XML-BASED STANDARDS TO PLAY A VITAL ROLE IN CASH MANAGEMENT, PAYMENTS CHANNELS

TowerGroup Finds e-Payment Standards at Interim Stage; Financial Institutions and Industry Bodies “Experiment” With Standards to Create New Online Opportunities and Address Industry Pain Points

NEEDHAM, MA, July 22, 2003�While the case for using extensible markup language (XML) standards has been made relative to a broad range of industries and applications, the financial services industry is now beginning to recognize the vital role XML will play in payments – particularly the payment-related demands of e-commerce and the online channel.

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. New research from TowerGroup explores the impact 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 schemas add value by streamlining interaction between organizations. Within an organization, they can serve as a bridge between front-end channels and back-end payments processing, customer support and legacy systems, and provide a range of other processing efficiencies.
  • Automation is the most important driver of XML adoption in payments applications. XML will be widely used to streamline Web-based business processes, facilitate payment communications and reduce expenses. It will also offer value by simplifying interactions, providing consistency and enabling payments stakeholders to quickly adapt to market requirements without costly investments in multiple applications.
  • Adoption and usage of early XML-based payments approaches are beginning to forge de facto standards. Numerous initiatives are now being tested as “trial balloons.” TowerGroup believes this validation process will continue for the foreseeable future as banks, service providers and third parties seek successful value propositions for fledgling XML payment schemas.
  • As de facto standards continue to proliferate around XML, the payments 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 Payments practice at TowerGroup and co-author of the research. “Standards are being driven though 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 payments 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.”

“Our new research finds banks, payment consortia, standards bodies, corporations and third parties actively engaged in deriving value from standards usage,” said Beth Robertson, also a senior analyst in the Global Payments practice at TowerGroup and co-author of the research. “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.”

Robertson and McGuire noted that ultimately, most payments stakeholders see value in working toward a “standardized” market. “The question today is, simply, how best to achieve it and who should bear the costs,” said McGuire.

TowerGroup’s research, titled “XML-Based Payments Standards Called For: Innovative Firms Respond,” is available. Those interested in purchasing a copy of the research may contact TowerGroup at 1-781-292-5200 or service-info@towergroup.com.

About TowerGroup: TowerGroup�now celebrating its 10th year�is the leading research and advisory company focused on the global financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world�s largest financial services, technology and consulting firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in New York, London, and Kuala Lumpur, TowerGroup serves a global client base.

Visit TowerGroup’s web site at www.towergroup.com for more information.