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Could Decoupling Shake Up Payments Processing?

Posted on Jan 04, 2012

Forget straight-through payments processing. U.S. companies should look at decoupling if they want to see the wave of the future, according to a banking strategy consultant.

Carol Coye Benson, a founding partner in Glenbrook Partners, outlined in a post on the company's Payments Views blog why she believes the decoupled model makes sense for the payments industry.

The term decoupled describes a situation where a payments provider performs two transactions one between the payer and itself, another between the payee and itself instead of one end-to-end transaction.

PayPal is the poster child for decoupled payments, although it's also popular with other online bill payment services.

While taking one payment and breaking it down into two components may seem on the surface to be more complex, decoupling allows for aggregation, choice of settlement networks and even improved risk management, according to a payments processing expert at US Dataworks.

It's also a way to expedite cross-border payments while reducing costs. Cross-border remittances are mostly popular with migrant workers sending money home to developing countries, Benson said.

For example, rather than investing in an agent network in India, a payments processing service could simply negotiate a deal with mobile wallet providers serving that market. Once the first transaction clears, subsequent ones should be easier since it's a repetitive process, she wrote.

The decoupled business relationship means that the receiving customer doesn't have to know, or be involved with, the service the sender is using and vice versa, Benson said. It should just work.

Source: PaymentsViews, November 2011