Source: Sibos Insider, http://cib.db.com
The third day of Sibos 2018 was notable for the race 5K run&walk, sponsored by Oracle, which wound around the Darling Harbour waterfront from Metcalf Park. More than 250 runners, joggers, and walkers took part in the race.
The Wednesday breakfast keynote with Dr Ayesha Khanna went down a storm. Diving into how to leverage the potential of Artificial Intelligence, she advised audience members to “see every problem as an opportunity for financial innovation.” She explained how AI is becoming ever prevalent in the megacities, shielding some of them from terrorism for example, with 176 million surveillance camera’s built into the eyewear worn by the police. The technology uses two billion images provided by the Chinese government to train on. Using AI and data, anything is possible.
In another example, Khanna explained how UK company Babylon Health is using AI to give patients online advice, alleviating an overstretched national health service. “The very fabric of our existence depends on data, IoT and AI”, she said.
This is why companies are constantly adapting their service offering to co-exist with technology. Nowadays it’s hard to figure out who does what, said Khanna. Companies want to capitalise on their data and their technologies to give new services to customers and eight out of 10 times that request relates to fintech and financial services.
For example, Norwegian telco Telenor bought a microfinance company in Pakistan to use its data and AI to provide loans to the many millions of the unbanked in Pakistan. In a country with 206 million people, very few people have bank accounts and companies have been slow to innovate to meet this demand. Through Telenor’s acquisition they now have an easy app-enabled account through a service called easypaisa. This is the reality we live in now and for which we need to prepare, says Khanna.
Are we prepared for this disruption? Khanna argues that everybody needs to learn about these fourth industrial revolution technologies and until that is done their education is incomplete. This is why Singapore gave grants to fintechs to set up AI hubs there, “so financial services professionals are equipped with the skills and resources to be a financial hub”, she said. “But without their domain expertise I couldn’t imagine this replacing people. You need a team of super heroes, then you need to ensure the team of the future has a mixture of AI experts, technologists, bankers and sociologists in them and that is all relevant to make the product needed by your consumers.”
Khanna stressed the need to redefine education and work in intra-disciplinary teams. “This is why we shouldn’t treat AI as a piece of technology, but as colleagues. Our domain expertise is empathy, strategy and business knowledge. It is not an option for you not to understand AI. With the advent of more regulations in the European Union, some decisions need to be explained by humans and not by technology.”
In a panel discussion titled SWIFT gpi – Maximising its value through APIs (moderated by SWIFT’s Head of Messaging Product Management Steve Dumont), Paula Roels, Head of Market Infrastructure & Industry Initiatives, Cash Management, Deutsche Bank, joined Michael Thomas, Divisional Executive, Global Business, Transactional Services, Nedbank and Hau Peng, Deputy General Manager, Operation Management Department, ICBC, to share their experience of how API connectivity to gpi has enabled them to provide their clients with the same experience they are used to in their personal lives.
Using APIs, it integrates easily into the bank’s applications and the client is served better as a result. “Our customers wanted full transparency on a daily basis – we allowed them access using our front end Cash Inquiry app via an API layer on top, so that they can make a call to the tracker via the API interface to track their payment.”
Nedbank’s Michael Thomas spoke with equal fondness about the gpi payments tracker which helped customers with their remittances to 34 African countries. It addresses the client frustration of accessing the underlying payments themselves. They now have access to the visibility of a payment in the enquiries process area.
While nobody could miss all the SWIFT gpi sessions resonating from the SWIFT hub zone on Level 2, with 80 banks now live with 15 of them having integrated the gpi tracking system into their portals (including Deutsche Bank), the next question in the gpi journey was how corporates could use gpi given their inevitable preference to multi-bank.
This was answered in the other cracking gpi session that day (this time with a corporate perspective) entitled SWIFT gpi – Delivering value to multi-banked corporations and chaired by SWIFT’s Sebastian Rojas (who chaired a similar panel at EuroFinance), with the corporate camp occupied by Martin Schlageter of Roche, and Peter Claus Landi of General Electric. Representing the banks were Deutsche Bank’s Global Head of Payments & Collection Products, Christof Hofmann and Citi’s MD of Global Clearing and FI Payments, Mark McNulty.
Panelists shared with a packed room the work done by a group of international corporations and gpi cash management banks to streamline the gpi experience for multi-banked corporates. More information on this can be found in the flow article, ‘Moving swiftly on’.
"Knowing how long it will take for a payment to get there is a huge benefit, and transparency is crucial – when I use Amazon I know what is being shipped and when it gets to my doorstep," said GE’s Landi. He added, “Without sight of all bank transaction deducts, the corporate does not get the full picture."
Schlageter added that another pain point for multi-bank corporates was having to go into each bank’s payment tracker to reconcile what had happened to one payment. It was these issues that prompted the formation of the pilot group in November 2017 to test a SWIFT gpi for Corporates (g4C) standard that enables corporates to initiate and track gpi payments, via multiple banks, directly from their ERP and treasury management systems.
The solution lies in the Unique End-to-End Transaction Reference (UETR), the equivalent of a parcel tracking number, starting with the corporate, which is sent to banks around the world and then “we get it back, with the reconciliation and tracking of our payments.” He pointed out that this single tracker in real time is a much more professional solution.
Scalability is key, “we need all of our banks to sign up”, said Landi. Deutsche Bank’s Hofmann pointed out, “We have an environment which is undergoing massive change. The emergence of open banking and real-time payments as well as new competitors in the payments area have helped to create a sense of urgency. Also, some of the technology available now that wasn’t around ten years ago makes it easier to implement the gpi solution.”
The following day on 25 October 2018, SWIFT announced that nine corporates supported by seven gpi banks had successfully implemented multi-bank gpi payments and tracking through their treasury applications. The platform also gives corporate treasurers full transparency over fees and FX.
Just as Singapore decided to disrupt itself by inviting a fintech in so that its banks could learn about AI and other new technologies, Wednesday’s Big Issues Debate on ‘Disruption in the payments landscape’ carried this idea forward by talking about the importance of collaboration to meet customer demand.
Banking is not enough
With these technologies and instant payments transforming the financial landscape, the Big Issue Debate featuring Michael Spiegel, Deutsche Bank’s Global Head of Cash Management carried an important reminder: It’s no longer enough to turn up and be a bank. In addition, factors including the regulatory drive for open banking and consumer demand for real-time payments has led to the rise of fintechs and new players in the industry, causing disruption in the once relatively unchanged payments sector. Banks need to engage in this new ecosystem and collaborate with others.
Spiegel joined Ulku Rowe, Technical Director, Financial Services, Google, Esther George, President and Chief Executive Officer, Federal Reserve Bank of Kansas City and Leila Fourie, Chief Executive Officer, Australian Payments Network to discuss how collaboration and the adoption of those technologies should be customer led.
Banks had been leapfrogged by the tech giants in innovation, while they were dealing with their post financial crisis strategic challenges. They are now catching up, said Spiegel. But these institutions should not wait to see what new technology comes in and then decide what to adopt and who to partner with. The reason for this is simple: something phenomenal is happening with the rapid evolution of technology creating a level playing field for everybody, and providing lots of access for interactions with clients that have never been possible before. The time to act is now.
Old with the new
The balancing of legacy and new technology was also discussed. New tech rails have come up, but it’s a question of how they will work with legacy infrastructure, which is still used extensively. Illustrating this, George reminded the audience that the infrastructure for cheque processing is still being used, with about 18 billion cheques moving through the system.
Spiegel explained that some legacy is always required even if for the simple reason that it creates opportunities to have some connectivity with APIs. The way payments and settlement are done won’t change but the communication with customers will change a lot. “The challenge is that we don’t know where payments are going to land but the good news is that we are working with the fintechs and offering the same services as they are on a retail basis.” Examples of working together to overcome this challenge were explained in a whitepaper titled Piecing together the global payments puzzle.
Echoing the words of Mark Twain, who said that reports of this death were greatly exaggerated, Spiegel said that the threat of complete overhaul of the banks by the fintechs were “greatly exaggerated”. “Instead, the industry is now in a connected ecosystem that will drive a better environment. We need everybody’s support and help in the future.”
And this includes the regulators’ visibility of the payment system because new technologies and incumbents also carry a risk. If a wallet provider suddenly disappears there is a different challenge to protect the customers, said Spiegel. “It’s about how technology is going to change future customer demands, so we need to work with regulators to create a collaborative environment.”
Secrets of success
To that end, it’s less about whether fintechs or banks will dominate the space but there are a few characteristics of success: those who own the front end of the customer relationship, those who are agile and can respond to customer demands and those who use artificial intelligence, machine learning and are able to store, manage and manipulate data in a meaningful way.
What are corporates demanding? Instant payments are important in the ecommerce environment. It keeps customers super happy. But it needs collaboration between banks and fintechs to add value since 50% of corporate customers want to work with fintechs, but they want a bank to help choose them. “Corporate treasurers cannot easily incorporate a fintech, so we go to them and say here is the trust element we can provide,” said Spiegel. Echoing his article in the Sibos Insider newsletter, where a survey conducted with the Economist Intelligence Unit revealed that corporates value trust and safety over speed, he said that these customers are more likely to use a fintech if incorporated within a bank’s platform.
Spiegel explained this preference in a flow article: Most of the fintechs provide innovative and sound solutions but in narrow fields. Yes, in theory treasurers could replace a transaction bank, but they would need to onboard a multitude of fintechs, or work with a large technology player to cover off the equivalent services. If a provider ended up consolidating all these services onto one platform, it would then resemble and function as a bank, and may get regulated as such.
In that article he indicated that corporates are looking to the banks to design and influence solutions that give them the right experience and called on banks to on-board the right players, provide connectivity and work with other banks in areas where there is no competitive advantage.
The future is now, concluded Spiegel. “Expect the unexpected all the time. Create scenarios and engage in the developing new ecosystem.”