Modo CEO, Bruce Parker, discusses a core piece of payments technology, the Payments Hub. Watch the video above to learn about payments hubs, where they are going, what their limitations are, and how to choose the right one for your payments stack.
What is a payments hub?
A payments hub traditionally is thought of as a way to bring multiple different payment systems together, generally systems that are different from one another. A lot of folks would define that as being able to do cards and wallets, bank accounts and other things all in the same place and in the same way. Other folks, particularly inside of the banking community, would think of a payments hub as a place that you bring together everything of one kind but perhaps in very different places around the world - for instance, how do you perform ACH traffic here in the United States and similar kinds of direct debit, direct credit traffic in Europe and in Canada and in other markets. A payments hub is really all about how do you bring different kinds of payments together and process them in the same way.
What are some examples of popular payments hubs?
Payments hubs, as a result, have usually been part of the infrastructure of banks or payment services providers. In a few cases payments hubs have been deployed at large organizations - companies who were managing payments across the globe, typically. But, CleartoPay, Dovetail, and others are leading examples of payments hubs that have been acquired by large payment services providers or processors. In those two cases by FIS & Fiserv respectively.
Why would I need a payments hub?
Generally, a company would consider a payments hub when the complexity of their payments environment is more, is higher. They have different kinds of payments that they want to really bring a standard way of approaching, standard way of dealing with the data, standard way of dealing with the financial transactions - things like settlement and reconciliation, things like delivering those experiences through various channels - but they are relatively rare. Payments hubs predominately have been deployed within banks and payment service providers and networks rather than companies.
Companies that are considering payments hubs tend to have global transactions in multiple currencies, in multiple countries that have different formats. For instance, we might call it ACH here in the United States. Within the United Kingdom they refer to that as a BACS transaction. B-A-C-S. Within Canada, there's a different name. Within Australia and New Zealand there's a different name. All of which actually have very similar structured banking markets. If we go to a different type of banking market, for instance, in Germany or the Netherlands or France or, for instance, a number of different countries in Latin America and Mexico, each one is going to have a notion of how banks communicate about exchanges of value in very very different fashions. Those are the kinds of problems that really vex large corporations that are trying to simply pay somebody or get paid in various countries around the world and want to use bank transactions in order to be able to do that. Payments hubs are a typical way to respond to that kind of complexity and differences between systems that otherwise should be doing the same thing.
Which payments hub is right for me?
Key criteria for selecting a payments hub really revolves around, "which payments are we talking about, which types of payment, which payment methods, and which payment services and, in particular, where around the world." If we were thinking in terms of predominately ACH or that style of transaction (it has different names in different parts of the world) that might lead us towards one path, one particular vendor, and if we were thinking about cards plus bank transactions plus maybe book transfers, that would actually lead us to a different product. So it really depends on what the use case is to determine which actual product might suite the need best.
What is the downside of a payments hub?
Settlement and reconciliation is often an unaddressed element of how a payments hub implementation might work. It's something that most payments hub products didn't really think of or didn't really consider. They focused instead on "how to you initiate the payment and then how do you finish the transaction processing." But what do you have to do to account for it at the end of the day is left up to other systems or other approaches.
Watch other related videos