Do you think the last 12 months have been positive for the payments industry? What progression have you seen?
It’s been positive. Payments are moving along on a couple of important fronts. Firstly, there’s greater adoption of standards; so that we can have a common payments language, at least at a technological level, because there’s no competitive advantage to having proprietary protocols. If proprietary protocols add anything, it’s friction and costs, which is why a deeper adoption of ISO 20022 is very important.
Secondly, another point of progression towards greater success is a further acknowledgement of the value of real-time in terms of payments. In mandated areas, such as the UK, or Australia, for example, the value is not the issue, the need to comply is the issue—it’s the need to do what the regulator has asked you to do in terms of making real-time payments a reality.
In markets where it is not such a strict regulatory requirement, the value is a little more suspect because of challenges in terms of monetising this type of service. As an industry we should accept that the move to real-time payments is inevitable, whether by mandatory mandates or through market forces and work to turn real-time investment into ongoing revenue streams. That’s the consistent language that I hear from banks around the world.
Do you think there is a need for more collaboration in the payments industry?
If we have the technological capabilities to move funds and settle in real time, or something close to it, why don’t we? It’s because in markets where real-time is optional and where the regulator is not requiring it, it is more difficult to justify the journey because of the costs involved.
We have seen a number of bank customers go to other banks or competitors if real-time is not available. It is important that banks work with partners to analyse how they can create services that sit on top of a real-time network.
There is an increased willingness to have discussions between banks and fintechs to analyse how they can serve the market better. The fintechs certainly have cutting-edge thinking and very specific technologies that answer individual questions extraordinary well. The banks have the reach, as well as the technological capabilities in terms of uptime, security, and compliance.
The financial services industry needs to devote more attention to these types of partnerships to enable banks to meet the needs and requirements of their customers, their regulators, and their shareholders. In terms of collaboration, knowing where to start can be the biggest problem and knowing your customer base is also extraordinarily difficult.
Our research on the consumer side indicates that consumers don’t always value loyalty reward schemes. What they are looking for is advice on how to spend less, save more, and how to repay debt more quickly. Solving individual use cases like that is where banks and the fintechs really need to focus.
What is CGI working on in terms of payments?
On the services side, we are working with a fintech named OrdoPay to provide real-time request to pay capabilities. We’re able to go to market as a trusted party, and help financial institutions’ business cases and understand the value of these types of offerings in a real-time world because the banks are paying for the infrastructure, and it is incumbent upon them to figure out how they are going to profit from it. That may sound negative, but any organisation has the right to earn an appropriate fee from the services they provide. Quite frankly if they are providing good services and figure out the best ways to leverage and monetise these services then this could be the best solution. These are also the types of services the regulators are looking for—services that meet market needs at a reasonable price.
On the infrastructure side, we have our payment hub offering- and this market is maturing right now. In the last few months, we’ve been seeing a number of banks that have started the payment hub journey question the value of their investments.
From our experience and knowledge of the industry, this may be because they haven’t changed their back-end processes to adapt to the capabilities of that infrastructure or because they haven’t taken full advantage of what the technology available can do. I chair our Advanced Analytics Working Group and as part of that effort, I am helping banks to take advantage of all the rich information that is already in the payments data to help them answer key questions around new product opportunities, as well as address operational issues like liquidity concerns. The goal is to start small–understand what question you are looking to answer, and then deliver a proof of concept to better understand what can be done to create value for the organisation.
Are financial institutions looking at cybercrime prevention enough? Should there be legislation in place around cybersecurity for financial institutions and the financial services industry?
In financial services, you’re safeguarding the assets and identities of millions of customers. Trust is your primary stock and protecting that customer information is key to creating and preserving this trust. In the banking world, the bigger you are, the more attractive a target you are. The good news is that larger banks also have more resources to devote to cybersecurity, allowing this to focus on activated ranging from creating an effective cybersecurity programme to applying patches and testing network applications for vulnerabilities.
One of the questions that keeps coming up is “should we have legislation, or are standards enough?” Standards, like the ones that the National Institute of Standards and Technology (NIST) and others have created clear guidance on the steps that should be taken to protect organisations from cyber threats. And, these standards could well serve as the foundation for legislation, just as ISO 20022 provided much of the technical underpinnings for SEPA.
However, truly “global” legislation has always been a challenge. The more likely approach is that local legislation, or even regional legislation could seek to create minimum standards for financial services institutions to adhere to. The good news is by and large the local regulators have cybersecurity as part of their exams and audits, to make sure there is at least some form of governance in place on this topic.
It could be better but the information security world tends to do a very good job of sharing information amongst institutions because it is a common goal, if not a requirement, at a regulatory level or bank mandate level to protect the customer and their assets and therefore protect the brand.
Do you think there is a lack of innovation within the payments sector? If so, what can be done to improve this?
There’s no end to the technology advancement or the number of payments offerings year after year, but it can always be improved because not every idea is a good one. Effective innovation is a lot more than just bringing in a new shiny object—it’s about creating value. However, many institutions are uncomfortable with innovation because they’re not sure exactly how to utilise it, so they don’t necessarily use it well. That can be a true tragedy as there are a lot of opportunities that are missed as a result.
Innovation, especially on the corporate side, has been bred out of financial services because they’ve been told to create short payback periods rather than take risks, and innovation is all about risk, albeit risk that can be managed effectively. It’s all about trying out new things. It’s learning to walk again, or at least learning to walk differently.
To make it work, you need to put guidelines in place with purpose and governance, questioning the business model– “is this what we’re supposed to be doing? Can this help us in any way, shape, or form? What are we going to learn and can we monetise it? What can we learn from ourselves?”
It’s important to keep records of what you’ve actually done. You can learn from what you’ve done in the past—learn from your mistakes—to make it better, faster, learn what to do, and what to avoid. Keeping those records helps identify long-standing problems and codify proved approaches to recurring problems. Articulating what problems you’re looking to solve helps put a layer on top of innovation to give it meaning, to give it purpose and put it in the right direction.
It takes some work—it takes pushing everybody out of their comfort zone. Getting a bright, young developer to talk about the business application of specific technology can be just as challenging as asking a long-time bank executive to articulate the next trend in Person to Person and how they are going to make money out of it.
These types of conversations are often generational and go across departments and responsibilities. Being able to capture and leverage the information shared in these conversations is very important.
What are your predictions for the next 18 months in the payments sector?
Making sure that innovation continues even at a time of geopolitical struggle is going to be very important because the banks that can continue to innovate when times are bad are going to be in a much better position to take advantage of those ideas and projects that flourish when times are good. Banks can teach discipline and market focus to the fintechs but the fintech can teach resource constraint to the banks. From the point of view of resource constraint, the question is: how much can I squeeze out of a minimal investment that would make everyone more creative and outcome-focused?
Innovation without focus is expensive, innovation with focus can be income. If a bank applies focus to their innovation efforts, they are much more likely to succeed.
