Sibos 2016: navigating the payments storm

Sibos 2016: navigating the payment storm

The payments industry faces a perfect storm with immediate, open and context-based changes emanating from new technology, regulation and infrastructures set to “transform the landscape”.

The drive for instant payments on real-time infrastructures, which are accessible to outsiders, open banking application programming interfaces (APIs) and third-party services available from newcomers to the market, encouraged by the Payment Services Directive II and other such measures – threaten to take away valuable business unless banks respond to the challenge.

“Innovation has been bred out of bankers,” warned Andy Schmidt, an advisor at the CEB TowerGroup consultancy (and a former banker) during yesterday’s session, The perfect storm in payments. “That needs to change. We’ve lost our way and have not been at the forefront for the customer for 20 years.”

The threat from new technology, regulation and customer expectations of fast, contextually relevant services was recognised by Claus Richter, head of cash management customer solutions at Nordea. “Transaction fees are going to zero,” he said. “We need to invent another revenue stream.

Many different models will be tried and many will fail, he added. “There will be ongoing attempts at fee-based models, shared revenue models between banks and fintechs will emerge and so on, but the core thing they will all rely on is data.”

Richter said technologically there were many new players in the payments business, but the conversation with fintech firms had changed from one about competition to one of cooperation. He said banks could take advantage of the nimbleness and speed of small tech-based firms in an open API banking environment.

Schmidt agreed, adding: “In my opinion data is the most under-leveraged asset banks have available to them at the moment.”

Warren Gardiner, vice-president of strategy for enterprise payments at FIS, said banks traditionally dealt with easier to bolt on front-end technology, rather than difficult back-end overhauls, but that this was now changing as real time infrastructures proliferated and aging bank architectures were digitised to eliminate silos.

Quality matters
Elsewhere at Sibos yesterday, Swift unveiled its Payments Data Quality (PDQ) service, an addition to the co-operative’s financial crime compliance portfolio. The solution is described as “an advanced reporting and data analytics service to help financial institutions comply with new international requirements for originator and beneficiary information in payments messages”. It will help banks monitor their compliance with the Financial Action Task Force’s Recommendation 16 for wire transfers, which was issued in 2012.

Brigitte De Wilde, head of financial crime intelligence and services at Swift, said the initial target is to on board large banks. However, she emphasised that smaller players were welcome too and would find PDQ useful.

Nordea Bank participated in the creation of PDQ. Lene Hedegaard Baltzarsen, senior financial anti-crime manager at Nordea, said: “First and foremost, PDQ will improve the quality of our data, both inbound and outbound and we see this as one piece in our broader stack of risk management tools we are currently implementing.”

Nordea expects it to be a fast implementation – around four months – as the solution is delivered in the cloud and it will be incorporated into the bank’s current risk management processes.

“As this is a collaborative tool, banks will benefit from each other’s experience,” Baltzarsen pointed out. For example, a “dummy list” that Nordea has incorporated – words that trigger alarm such as odd names like Mickey Mouse, or words such as ‘secret’ appearing in the send/receive fields will be shared with other banks to create a collaborative dummy list.

“Another benefit is that it is a retrospective analysis – there is no pressure in the cut-off time,” added Baltzarsen. As this tool is running in parallel to operational procedures, Nordea can take its time to investigate the data (the bank has set the timeframe of one week).

By Neil Ainger and Tanya Andreasyan, Daily News at Sibos reporters