The future’s bright
27 April 2016
Delegates looked to a future of fintech at the SWIFT Business Forum
Image: Shutterstock
Gathering at London’s Tobacco Docks, delegates at the SWIFT Business Forum wholeheartedly embraced the conference’s ‘build the future’ theme, predicting a financial technology industry as sunny as the spring weather.
Eileen Burbidge, a partner at Passion Capital and the fintech envoy for the UK Treasury, went as far as to say that financial services technology and ‘fintech’ will be inseparable in a decade.
Burbidge said that, by 2026, any financial service provider will be a ‘fintech’ and “we won’t be talking about it as a separate thing”. She also argued that, actually, fintech is nothing new, saying: “Financial services … has always been a leader in technology.”
While service providers used to be the only innovators, they are now seeing more external influences on the market, and demand for technology is coming directly from users, rather than from within institutions.
Burbidge suggested that the industry should be working collaboratively, and that this is an achievable goal. She described an “ecosystem” where everyone is “working together to move the financial services industry forward”.
While some of the most ambitious entrepreneurs and best value propositions are in the fintech space, Burbidge pointed out that innovations around settlements or reconciliations still cannot be realised without the help of a bank. Equally, banks would not be pushed to innovate if start-ups were not around to put pressure on them.
In the conference opening address, Javier Pérez-Tasso, CEO of SWIFT for the UK and the Americas, also honed in on the advantages of collaboration, pointing out that innovative start-ups do not have the same power of distribution as the big players. He suggested that firms should find a way to combine innovative new technology with a large client base.
Pérez-Tasso also highlighted London as one of the most active hubs for fintech, saying that the fintech phenomenon is happening everywhere but is “particularly strong in the UK”.
He added, however, that it is still unclear who the eventual winners in this area will be. Comparing the competition in the industry to the London Marathon, he said that as more and more entrants join each year, it becomes harder to pick out the probable winners.
In a panel discussion, speakers suggested that, whoever comes out on top, financial institutions and industry bodies alike will have to adapt to the new payments landscape. Andrew Hausner, executive director for banking, payments and financial resilience at the Bank of England, said that central banks have to pursue their market stability mandate without jeopardising innovation in payments.
A tall order, and one that will force them to adapt to ensure they do it properly. “Change is going to happen, whether we like it or not,” he said.
Hausner went on to say, however, that innovation doesn’t necessarily always undermine stability. Too little competition can mean the market gets too concentrated, while innovation when, “properly channelled”, can actually improve stability. He said: “If there is one thing a central bank has to do, it’s keep a grip on stability.”
Blythe Masters, CEO of Digital Asset, said she was representing the “part of the industry that’s allegedly here [at the SWIFT Business Forum] to eat everyone’s lunch”.
While conceding that some may view her as “the disruptor in the room”, she said: “That’s really not the way I see it.”
Disruptive technologies like blockchain, in which Digital Asset is a major player, having bagged mandates in the US for repo and Australia for equities, represent both risk and opportunity.
Risks exist because the focus on return on equity has materialised at a time when rates, spreads and liquidity are all low. At the same time, Masters said, costs have been rising consistently, driven by new regulatory compliance requirements. But not embracing innovation could put firms at risk of being left behind competitors that are unburdened by legacy infrastructure and regulation.
She went on to emphasise that blockchain technology is all about the ability to share and mutualise common infrastructure, and the possibility to eliminate significant post-trade cost. Often, she said, the alternative would be to exit certain spaces altogether.
In a later panel on real-time payments, speakers were asked about the benefits of faster payments in the UK, and the benefits they could bring to customers.
Becky Clements, head of industry engagement and payment change at challenger Metro Bank, argued that introducing real-time payments is important for new entrants, in order to allow clients the same benefits as the legacy banks. She said: “There will never be real competition until challenger banks … are able to give their customers the same experience as the big banks.”
Representing HSBC, however, Thomas Schickler, managing director and global head of product management for global payments and cash management, argued that despite the opportunity, real-time payments also brings some concerns. Schickler said that global banks tend to do their own clearing, and that the cost to connect to a wider network for the first time is considerable.
Harry Newman, head of banking at SWIFT, which has been mandated to implement a faster payments system in Australia, agreed that national real-time payments implementation is an expensive and time-consuming project. He added, however, that it is more than just building real-time payments—it is about modernising the entire retail industry.
If payments use the ISO 20022 messaging format, this can allow for transfer of richer data, creating “a structure that allows innovators to build on top”.
Once the basic system is in place, then other players, both banks and non-banks, can use the secure ‘rails’ to build additional services, Newman said, adding that this approach is likely to become “the norm”. When asked about real-time cross-border technology, Newman pointed out that, although there are challenges around time zones and currencies, SWIFT is exploring this space—primarily through its Global Payments Initiative, which is focused on “bringing correspondent banking up to date”, by making it more transparent, bringing same-day value to clients, and improving traceability.
While Schickler stressed that HSBC is supportive of the work SWIFT is doing in this space, he also noted that there could be “unintended consequences” of moving a lot of liquidity to real-time mechanisms. He questioned whether there is a demand for real-time cross-border payment, asking: “What are the use-cases for a cross-border instant payment? What problem does that solve? And who is clamouring for it?”
Eileen Burbidge, a partner at Passion Capital and the fintech envoy for the UK Treasury, went as far as to say that financial services technology and ‘fintech’ will be inseparable in a decade.
Burbidge said that, by 2026, any financial service provider will be a ‘fintech’ and “we won’t be talking about it as a separate thing”. She also argued that, actually, fintech is nothing new, saying: “Financial services … has always been a leader in technology.”
While service providers used to be the only innovators, they are now seeing more external influences on the market, and demand for technology is coming directly from users, rather than from within institutions.
Burbidge suggested that the industry should be working collaboratively, and that this is an achievable goal. She described an “ecosystem” where everyone is “working together to move the financial services industry forward”.
While some of the most ambitious entrepreneurs and best value propositions are in the fintech space, Burbidge pointed out that innovations around settlements or reconciliations still cannot be realised without the help of a bank. Equally, banks would not be pushed to innovate if start-ups were not around to put pressure on them.
In the conference opening address, Javier Pérez-Tasso, CEO of SWIFT for the UK and the Americas, also honed in on the advantages of collaboration, pointing out that innovative start-ups do not have the same power of distribution as the big players. He suggested that firms should find a way to combine innovative new technology with a large client base.
Pérez-Tasso also highlighted London as one of the most active hubs for fintech, saying that the fintech phenomenon is happening everywhere but is “particularly strong in the UK”.
He added, however, that it is still unclear who the eventual winners in this area will be. Comparing the competition in the industry to the London Marathon, he said that as more and more entrants join each year, it becomes harder to pick out the probable winners.
In a panel discussion, speakers suggested that, whoever comes out on top, financial institutions and industry bodies alike will have to adapt to the new payments landscape. Andrew Hausner, executive director for banking, payments and financial resilience at the Bank of England, said that central banks have to pursue their market stability mandate without jeopardising innovation in payments.
A tall order, and one that will force them to adapt to ensure they do it properly. “Change is going to happen, whether we like it or not,” he said.
Hausner went on to say, however, that innovation doesn’t necessarily always undermine stability. Too little competition can mean the market gets too concentrated, while innovation when, “properly channelled”, can actually improve stability. He said: “If there is one thing a central bank has to do, it’s keep a grip on stability.”
Blythe Masters, CEO of Digital Asset, said she was representing the “part of the industry that’s allegedly here [at the SWIFT Business Forum] to eat everyone’s lunch”.
While conceding that some may view her as “the disruptor in the room”, she said: “That’s really not the way I see it.”
Disruptive technologies like blockchain, in which Digital Asset is a major player, having bagged mandates in the US for repo and Australia for equities, represent both risk and opportunity.
Risks exist because the focus on return on equity has materialised at a time when rates, spreads and liquidity are all low. At the same time, Masters said, costs have been rising consistently, driven by new regulatory compliance requirements. But not embracing innovation could put firms at risk of being left behind competitors that are unburdened by legacy infrastructure and regulation.
She went on to emphasise that blockchain technology is all about the ability to share and mutualise common infrastructure, and the possibility to eliminate significant post-trade cost. Often, she said, the alternative would be to exit certain spaces altogether.
In a later panel on real-time payments, speakers were asked about the benefits of faster payments in the UK, and the benefits they could bring to customers.
Becky Clements, head of industry engagement and payment change at challenger Metro Bank, argued that introducing real-time payments is important for new entrants, in order to allow clients the same benefits as the legacy banks. She said: “There will never be real competition until challenger banks … are able to give their customers the same experience as the big banks.”
Representing HSBC, however, Thomas Schickler, managing director and global head of product management for global payments and cash management, argued that despite the opportunity, real-time payments also brings some concerns. Schickler said that global banks tend to do their own clearing, and that the cost to connect to a wider network for the first time is considerable.
Harry Newman, head of banking at SWIFT, which has been mandated to implement a faster payments system in Australia, agreed that national real-time payments implementation is an expensive and time-consuming project. He added, however, that it is more than just building real-time payments—it is about modernising the entire retail industry.
If payments use the ISO 20022 messaging format, this can allow for transfer of richer data, creating “a structure that allows innovators to build on top”.
Once the basic system is in place, then other players, both banks and non-banks, can use the secure ‘rails’ to build additional services, Newman said, adding that this approach is likely to become “the norm”. When asked about real-time cross-border technology, Newman pointed out that, although there are challenges around time zones and currencies, SWIFT is exploring this space—primarily through its Global Payments Initiative, which is focused on “bringing correspondent banking up to date”, by making it more transparent, bringing same-day value to clients, and improving traceability.
While Schickler stressed that HSBC is supportive of the work SWIFT is doing in this space, he also noted that there could be “unintended consequences” of moving a lot of liquidity to real-time mechanisms. He questioned whether there is a demand for real-time cross-border payment, asking: “What are the use-cases for a cross-border instant payment? What problem does that solve? And who is clamouring for it?”
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