Gap analysis and target model design for a smooth payment transformation

 

At the beginning of every payment transformation, the key question is: What requirements must the target system meet, and how should the target model be structured based on those requirements? This applies to both the implementation of a new payment processing system and the migration to another system. In many cases, a gap analysis—assessing the differences between the existing or standard software and the desired requirements—forms the basis for decision-making. 

We outline key challenges in conducting a gap analysis for target model design and how to ensure success.

 

Potential challenges on the path to a defined target model

There are various approaches to designing an effective payment processing system. Both the gap analysis and the decision-making process for defining the target model come with certain challenges, which we highlight below.

 

Availability of documentation and expertise

The speed at which gap analysis can commence depends on the availability of documentation for the underlying payment processing systems. If the current system landscape is poorly documented or lacks sufficient detail, it must first be assessed and documented. This process is time-consuming and can delay the analysis phase. 

Subject matter experts (SMEs) with comprehensive end-to-end process knowledge are rare and often crucial for success – particularly if the bank has previously outsourced payment processing through a Business Process Outsourcing (BPO) model. Over time, processes may have evolved, institutional knowledge may have diminished, and external partners (such as the BPO provider) must therefore be involved in the analysis.

 

Depth of requirement analysis and definition

Payment processing requirements can be analyzed and defined either at a high level or in extreme detail— sometimes going beyond the intended scope of the analysis phase. Despite a perceived high level of standardization in payments, especially in SEPA transactions, differences often exist in how standards are interpreted and implemented across different payment systems and banks. 

One major challenge is determining the right level of detail to avoid unnecessary complexities while ensuring that all critical areas, especially those with customer impact, are adequately addressed within the given project constraints.

 

Consideration of manual processes and impact on payment operations

Implementing a new payment processing system inevitably affects related manual processes. These processes play a crucial role in the smooth execution of payment transactions and can have a direct impact on customers. Conducting a thorough analysis of these processes is essential – this includes evaluating current capacities, identifying new process interfaces, and assessing any necessary organizational changes. A lack of proper documentation for manual processes can further complicate the analysis phase.

 

Key frameworks for architecture and design decisions

Defining a detailed target model for payment processing involves numerous decisions. Establishing clear architectural guardrails early in the transformation process is essential. Key questions to address include:

• Should a like-for-like transformation be pursued, ensuring all identified differences are addressed?
• Should the highest possible level of standardization be adopted based for the target system? 

While exceptions may arise, it is critical to make these fundamental decisions early to ensure efficient and effectives design choices throughout the project.

 

Standardization vs. customer orientation

While minimizing customer impact is acommon objective in payment processing transformations, it often conflicts with a bank’s goal of achieving maximum standardization from an operational perspective. Standardization promotes efficiency and cost-effectiveness in payment processing. However, phasing out customized payment solutions for individual customers can be challenging and may negatively impact customer relationships. 

Striking the right balance between standardization and customer needs is essential while defining the target model to meet both the bank’s and the customers’ expectations.

 

Tips for successful target model definition

Below are the best practices to overcome challenges in gap analysis and target model design – laying the groundwork for a successful payment transformation.

• Payment flowcharts. Visualizing payment processing steps in flowcharts for each use case helps align stakeholders, identify gaps, and highlight use case-specific differences.
• Onsite-visits/ shadowing. Conducting onsite-visits where daily payment processing activities are observed and analyzed, has proven to be a key success factor. This approach is especially useful for post-merger integrations and helps assess potential changes in staffing needs.
• Efficient decision-making processes. Establishing efficient decision-making processes is crucial for effective gap analysis. It is essential to clearly define the data and level of detail required upfront and to involve all relevant stakeholders—such as product management and sales—early in the process. Regular meetings, continuous tracking of open items, and commitment from all involved parties contribute to overall efficiency. Additionally, thorough documentation of decisions lays the foundation for a smooth implementation phase.
• Managing new gaps. Even after completing the gap analysis and defining the target model, new gaps or reconsiderations of initial decisions may emerge during implementation. The more effort invested in the early analysis phase, the fewer unexpected issues will surface later. However, ensuring a well-established decision-making framework should remain in place to address new findings efficiently and prevent project delays.

 

Conclusion

The success of a payment transformation depends largely on a thorough gap analysis and a well-defined target model. By proactively addressing key challenges and establishing efficient decision-making processes, banks can ensure a smooth and future-ready implementation. Striking the balance between standardization and customer needs results in a payment processing system that is both efficient and consumer friendly.