Sibos 2018: Day 4 Report – what happens when payments truly become open and instant?
Ensuring innovation has a purpose and can enable the digital economy, alongside developments in ISO 20022 for instant payments were central themes of the fourth day of SWIFT’s Sibos 2018 trade show in Sydney, Australia says InstaPay’s Editor Lauren Jones.
While it is critical to stay aware of the many interesting ideas and technologies challenging the future of payments, we need to have a relentless focus on helping people thrive in a complex world. Di Challenor, General Manager, Global Transaction Services at Westpac warned the audience at the Discover Stage, ‘don’t innovate for the sake of it. Change needs to be driven by what customers need, and then banks should carefully choose who the appropriate partners are.
Simon Lee, Co-CEO and Co-Founder at Assembly Payments discussed the importance of ‘unified commerce’. Whilst the customer experience of payments becomes much easier and efficient, the merchant experience is becoming much more challenging. The plethora of channels and payment types are giving merchants severe headaches. To facilitate a digital economy, the lives of merchants must be made easier. Challenor noted that ‘we must bring together all the different ways a customer may want to deal with an organisation’.
In the eyes of Lee, it is inevitable that we will see the ‘removal of physical cards and terminals’ at point-of-sale. Request-to-pay functionality layered on top of instant payments will see a marked changed on the in-store payments experience.
Challenor added that it will not just be at the point-of-sale but bill payments will likely be transformed. She noted, ‘we should be looking at one way to pay utility bills, not multiple’. But are we ready? Both as an industry, supporting corporate billers and as customers, this will have wide-ranging implications.
When discussing Open Banking both panelists noted the McKinsey statistic that open data has the potential to unlock $3-5 trillion in economic value globally. Boiling this down into practical benefits, Challenor noted that corporates stand to benefit hugely from Open Banking, advantages such as ‘better multi-bank relationship management, liquidity forecasting and data insight’ should be expected. Lee warned that whilst the benefits are profound, ‘the speed in which APIs are released to the market’ will be a determining factor in the overall success of Open Banking both in Australia and globally.
Payments as a source of revenue for banks
Whilst many debate whether payments will be good money-makers in the future, most payments revenue forecasts for banks area reasonably healthy. The expectation is that most banks will continue to make money from payments and, shock horror maybe even surpass previous yearly growth. Despite this potential increase in revenue, Jerry Norton, Vice President of Global Banking at CGI noted that ‘banks are not efficient at their use of IT spend’. Norton quoted McKinsey research that the total cost of IT spending as a % of revenue or gross output in Financial Services outweighs other industries such as telecommunications.
Norton painted a stark picture of the future and a ‘new philosophy’ for payments; largely in part down to Open Banking. Open Banking will lead to an ‘unbundling of the bank’ and will change the source of payments revenue.
There is no doubt that payments modernisation has a global impact and countries and organisations failing to change will not remain competitive. Norton noted that ‘data is a competitive weapon’, it allows better customer segment analysis and allows banks to target products better. Norton challenged contemporary thinking that revenue from payments is going to increase. He noted that whilst ‘the volume of payments will go up, the associated fees charged will decrease’. According to CGI’s Global Transaction Banking Survey due to be published imminently, ‘on average there has been a 23% increase in corporates considering non-banks for providers since 2017’.
The commoditisation of payments, whilst happens in all industries that become digital only leads to a ‘race to the bottom’, according to Norton.
So is it all so bleak? Whilst ‘digitisation, data and delivery automation’ are not differentiators, as they are cheap and easy to do, agility and innovation will lead to success.
ISO 20022 – about engagement not just technical adoption
As has been tradition for the past 4 Sibos’, the ISO 20022 Real Time Payments Group gave an update on recent achievements and discuss key issues. The RTPG is driving international best practice for real-world interoperability for cross border instant payments. With its mandate from the global ISO 20022 Registration Management Group, it publishes usable sets of ISO 20022 usage guidelines that have driven value added harmonization through a consistent view of ISO 20022 for the purposes of real-time payments.
The RTPG comprises a broad group of more than 70 stakeholders from 17 countries including Australia, Canada, Denmark, Germany, India, the United States, the United Kingdom and Japan.
Whilst the group continues to work on guidelines and best practice development, David Chance, Payment Strategy at Fiserv noted that there is a ‘need to now step back and look at the entire interaction model’. Whilst banks and market infrastructures are likely to adopt the group’s work where possible, there is a need to understand how better to engage Fintech’s as ISO 20022 starts to be used in the context of APIs.
The work of the group has proved valuable to the likes of NPP Australia and The Clearing House when developing ISO 20022 based instant payments solutions, as according to Bob Masina, General Manager, Technology & Operations at NPP Australia ‘the core problem that the group is trying to solve is the same across geographies’. Liz Oakes, Expert Associate Partner, Global Payment Practice at McKinsey agreed but noted that ‘continual dialogue across the industry is important’.
‘The awkward human bit’
Genevieve Bell, Distinguished Professor & Director at the 3A Institute of the Australian National University closed out Sibos 2018 discussing how humans and technology may interact as we move into the future.
‘Knowing what people want and what drives them is vital in making the next generation of technology’, Bell told a packed auditorium and the Closing Plenary. Bell noted, that there is no shortage of good ideas and great technology being built, but there is still the need to factor in ‘the awkward human bit’ as all industries work out how to advance and marry the use of new technology with human behaviour.
Bell remarked that we all have a responsibility in understanding ‘what skills are necessary for the future, and how these are taken to scale safely and securely’ – not an easy task.
In previous waves of industrialisation, efficiency and productivity have been the measure of success, will these be the metrics of the future? As citizens and organisations use an increasing number of devices, how will this be measured against social responsibility towards less power use? What will make the 4thwave of industrialisation a reality? We don’t have the answers yet, but Bell noted ‘whatever it is, we don’t have enough of it’.