Day two of Sibos 2019, 24th September 2019, very much echoed many of the thoughts expressed during the first day of the conference. The recurring themes talked about artificial intelligence, machine learning, open banking, regulatory compliance and the need to improve the speed of instant, real-time payments. Achieving this goal is no easy feat. There are opposing forces at play, which are affecting the ability of banks to align compliance needs with real-time payments.
The conference’s synopsis for the morning session about this challenge accepted that the payments landscape is rapidly changing. It therefore claims that “banks now need to balance their customer demands for speed with regulatory demands for financial crime and risk controls.” It was also argued that the focus should also be on improving the customer experience of instant payments. The hope is that newly emerging technologies will provide an answer. However, it raises the question: “How ready is the industry to embrace this problem?” There was much discussion about how the payments landscape is likely to change in the future with regards to compliant, real-time payments.
The ‘Opposing Forces’ panel included some esteemed speakers; such as Nilixa Devlukia, Head of Regulatory at Open Banking; Marion King from Payments Natwest; Jocelyn Norval, Interim Global Head of Screening at ABC Barclays; and Patricia Sullivan, Global Co-Head of Financial Crimes Compliance at Standard Chartered Bank. They argued that open banking is changing business models to the extent that processing real-time payments is now about the seamless integration of data.
The members of the audience, 33% of whom are responsible for compliance, fraud or risk management, were asked: “How do you approach real-time systems from a compliance perspective?” The delegate poll revealed that 88% of delegates agree that “Business and Compliance are teaming up to define how to best address the challenge.” A further 13% of the audience said that they “Don’t differentiate from any other payments systems.”
The panel, like other speakers during the second day of the conference, also touched on the role of artificial intelligence and machine learning. Given data volume growth ‘AI’ and ‘ML’ are becoming essential tools, but they are in no way meant to replace human employees. With compliance being concentrated on matters such as Know Your Customer and anti-money laundering (AML), as well as on other regulatory issues, the panel revealed that “machines are being trained to know false positives with the real-time screening of payments.”
For now at least, those systems can’t think for themselves. Many people think that AI and ML means that automation is instant, but like a child, machines that are given a cognitive capability need to be trained, and often programmed, to be able to do certain big data analytical tasks effectively and efficiently. It was therefore argued that both machines and humans make errors, and yet the banking and payments industry is often finding it hard to explain this to regulators. However, regulators are keen to work with all its players as it’s about sharing best practices – including the need to place security at the core of real-time payments and data management. Regulators are therefore often found to host sandboxes to demonstrate their good will to get to the same place safely and securely.
The audience were asked to respond to another poll question: “What [issues] do you think the introduction of SWIFT gpi and real-time payments systems will cause for compliance?” The response showed that 65% of the audience feel that it’s an opportunity that will force the industry “to consider new and more efficient approaches to deliver on both objectives.” A further 20% of the delegates attending this panel session thought that it will “cause complexity to the extent that they feel they may not be able to process payments in real-time while meeting their financial crime regulatory obligations”. Interestingly, another 15% of them think that “nothing will change”.
There is nevertheless a need to consider the roles of technology, processes and people. Standard Chartered Bank, for example, has hired military personnel to bring “great skills to the bank” – including data science and analytics. The panel also argued that there is a need to educate customers, so that they embark on the faster payments journey. The key to this is about leveraging data while promoting open banking from which customers will derive significant benefits.
Future of Banking
The next panel looked at the ‘Future of Banking’. It was felt that core infrastructure, even in an era where cryptocurrencies are being adopted, must come back to central banks. Proponents of ‘everything crypto’ believe that the future shouldn’t require central banks. They believe that their role as regulators is no longer needed, given the claims about the efficiency and security of blockchain technologies and smart contracts. Critics of blockchain and crypto-currencies argue that there is a need for central banks which underpin traditional FIAT currencies.
No matter which view you support, the panel from organisations such as TransferWise and the Bank of England, agreed that there is much need for innovation. Real-time payments must be at the heart of it, and so this requires the creation of resilience, future-proofing and an ability to use a phenomenal amount of data that is created from payments transactions. One panellist went further to suggest that there is a real opportunity to lower costs for the customer with real-time payments. This will be achieved by involving non-banking players, such as fintechs and tech companies, in the innovation process. It was also suggested that faster payments could be given a premium packaging for certain types of customers, allowing for a higher transaction price to be paid. The key to knowing what to do relies upon knowing where the industry, or particular banking and payments organisations within it, wants to go – and, crucially, whether that’s what customers want without threatening.
Financial and Social Inclusion
With financial and social inclusion, and mobile money such as MPESA in mind, the panel agreed that there is no need to tie payments to bank accounts. This is because technology is creating many new opportunities that will enable those that can’t or don’t have access to a bank to feel value and be included within the payments ecosystem. However, while there is a no need to focus on bank accounts in the way financial institutions have done in the past, there is still a requirement to ensure that all systems involved with fulfilling real-time payments are interoperable. Without interoperability it becomes impossible to increase the speed of real-time payments.
With AI and ML being highlighted as tools that will offer significant benefits, including for the automation of payments processing and regulator compliance, speed is of the essence. Systems must become intelligent and fast enough to detect anomalous behaviours or transactions, for example, fraud. There is no point having a system that detects fraud the next day. This must happen on the fly. Consideration therefore needs to be given to how the development of AI, ML, infrastructure, product development, project management, legal, H.R, and operations will ensure it all operates effectively as well as efficiently.
Potential of ISO 20022
In another session, there was also a discussion about how to unlock the potential of ISO 20022, which iso20022.org describes as being: “a multi-part International Standard [and] a common platform for the development of messages.” This includes a modelling methodology to “capture in a syntax-independent way financial business areas, business transactions and associated message flows.” It also provides a central dictionary of business items used in financial communications (e.g. payments). Elena Whisler, Enterprise Product Management at FIS, says it’s important to realise that a format is just a format. “You have to leverage the data to monetise it”, she argued before adding that the standard provides flexibility with its format, leading to cost-savings. Yet she says, “You have to have the data there to do the payment reconciliations.” To take advantage of this SWIFT cross border payments are moving over to ISO 20022. This raises questions, such as: How are you going to manage the migration?, what challenges might you have to confront?, and how will you store, access and use the data? These questions need to be answered to ensure faster, real-time payments can occur. It’s therefore not just about compliance, but about the opportunities payments data can provide.
Monestation of Payments
In the Fiserv/Finextra Payments Transformation Research session, it was revealed that 57% of survey respondents think that the monetisation of payments information will become a revenue stream, and there is also a demand for banks to offer more self-service capabilities for payments. To achieve must of this, automated payment routing is required, and this necessitates banks being aware of the implications of ISO 20022. Thankfully, most respondents say they are aware of the SWIFT gpi implementation dates. Beyond this, it’s felt that there are business cases for payments transformation. However, this will require change now in order to remain relevant in the foreseeable future.
Thankfully, cross-border payments are getting faster. In a panel session featuring experts from organisations such as the Bank of England, Deutsche Bank, and InstaRem, it was revealed that the fastest cross-border instant payment was completed within 13 seconds. There are more connections between systems today, making such results as this possible. Singapore, Australia and in Europe are working hard to make real-time payments even faster. Despite a promising future, it remains difficult to predict how volumes for instant payments will increase. There is also a need for a clear rulebook for instant payments, matching what’s already available for domestic instant payment schemes.
On the merchant-side, it would improve communication with customers if a payment notification was delivered to merchants to complete the delivery of any goods or services that have been purchased. Batch-processing of payments is also crucial. Organisations with 1,000 employees don’t want to have to make 1,000 individual payments. Faster, real-time payment systems therefore need to have a batch-processing capability to ensure that the need for speed is delivered.