The definitive source of global instant payments intelligence

Interview with Jerry Norton, Head of Strategy, CGI

25/10/2019

Recent research that CGI have undertaken in collaboration with The Financial Service Club stated that in by 2022 account-to-account transfers are likely to be the single largest payment instrument, overtaking cards. Standing here in 2019, it seems like a lot needs to happen in 3 years to displace cards. Do you think that is still achievable, and what needs to happen to make it a reality?

Yes, I do. However, it is predicated on a number of things happening and also depends on the country or the region that we are talking about. Some countries are still heavily dependent on traditional card products, credit or debit, and in those countries it will take a lot more to displace cards. The magic ingredient will be the installation and operation of an instant payments system. In order for that prediction to be true an instant payments system needs to be in place. However, implementation of a system is not the end of the story – payment methods need to be migrated on top of these systems. Banks and/or other organisations then have to implement account-to-account products for consumers to use and these can be slower to adopt. If you can reduce interchange fees, make it easier to pay at Point of Sale with an app or imbed the payment method within another service, this will speed up the adoption of account-to-account payments.

The research also goes on to say that social media has not materially changed since 2013 and will likely remain insignificant in terms of its impact on instant payments. This is not the case in some Asian countries where instant payments are part of their social media experience. I am thinking, WeChat and Instagram particularly. Why do you think Europe and N. America have not embraced this way to pay each other?

I see this being for a couple of reasons. One is that in the last few years social media organisations have abused their responsibility over customer data. Consumers and businesses are extremely sensitive about what happens to their payments and who has access to their data. There are key ingredients when it comes to successful operation of a payment system – one is security, one is privacy and the other is trust. If you have been abusing these in some way, consumers just won’t trust you. Consumers have being switched off in the West by abuse of their data. The reason this isn’t the case in parts of Asia, and in particular China, is that non-card based payments infrastructure wasn’t really in existence. This sprung up and was provided by commercial organisations via brand new services that weren’t there before. Gradually the central banks and the commercial banks are having to step in as the risk has become too high. The liability lies in the providers of these services not the Central Bank and the Central Bank has had to introduce measure to mitigate that risk.

Banks are going through fairly large scale transformation programs to keep up with this pace of change. And much of it the triad of cost, compliance and customer demand whist maintaining security. How are you seeing banks coping with this?

Banks are coping with this slowly. CGI publishes ‘Customer Global Insights’ and we interview our clients to examine what their strategies are and the current trends. Digital transformation is a big part of that. Most organisations say they have a digital strategy but have yet to see it fully implemented. The reason for that is that there has been a heavy concentration on the interface with their customers e.g. mobile and omnichannel experience, rather than middle and back office changes. To date it is a slow burn in banking. If you want the economies of scale, agility and lower cost banks need to make significant upgrades to their core technology and that involves large scale decisions.

Payments data enables banks to drive new product ideas, new sales approaches, and more efficient payment operations. How are you seeing banks in the US, where legislation does not really support data sharing respond to this?

In Europe we have GDPR that sets the rules. In the US, the absence of that means that the legal process to support open data isn’t there. Banks are extremely nervous about the legal consequences of experimentation. In Europe because of PSD2, there is a maturing consent model which is a key component of Open Banking. This isn’t the case in the US. There is anxiety about data being misused and organisations deriving benefit from that. In Australia, the regulators see that organisations such as banks have an economic advantage over the consumer. The Consumer Data Right aims at redressing that balance by giving the consumer greater power over their data. This is quite a sophisticated model that I see spreading.

Instant payments and value added services are seen as the holy grail of payments. Are there any clear winners you are seeing that are changing the payments game?

I totally agree with you, the combination of instant payments and open banking is hugely powerful. The first generation of apps have been quite basic at this point. They are mainly data aggregation services. The next generation of apps will be much more sophisticated. They are called ‘sweeping apps’. For example, as a consumer you pay a service provider a fee and they will find the best deposit account for you. The consumer sets parameters about the type of account they would prefer and it finds the best set of options. As a consumer I am giving authority to an app that will find the best deal for me. This is much more powerful as it isn’t based on static data. These services may have been available to very large corporates in the past but we will see these services become available to small businesses and individual consumers and it really is revolutionary.

Jerry Norton, Head of Strategy, Financial Services at CGI

Author: Kate Nelson