Sibos 2016: future proofing payments

Thierry Chilosi, Swift: There are four “game changers” that banks should keep in mind when reviewing and developing their payments infrastructures

The global payments industry faces more challenges than ever before – fiercer competition, more regulations, an increasing threat from cybercrime and new demands from customers. Thierry Chilosi, head of markets & initiatives, EMEA at Swift, talks to Daily News at Sibos about the steps market participants can take to future proof their payments infrastructure.

The global payments industry is undergoing a period of significant transformation as payments infrastructures are modernised and business models renewed. In an environment of constantly evolving regulations, innovations in technology, new competitive forces and the growing threat of cybercrime, banks are moving away from a reactive approach to change and towards a new mindset.

“In the past, many banks felt that regulations were being imposed on them and they were focused on how to react to that regulation,” says Chilosi. “This has changed; regulation has become almost ‘business as usual’ for banks and now the question is how the industry can leverage regulation to review their business models and better position themselves against competition.”

Chilosi says this change in mindset is also reflects the fact that Swift and its member banks “understand they need to keep evolving”. Banks’ ultimate clients want an easier and improved banking experience. “As an industry, we have made our business extremely efficient,” he says. But the old ways are no longer enough; both retail and wholesale clients require ubiquity, speed and transparency.

Moving to this new world is difficult and there are challenges to be met. A balance has to be struck between meeting the requirements for speedier payments with the fact that banking is a network economy. “Sometimes it seems like the industry has one foot on the accelerator and one foot on the brakes,” says Chilosi. “Everyone recognises the need to accelerate payments, but there are issues slowing us down, such as legacy technology, regulation and the need to have cyber resilience.” In being faster, banks have to recognise they need to be careful, too.

Banks and Swift can work together and think “multi-dimensionally”, says Chilosi, and rather than developing certain payments products for specific scenarios can instead focus on the complete value chain of payments. One way to do this is to combine the existing systems and programs of banks with the innovations developed by fintechs. Swift’s Global Payments Innovation Initiative (GPII) operates on the same payments rails banks have used for many years, but by complementing these rails with new processes and new technology, user banks can now offer advanced payments tracking and other services to clients. “The payments industry has realised that collaboration and cooperation are the way to transform payments in order to meet the needs of clients,” he adds. Even very large corporations such as Apple recognised that they needed to collaborate with banks in order to deliver innovative payments products and services to its end customers.

There are four “game changers” that banks should keep in mind when reviewing and developing their payments infrastructures, says Chilosi. These are:

The importance of market infrastructures
Market infrastructures (MIs) can drive change in payments and ultimately help to drive economic growth. In a networked economy such as banking, MIs can help to drive economies of scale and ensure security, resilience and certainty in payments.

Approach to innovation
Incumbents can also innovate (as evidenced by GPII). The bigger correspondent banks can take a portfolio approach to innovation: investigate different technologies, modernise their infrastructure, or even acquire FinTech companies. Smaller banks can invest in building new and improved customer experiences by building on existing technology, in which they have made considerable investment, and add new innovations where relevant.

The challenges of de-risking
In responding to regulatory requirements to improve risk controls, many correspondent banks have adopted a “zero risk” policy. This has left banks in regions such as Africa and the Caribbean with a dwindling number of foreign counterparties and created a scenario where informal payments channels – that are less controlled and secure – could flourish. De-risking also has implications for financial inclusion and corporate supply chains. Chilosi says banks can take steps to avoid being de-risked by adopting a more collaborative approach, improving transparency, establishing verifiable control frameworks and adopting international standards.

Cyber resilience
The most effective way to protect against cyber-attacks is to build processes, people, tools and a mindset of cyber resilience. SWIFT is implementing the Customer Security Programme to help members tackle the growing cyber security threat.

At times of great pressure, concludes Chilosi, an industry will become more innovative. The payments industry has been on a transformation continuum since the days of initial automation in the 1970s, the pursuit of efficiency during the 1980s and 1990s, through to today where simplicity, ubiquity and greater use of analytics are coming to the fore. To create payments services that reflect these elements the banking industry – and fintechs – are working together more closely. The specialised knowledge of each party, as well as their culture, are combining to transform payments. Collaboration is not only required externally; within a bank the establishment of cross-functional teams to work on product development will help to create solutions that meet the needs of all payments stakeholders.

“The key elements of future proofing payments are customer centricity, an integrated approach to innovation and no compromise on security and resiliency,” says Chilosi.