactions, providing consistency and enabling payment stakeholders to quickly adapt to market requirements without costly investments in multiple applications.

* Adoption and usage of early XML-based payment approaches are beginning to forge de facto standards. Numerous initiatives will continue for the foreseeable future as banks, service providers and third parties seek successful value propositions for fledgling XML payment schemes.

* As de facto standards continue to proliferate around XML, the payment industry is bumping up against both redundancy and a lack of interoperability. TowerGroup finds that participation in payment applications by top-tier banks and corporate firms is beginning to force a resolution of these redundancies and push the industry toward standards convergence. Leadership by global banks and payment consortia will be a critical success factor.

"Like the payments business itself, payment standards are not monolithic," said Breffni McGuire, senior analyst in the global payment practices group at TowerGroup and a co-author of the research. "Standards are being driven through a variety of initiatives designed to support the different business and technology needs of banks and their retail or wholesale customers. Today, emerging XML-based payment standards can be generally categorized along five tracks: customer-to-bank, business-to-business, bank-to- bank, internal, or a hybrid approach, often driven by a third-party provider to help different organizations in the payments value chain communicate more effectively."

Beth Robertson, also a senior analyst and co-author of the report, said in a statement that the research finds banks, payment consortia, standards bodies, corporations and third parties actively engaged in deriving value from standards usage.

"Yet there is undoubtedly a long row to hoe before we see widespread adoption of most new standards. The market remains fragmented, characterized more by innovation and new ventures than by industry consensus. While the different approaches we examine demonstrate value, many banks have yet to confirm the ROI of participation in a standards initiative," Ms. Robertson said.

The analysts said that ultimately, payment users see value in working toward a standardized market. But the questions remain how to achieve those standards and who should bear the costs.

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