COVID-19 has posed huge and sudden challenges to societies and businesses, disrupting old ways of living and working.

One of the most visible manifestations of this in the corporate sphere has been the need for organizations to rapidly transition all or most of their workforce to a remote working model. For financial institutions, key priorities have been to ensure that service and support has been maintained for customers in difficult times and that emergency loans and payment holidays are in place for those who need it.

But another priority has been to maintain payment operations. After all, an effective payments system is the lifeblood of the financial system itself.

Physical operations pose challenges

The fact is that, while electronic payments happen systemically through various automated payment rails, banks still rely on large co-locations of people to run payment operations. This includes the processing of physical instruments like checks and cash, and running highly secure wire transfer operations. Across both electronic and physical payments, teams of people are also needed to deal with exception processing and to ensure compliance with critical regulatory requirements such as anti-money laundering and fraud checks or the investigation of payments that may be to or from sanctioned entities or jurisdictions.

The good news is that to date, a great majority of personal and business customers will have noticed no difference to payment processing speed and efficiency due to COVID-19. Faster and electronic payments have continued unaffected, contactless and mobile payment services have continued to work, and salaries have been credited through payroll processing as normal.

However, the reality is that, behind the scenes, the disruptions created by COVID-19 have spawned some significant issues for payment operations to deal with. Check processing is a case in point. While checks have all but died out in many regions of the world, in some jurisdictions such as the US, they are still widely used. Indeed, many government support payments to American citizens will be made by check. Processing them promptly - and minimizing the risk of fraudsters trying to intercept or redirect payments - is therefore a matter of great importance. But, despite all the automation that has been introduced to the origination, printing and distribution of checks, there inevitably remains a significant manual component and accompanied with a higher probability for misuse and fraud. Teams of people need to work in relatively close confinement to process them. This has had to continue with appropriate distancing and hygiene controls introduced.

Wire transfers have been another challenging area. These are key to the flowing of liquidity in the market, with trillions of dollars being transferred daily. The controls in place to process these are necessarily very rigid, taking place in a highly controlled physical environment. Bank responses have varied here, with some being able to move their entire wire operations to a virtual model, while others have simply not been able to.

Many banks have therefore continued to physically staff both check and wire operations, but on a reduced basis with perhaps 25 percent of the normal workforce on-site at any one time, and with new policies and procedures introduced to balance operational effectiveness with safety requirements. Most have opted for a split team approach, alternating the groups of people that come in.

Remote working requires workarounds

Organizations have also struggled to adapt to the need to deal with payment exceptions and regulatory controls remotely, with increased cycle times and inefficiencies across operations and customer support. With staff now working apart and accessing systems through remote desktops or Virtual Private Networks (VPNs), the time-consuming manual activities and virtual handoffs required (i.e. emails between team members, workflow approvals) have led to elongated SLAs and have challenged traditional governance, control and data protection mechanisms. The monitoring and tracking of payments against fraud and other financial crimes has also become significantly more difficult and time-consuming.

Regulators have generally taken a sympathetic stance, temporarily lowering some requirements during this first phase of the outbreak response – but have underlined that this can be only a short-term measure.

New approaches needed for the future

It has become clear that banks need long-term solutions that move aspects of their payment operations onto a stronger and more resilient footing so that they are able to withstand the shocks and emergencies of the future. This may mean new approaches to business continuity planning that cover larger, more frequent and globally simultaneous events. With payment operations frequently running across multiple, ageing legacy systems, it is also likely to mean investing in new technology fit for today’s more digital demands; as well as a re-evaluation of the location of servers and data amid the potential for more frequent disruptive events. And it is also likely to lead to the greater automation of operations, together with enhanced digital processes to enable staff to function more effectively in a redistributed workforce model.

We can also expect to see a near term rise in the use of managed services. This had already been growing before COVID-19, both to support customer service functions and, in some cases, to run parts of payment operations. Since the outbreak began, this has increased further and is proving a useful fall-back to support enquiries coming in – exception queries, disputed transactions, claims for refunds, etc.

Overall, given the unprecedented scope and scale of the knock-on effects of COVID-19, banks’ payment operations have stood up well. But at the same time, COVID-19 has revealed some clear fault lines that need to be addressed. It has created an almost unique opportunity to invest in new processes, technology and organizational structures to support more resilient and flexible payment workforces and systems in the future. We will discuss some of these aspects in more depth in the next blog in this series.