Outsourcing Host-to-Host Connectivity: Why It Could Be the Better Option

What is Host-to-Host bank connectivity?

Host-to-host bank connectivity refers to the communication infrastructure used to establish a connection between your ERP, finance, or payroll systems (the host) and the computer systems of a bank or payment processor. This connection allows for the exchange of transaction data between the corporate back-office and the bank. Host-to-host bank connectivity can be used for a variety of purposes, such as processing electronic payments and transmitting transaction data to assist with onward reporting and reconciliation.

Challenges of Setting Up Host-to-Host Connections

One of the main challenges of managing a host-to-host bank connection in-house is the complexity of the technical infrastructure required to build and maintain it. This includes not only the hardware and software needed to establish and maintain the connection but also the expertise required to configure and troubleshoot the connection as needed.

 

Security and Compliance Concerns with Host-to-Host Connections

Another challenge of managing a host-to-host bank connection in-house is the need to ensure compliance with various regulations and security standards laid out by the bank. This includes not only ensuring that the connection is secure but also that all data transmitted through the connection is properly encrypted and that your organisation is compliant with data privacy laws and regulations.

Maintenance and Support of Host-to-Host Bank Connections

Managing a host-to-host bank connection in-house can also be difficult due to the need for ongoing maintenance and support. This includes not only ensuring that the connection is always available and that any issues are quickly resolved, but also the need to plan for and manage any software or hardware upgrades that may be required. This includes changes to payment standards such as ISO 20022, which are expected to make host-to-host connectivity more efficient in the future.

 

Read more on how to migrate to ISO 20022 here

 

Why Manage Host-to-Host Connections In-House?

The argument for managing host-to-host connections in-house is that it allows for greater control and customisation of the network infrastructure. By managing the connections in-house, you can configure and optimise the network to meet specific needs, such as security and performance requirements. Additionally, in-house management allows for more direct troubleshooting and problem resolution, rather than relying on a third-party provider. It also allows for better control over data privacy and security. Overall, managing host-to-host connections in-house can provide more flexibility and security for the organisation, provided you have the necessary resources and expertise available.

Common Pitfalls When Managing Host-to-Host Connections In-House

Managing host-to-host connections in-house can expose you to several risks. Some are obvious – like not having the expertise in your workforce, when overestimating internal capabilities can lead to inadequate resources, delayed implementation, and compromised security.

Some will be unknown until you start the journey, like the difficulty of establishing and maintaining robust relationships with banks – this can be time-consuming and fraught with challenges, potentially hindering connectivity efforts. And others are familiar, but with a new flavour for this type of activity – like having insufficient compliance measures that lead to regulatory fines and reputational damage, or inadequate security protocols which create new vulnerabilities for data breaches and financial losses. 

Outsourcing host-to-host connectivity to a specialised provider mitigates most of these risks, as well as giving you access to specialised expertise and already-established bank relationships. By partnering with a decent provider, you’ll streamline operations and be able to focus on your core competencies.

Key Considerations When Choosing a Host-to-Host Connectivity Provider

There’s plenty to evaluate when you’re weighing up providers against each other:

• Security standards: such as PCI DSS and ISO 27001 compliance, are paramount to safeguarding sensitive financial data. 
• Compliance expertise: including adherence to regulatory frameworks like GDPR and PSD2, is crucial to mitigate risks and avoid costly penalties. 
• Scalability: as businesses need a provider capable of accommodating growth and handling increasing transaction volumes. 
• Service level agreements (SLAs): outlining guaranteed uptime, response times, and resolution procedures are vital for ensuring reliable and efficient connectivity. 
• Strong relationships with major banks: for seamless integration and provide access to valuable industry insights.

When to outsource vs when to manage in-house

Deciding whether to outsource or manage host-to-host bank connectivity in-house depends on the specific needs of the organisation. If your organisation has the necessary resources and expertise to manage the network infrastructure, it may make sense to handle the host-to-host connectivity in-house. 

This can provide greater control and customisation of the network, as well as more direct troubleshooting and problem resolution. In reality, if your organisation is outside of the financial services or banking sector, you are unlikely to have the same level of expertise as a third-party specialist for bank connectivity. 

On the other hand, if the organisation lacks the resources or expertise to manage the network infrastructure, it may be more beneficial to outsource. It is also a question of time: even if you have sufficient resources, you’ll need to pull them from other key day-to-day tasks. With a typical project lasting 6-18 months, this can have a negative impact on the business. The relationship with your bank’s connectivity department is also a challenge that many businesses underestimate. Managing the project in-house can be significantly delayed by the bank. A third-party provider has the advantage of having a strong working relationship with major banks and can fast-track the process. 

Outsourcing can provide access to specialised expertise and resources, as well as a higher level of security and compliance. Additionally, outsourcing can free up internal resources, allowing the organisation to focus on its core competencies. Another important factor to consider is cost. Outsourcing may be more expensive in the short term, but it can ultimately save the organisation money in the long run by reducing the need for internal resources and expertise. Ultimately, the decision to outsource host-to-host bank connectivity should be based on a thorough assessment of the organisation’s needs, resources, and goals.

The Cost-Benefit Analysis of Host-to-Host Connectivity Solutions

Managing host-to-host connectivity yourself means more control, but it comes with significant upfront and ongoing costs. Some of these include:

• Infrastructure: Hardware, software, and network equipment to establish and maintain the connection.
• Maintenance: Ongoing costs for system updates, troubleshooting, and support.
• Compliance: Adhering to changing industry regulations and security standards.
• Security: Systems and processes to protect your data.
• Staffing: Hiring and training the right staff to manage the connectivity solution.

Outsourcing to a third-party provider can significantly reduce costs by:

• Eliminating upfront investments: The provider handles infrastructure and maintenance costs.
• Leveraging economies of scale: Providers can offer more cost-effective solutions due to their larger customer base – they have all the efficiencies built in.
• Providing expertise: Just like a good accountant will save you more than they cost you, third-party providers often have specialised knowledge and experience in host-to-host connectivity that can be a net benefit in the long run.
• Lower overheads: Businesses can avoid the costs associated with hiring and maintaining in-house staff.

The long-term savings can be substantial when outsourcing, not to mention the flexibility and scalability of the arrangement. Plus, and perhaps most importantly, outsourcing will release internal resources to focus on core business activities.

The Future of Host-to-Host Connectivity
It’s all change in the host-to-host connectivity space, driven especially by emerging trends and technological advancements. Payments and banking networks are evolving rapidly, with innovations like open banking and real-time payments (RTP) reshaping the industry as a whole. Artificial intelligence (AI) will play an even greater role in automating connectivity processes, enhancing efficiency, and reducing errors. The adoption of global banking standards like ISO 20022 is streamlining cross-border transactions and improving interoperability. Blockchain technology, with its potential for secure, transparent, and decentralised transactions, will very likely transform the way bank connections are established and managed. The ability to adapt to these changes will be crucial if you’re to maintain a competitive edge and leverage the full potential of digital transformation.

 

In summary

Managing a host-to-host bank connection in-house can be challenging due to the complexity of the technical infrastructure required, the need to ensure compliance with various regulations and security standards, and the need to constantly manage ongoing maintenance and support. It’s a complex task that requires a deep understanding of the bank’s systems, networks, and security protocols, as well as the capability to monitor and troubleshoot any issues that arise. A reliable and experienced third-party service provider will be a better option for most organisations.

 

Need help setting up one or multiple host-to-host bank connections?

AccessPay already partner with hundreds of organisations and we are trusted by all major banks.  We’d love to hear from you if you have a bank connectivity project in the pipeline.  Contact us to discuss the options with one of our helpful consultants.

 

Read more about host-to-host bank connectivity here