Fintech Finance presents: The Paytech Magazine Issue 11 by Fintech Finance

ISSUE 11

THE It just got personal Why tomorrow’s PSPs need to know users’ every desire – before they do

Hedg ging g their bets How Western Union Business Solutions is turning risk into green opportunities

Pains and gains

Reaping the benefits of ISO 20022 – without putting your bank under the knife

The wake-up call the West needs to make sanctions watertight

Bigg gger and better? The challenges and threats in scaling your super-app

STOP! Payments

on the front line

INSIGHTS FROM DIGITAL RIVER ● TRULIOO ● CURRENCYCLOUD ● CURVE ● WORKATO ● MAMBU UBS ● VOLANTE TECHNOLOGIES ● INTERCOPE ● PPS ● ICON SOLUTIONS ● STANDARD CHARTERED

2022

NEW NORMAL, NEW FORMAT PFF Communities continues in 2022 parisfintechforum.com

CONTENTS PAYTECH FOCUS 21 Payments: the path to peace? Payments have been on the front line like never before. But could the West’s response to war in Ukraine strengthen its arsenal in repelling a wider assault on the integrity of the financial system?

34 The curtain call Adam Smyth from NatWest, Pay.UK’s Simon Brooks and Louise Shorthouse from Icon Solutions, on why Request To Pay is still waiting in the wings

49 Payments’ blockbuster moment? Could PSPs be about to follow the likes of Netflix, offering customers an experience they don’t even know they want yet? We ask Workato’s Jonny Gaffney and Neil Drennan from Currencycloud

61 Where to now? It’s commonly assumed that COVID-19 sparked a dramatic directional shift in payments. But it was already happening, say Ray Brash from PPS and 11:FS’ Simon Taylor, as they predict more twists and turns

INNOVATION AND TRANSFORMATION 6

THEPAYTECHVIEW »

2022 ISSUE#11

Who could have predicted our focus would shift, in this latest issue, from how the payments industry is using technology to adapt to the post-pandemic world… to how it’s using technology to fight a war? If you, like me, have been glued to the news over recent weeks, you'll have seen how payments and the systems that underpin them have become our principle weapon in defence of besieged Ukrainians facing down the Kremlin’s military aggression. Our commentary on the industry’s role in the unfolding conflict in Eastern Europe features digital identity expert Trulioo on why this is the moment for governments to be brave – to follow through on sanctions threats and make sure there’s nowhere for persons of interest and their money to hide. Ironically, the war sparked a compassionate flow of cryptocurrency donations into Ukraine – ironic because it’s often maligned as the currency of bad actors and here was the first major demonstration of how alternative finance can play its part on the side of the good.

Away from the conflict, in this issue we show how transformation is gripping the sector, with developments from super-apps to green solutions, changing the world for the better. And, yes, we’re still talking about ISO 20022 – and particularly how to manage the transition by SWIFT, the behind-the-scenes financial messaging system that, thanks to the current conflict, everyone now knows about. Payments really are helping to shape a new world order. Our last issue’s spine tingler, 'I'm something of a scientist myself', is a quote uttered by the character Norman Osborn (played by Willem Dafoe) in the 2002 superhero film Spider-Man. Tracy Fletcher, Editor

11 Every Cloud…

While acquirers battle to maintain their share of a stormy market, Bill Farris of ACI Worldwide see blue skies ahead

49 Issue 11 | ThePaytechMagazine

The door to the future is open We empower financial institutions. We collaborate to innovate. We open doors for people, businesses and communities.

#OpenFinance

CONTENTS

41 52

64 14 Green shoots of change Western Union Business Solutions’ Alex Lawson and Sarah Leugers from the Gold Standard Foundation, believe payments and financial services can and should help save the world

CUSTOMER EXPERIENCE 38 See me, know me Modern payments need to service the needs of users, before even they know what they want, says Philipp Baecker, a partner in Bain & Company and Mambu’s Kunal Galav

17 PIX and mix It took less than a year for Brazil’s instant A2A payment tool to reach mass adoption. Edson Santos, Founder of Colink Business Consulting, and Eduardo Goni, Country Manager Brazil for ACI Worldwide, consider how the rest of the industry has responded

41 Holding on to the past? The notion of what a wallet actually is, has altered beyond recognition, and the biggest change could yet lie ahead, according to G+D’s Jukka Yliuntinen

45 Moving forward

NEW WORLD ORDER 26 Where the heart is Howard Moore from Mobiquity discusses the implications of working from home for the payments industry with Standard Chartered Bank’s Laura Cole and Jessie Danyi from Pleo

31 Digital handshake

UK lender TSB and Australia’s Sandstone Technology have both seen artificial intelligence come to the fore during one of the most volatile homebuying periods in history

RISE OF THE SUPER-APPS 52 Super-charged for the US

Embracing digital isn’t just an aspiration for B2B firms – it’s now a commercial imperative, say TreviPay’s Brandon Spear and Digital River’s Adam Coyle

As Curve prepares for a full launch in the States, Founder & CEO Shachar Bialick sets out why it will succeed in its super-app mission – and why others might fail

56 At your service They’re our virtual valets, poised to fulfil our every whim… we asked Gijsbert Pols from Adjust where the super-apps’ super-powers might take them next

ISO 20022 64 Major surgery… or is there a less painful way for firms to get their IT systems fit for ISO 20022? Elmar Handke, from UBS, and Volante Techologies’ Chris Stares, believe they’ve found the panacea

69 Out-of-the box thinking Despite years in the making, the migration of tens of thousands of participants in the world’s payments networks to ISO 20022 is proving infinitely complex. Intercope’s Andrew Muir, Daragh Kirby and Olaf Grossler, explore some of the consequences and offered at least one solution

THEPAYTECHMAGAZINE2022 EXECUTIVE EDITOR Ali Paterson GENERAL MANAGER Chloe Butler EDITOR Tracey Fletcher ART DIRECTOR Chris Swales

US CORRESPONDENT Jacob Bouer PHOTOGRAPHER Jordan “Dusty” Drew ONLINE EDITOR Eleanor Hazelton Lauren Towner ONLINE TEAM Lewis Johnson-Pitt Elvey Mensah-Afram

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ISSUE #11 FEATURE WRITERS Tracy Fletcher David Firth Martin Heminway Natalie Marchant Sean Martin Sue Scott Frank Tennyson

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Issue 11 | ThePaytechMagazine

INNOVATION & TRANSFORMATION: CREDIT UNIONS

State of the Unions Can America’s credit unions adapt their unique customer relationships to the digital age? They can and must, say Matthew Williamson and Ruby Walia of digital experience consultancy Mobiquity, and Cyrus Taheri, from Mambu Firstly, a quick history lesson. Credit unions (CUs) have roots stretching back to 19th century Germany, where the first rural cooperative saving and lending institution was started in 1864 by social reformer Friedrich Wilhelm Raiffeisen to help farmers collectively even out good and bad years. The first to be incorporated in the US was in New Hampshire in 1909 and the Massachusetts law that enabled it to happen was later used as the model for President Franklin D Roosevelt’s Federal Credit Union Act in 1934, which allowed CUs to be formed in all states to ‘promote thriftiness and prevent usury’ as part of his famous New Deal measures during the Great Depression. The now 5,000 or so not-for-profit and member-owned cooperatives, historically linked to an organisation or place, play a vital and significant role in the US economy, with latest estimates showing they have combined assets of $1.9trillion and some 125 million customers. But they now face challenges around the need to balance their traditional USPs of iron-clad customer relationships, embedded in their local communities, rock-solid trust and ultra-low operating costs, with increasing customer demands for ever-more digital capabilities, which have been accelerated further by the COVID-19 pandemic. Although there are some notable exceptions, there is a commonly held view that CUs are struggling to keep up with their banking peers when it comes to innovations. The 2020 American Customer Satisfaction Index showed credit unions’ rating falling behind the banks’ for a second consecutive year, and much of that disappointment was linked to the payments experience. That prompted Alloya Corporate Federal Credit Union, based in Naperville,

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Illinois, which provides services to 1,400 credit unions in addition to its own members, to launch Alloya Insights: Faster Payments community in February 2022. The network aims to help it and fellow CUs better understand the evolving landscape of faster and real-time payments ahead of the launch of the Federal Reserve’s FedNow instant payment service next year. By then, the Fed may well have come up with a strategy for a central bank digital currency – and crypto is another area of payments in which CUs trail. That’s not to say that the credit union community is backward or unwilling to evolve. For example, Alliant, an 86-year-old Chicago credit union with £14billion in assets and more than 600,000 members, has already added the ability to use digital payment apps like Apple Pay, Samsung Pay and Google Pay. Now, heeding further demands from its customers, Alliant has introduced an account supported by a contactless debit card, a mobile app and an online banking platform. And Leverage, a for-profit subsidiary of the League of Southeastern Credit Unions, has partnered with Los Angeles-based payment processor CheckAlt to roll out a loan payment app for users of its Leverage Payment Solutions. Benefits to CUs utilising CheckAlt include application programming interface (API) capabilities that allow for a direct integration into their core systems, enabling them to streamline the tasks of processing consumer loan payments and settling funds into a ‘one-stop shop for payment processing’. As the deal allows access to CheckAlt’s online payment app, LoanPay, customers of participating CUs can also set up their loan repayment plans. Matthew Williamson, global VP of digital experience consultancy Mobiquity, is convinced CUs can deploy their

The strength of CUs is the connection they have with their customers… the challenge is how they provide the digital capabilities that are so attractive to customers, while retaining that emotional bond Ruby Walia, Mobiquity

traditional values to flourish in a digital environment, and so offer their customers the best of all worlds. He says: “Credit unions have always had a really strong customer relationship. In our line of work, we talk about know your customer, not just in the regulatory sense, but in the sense of actually understanding your customer’s needs, wants, desires and what they’re going to do next. CUs ffnews.com

already have that relationship. Today, it’s about moving that from the physical to the digital, augmenting that relationship and moving it forward.” There is a significant reward awaiting those that can successfully achieve this. “If we consider that credit unions are often specifically tied to states and are not coast-to-coast providers of financial services, digital would potentially enable them to expand their scope and offer services to customers outside of their traditional network, as well,” adds Williamson. “So, there are a lot of elements attached to giving more access to digital

products, not least at a lower cost point, which they can pass on to customers.” Ruby Walia, a senior advisor for Mobiquity, goes a step further by suggesting CUs would also benefit from greater collaboration among themselves.: “Because credit unions tend to be bounded by state lines, their customers have a common bond and CUs are focussed on serving those communities. But, as customers move from one ffnews.com

geographic area to another, their ability to serve that customer sometimes drops. So, an area where they could easily collaborate is where one credit union hands off a customer to another credit union, and there could even be a commercial handshake in that,” he says. “You already see credit unions collaborating over back-end services, with common core banking systems or other platforms that they share. It’s a logical extension for them to collaborate on the front end, too. Banks have historically shared their ATMs, so is it that much of an extension for CUs to say ‘we’ll share some of our branch services’?” Cyrus Taheri, head of partnerships at banking-as-a-service platform

provider Mambu, says fintechs such as his are geared up to help CUs with their digital journeys. Giving a direct example, he says: “In Canada, one of our largest customers today is League Data, which offers aggregation, technology management and managed services for 46 different credit unions. Those CUs are jumping on the Mambu platform as we speak, and sharing that tech to allow for economies of scale.” The pandemic-fuelled demand for digital payments and other services has

left CUs in America at an ‘inflection point’, says Walia. They must act promptly or risk losing customers to those banks and other financial service providers that have been quicker to adapt, he warns. “The strength of CUs is around the connection they have with their customers,” he says. “But all of those customers, whether they’re consumers or businesses, have been going through a transition. Things are becoming increasingly digital. And, while the traditional CU customer loves the personalised service they get from credit unions, they’re looking at the digital capabilities that the bigger banks, with their greater funding pools, have been first to offer, and they are undoubtedly attracted by some of that.

“So, the challenge for CUs is how do they provide those same kinds of digital capabilities that are so attractive to customers, while retaining that connection and emotional bond they have with them?” Issue 11 | ThePaytechMagazine

INNOVATION & TRANSFORMATION: CREDIT UNIONS Williamson agrees that ‘we can take a lot of the parallels from traditional retail banking, and map that appropriately to the credit union-style customer’ in order to service those customers. Given the place they hold in the economy, though, failure to digitise doesn’t just risk customer attrition at the level of individual CUs; it could also have a knock-on effect on entire swathes of the country. Williamson points to agriculture, as an example. The industry has traditionally been supported by both state and federal-chartered CUs, many of which are involved in America’s Farm Credit System, providing financing and other financial services to rural businesses and individuals in the industry. ”The biggest agricultural producer in the US is California, which has annual revenues of $42.6billion,” says Williamson, ”while even Alaska – the smallest agricultural producer of the 50 states – posts annual revenues of $58million. “The numbers, if you add up all the 50 states, are staggering,” he says. “There are 21 million direct and indirect employees within the agriculture and food services industries, and that market has already started to digitise. Credit unions need to support that.

There is a lot of opportunity for credit unions to think beyond the traditional and actually enrich that member experience Cyrus Taheri, Mambu

“And, if you go back to the things we talked about earlier, about cross-state interaction and collaboration with other credit unions... agriculture is a multi-billion-dollar industry where credit unions already have an entry point, whether it’s servicing someone’s personal finances, chequing account, savings plans, etc, or lending through credit facilities for farmers and the food supply chain. It opens up the potential for credit unions to not just survive, but thrive, coast-to-coast.” Taheri points out that a move to a digital ecosystem will also allow CUs to expand their services beyond the areas

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in which they’ve traditionally operated – payments and savings. “I think there is a lot of opportunity for credit unions to think beyond the traditional and enrich their member experience. That also brings an opportunity for fintechs to understand the credit unions better, and be able to tailor some of their offerings for CUs’ market strategies,” he says. Walia agrees: “Community banks and credit unions, being smaller organisations, haven’t really participated as much in terms of leveraging fintech-developed capabilities, licensing those, embedding them in their products and making them available to their customers. “And I think this is a space where Mobiquity can really help to a) partner with them to understand what their strategy is and what capabilities would really work for their customers, and, b) help them to select the right fintech partners for that particular organisation – even help them with the implementation of that.” And not just financial technology, but any digital partner. Williamson, for instance, sees a future where technology such as AI will be able to produce sufficiently accurate data on a farmer’s future crop yields to influence decisions by agriculture-focussed CUs on loans and investment opportunities.

Banking on trust All three experts point out that CUs start down the path of digital transformation with a huge reservoir of community trust that has been banked over generations. That puts them in a good position as data, its security and responsible use becomes ever-more widely debated. “Trust is the foundation of being able to provide financial services,” Walia emphasises. “It is the word traditional banks have used for decades, centuries even, as a foundation for their relationship with their customers, and we’ve seen, in the digital landscape, social media companies that played fast and loose with their trust, have suffered financially and otherwise. “When you’ve got that much data – and the metaverse is going to make more and more of it accessible and usable – then the trust factor becomes even more important. “If organisations are transparent about what data they’re collecting and how they’re using it, and make it clear that

they’re using it for the customer’s benefit, not just their own, the customer then feels good about the relationship with the financial provider. And the reality is that these digital interactions can be just as emotionally satisfying as physical ones, when it comes to financial providers and their customers. “The ability to know a customer’s context, where they are, what they’re doing, what services they need, and then be able to offer them those services, remotely, is fantastic; it’s like having a banker follow them around, enabling all these real-world experiences because the data, and the computing capabilities in the Cloud, enable that.” Taheri adds that third-party providers like fintechs must also be firmly locked into that chain of trust.

The pace of change is relevant, to a point, but it’s actually about ‘do you understand your customer?’ Matthew Williamson, Mobiquity

“Trust extends beyond the walls of the institution to the partners, and the partners need to be evaluated and also held to those standards,” he says. “If you are a credit union that is able to find an ecosystem that you trust, and that is really going to add value, then you will be able to create those great touchpoints. Creating that interaction with the customer on a frequent and valuable basis then allows you to maintain trust throughout their journey. “The ecosystem of collaboration is going to be key,” adds Williamson. “We’ve seen it in various regions, across retail and commercial banking. So, it’s a lesson learned. Credit union groups could take those learnings and cherry-pick the best collaborative partnerships from key players; really drill down and manage those efficiently, and get the best value for their customers. We’ll see more and more acquisition of clients that way, I think, through ecosystems, collaboration and platforms. We’re going to see opportunities, cross-industry and cross-vertical, and therefore more revenue opportunity for the credit unions.” ffnews.com

INNOVATION & TRANSFORMATION: CLOUD High performance: Only one technology can adequately manage spikes in transaction demand, says ACI’s Bill Farris

The pandemic tested Cloud’s metal to the limit, paving the way for innovation, including increased consumer checkout choice. While acquirers battle to maintain their share of a stormy market, Bill Farris of ACI Worldwide sees blue skies ahead Cloud was the lifeline that allowed businesses to survive the shock of the COVID-19 pandemic, facilitating homeworking, video conferencing, collaboration and the rapid scaling of IT systems. And now, as tremors in the global supply chain make further disruption seemingly an ongoing fact of life, payments will continue to grow and develop on Cloud infrastructure, says Bill Farris of payments solutions software provider ACI Worldwide. Harris, who heads ACI Worldwide’s acquiring product line, gives an example of the societal behaviour changes Cloud is helping to facilitate. “Let me use restaurant takeout as a stress-testing example,” he says. “Five years ago, it was probably pretty common for me, when I was getting takeout for the family for dinner, to show up at a restaurant, order from their menu, pay by card, through a terminal, wait for my food, then bring it home. These days, I’m ordering through a mobile app, on the restaurant’s website. I might be calling ffnews.com

them and giving my credit card number over the phone, and, when I show up, I’m just picking up my food and leaving. “So, a lot of different use cases have changed, including the flow of how merchants are taking both the order and the payment from their customers, and these changes are going to stay with us long term.” Much has been written about the changes in consumer behaviour that pandemic lockdowns ushered in, but they also affected corporate thinking. COVID proved that Cloud solutions were both resilient and stable, and could provide a platform for continued innovation. And Farris adds that the rapid shift in consumer expectations prompted by the pandemic, is also impacting on roles in the payments delivery chain. “Resilience and stability are must-haves, so Cloud services are critical infrastructure for banks, acquirers and merchants,” he says. “But agility is also now a key factor, because acquirers are creating new payment experiences for customers to react to our fast-changing environment. And, without agility, it’s very difficult to

deliver these experiences as quickly as the market wants them. Cloud transformation makes all of that a lot easier; if done well, you can minimise the resources needed to deliver these new experiences.” And this is prompting additional Cloud investment across the financial services industry. A recent survey by global technology and management consultancy, Capco, and global IT, consulting and business process services company Wipro, called Cloud’s Transformation Of Financial Services, discovered that increased future revenues (62 per cent) and improved future profitability (52 per cent) are key drivers of Cloud deployment. The report re-examined financial services data collected by Wipro for its 2021 global survey Making Business Thrive: A Cloud Leader Roadmap for Achieving 10x ROI among C-suite executives representing banking, insurance and capital markets (including wealth advisory and asset management), to identify key trends and opportunities ahead, and shared insights about how financial services businesses can become Cloud leaders. Issue 11 | ThePaytechMagazine

INNOVATION & TRANSFORMATION: CLOUD One recent example of an individual firm engaging in such investment, is Allied Irish Bank (AIB). One of the country's big four, it recently announced a €65million deal with IBM to build on the bank’s existing Cloud capabilities using IBM’s next-generation z15 platform, which promises better security and resilience to manage both traditional operations and new digital services.

MANAGING THE SURGE ACI is a giant of the real-time payments world and handles upwards of 225 billion consumer transactions each year for players like this. Its Fast Start Acquiring pledge is geared towards helping providers keep up with the increasing competition in this space by providing them with super-fast

Surge mentality: Cloud can help normalise sales spikes

technical certification, using a Cloud platform hosted by Microsoft Azure. “We had clients that were on an eight-to-12-month cycle to stand up a new implementation, from contract signing to getting ready for payment scheme certification,” says Farris, “and we were able to compress that down to less than 100 days. “An acquirer can use our Fast Start Acquiring programme as one of the vehicles to help them with their Cloud transformation journey, since it allows them to get to revenue sooner and reduce costs along the way.” Farris says ACI witnessed a 300-per-cent increase in e-commerce in the UK during the first COVID lockdown, and spikes in demand have continued ever since. “Supply chain shortages are driving spikes that are very sudden, and the

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environment and infrastructure that’s processing payments has to be ready to handle those spikes,” he explains. “For instance, if you’ve tried to buy a video games system recently, you’ll know that both the major suppliers launched new platforms 18 months ago, but retailers still don’t have stock. When a retailer does get in a limited supply, it sells out in seconds, compared to normal transaction pattern. So, being in a Cloud environment that allows for rapid acceleration of capacity, is critical for them.“ Payments systems need to handle spikes such as ticket sales for an event, or the launch of a hot product, but then there are the traditional retail surges such as Black Friday, Cyber Monday, Singles Day in China and Amazon Prime Day,

However, Farris adds a note of caution, urging organisations to take steps to maximise the benefits of a Cloud migration and not simply replicate what was already there: “If you’re taking a legacy application and infrastructure, and migrating that to the Cloud, the data’s not going to look the same when you implement it in a Cloud service,” he says. “You frequently have to take legacy applications and decompose them into microservices, or smaller, more agile pieces of code. If you’re going to plan a Cloud transformation, it shouldn’t just be about shifting what already exists in your legacy application up into the Cloud – you should have a roadmap for new functionality. “On a practical level, an evaluation of the people you have currently working on your legacy application is also important. Do you have the right skillsets in the team? Do you need to augment them? Do you need to retrain, and spend some time with, the people involved? “Dealing with all of those points, in a plan, sets you up for some success, because, if you’re not getting more from your Cloud-enabled solution, then you’re losing an opportunity.” And there is one further trend that Farris highlights as having been made possible by Cloud services. More and more merchants are using multiple acquirers to process payments, again increasing competition – particularly for legacy

Acquirers are creating new payment experiences for customers to react to our fast-changing environment, and without agility it’s very difficult to deliver these experiences as quickly as the market wants them Bill Farris, ACI Worldwide which are more predictable examples of the need for flexibility. “These demand spikes are continuing to evolve and grow,” says Farris. “When we looked at our data after Prime Day in 2021, for example, we saw an 18 per cent increase on the previous year. “With activity spikes such as Black Friday, you can see a point on the horizon, you know when it’s coming. But there are so many other events where you might have less than 24 hours’ notice to respond. “The Cloud provides the underpinning infrastructure that makes it more efficient, and easier to scale to meet these demands.”

providers now fighting to keep pace with new fintech solutions. Farris says: “They’re doing it for several reasons. One is resilience if an acquirer goes down, another is to improve access to alternative payment methods. Increasing sales is a third area of benefit because merchants see increased conversion rates from online sales. Sometimes by running an authorisation from one acquirer to another, merchants can optimise acceptance rates. “The merchants have spoken: using multiple acquirers is important to them. And most acquirers will want to be part of that solution.” ffnews.com

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Visit us at www.intercope.com Visit us at www.intercope.com

INNOVATION & TRANSFORMATION: ENVIRONMENT Just the start: Green hedging currency exchange could be an on-ramp for companies wanting to decarbonise

Green shoots of change Alex Lawson from Western Union Business Solutions and Sarah Leugers of the Gold Standard Foundation believe payments and financial services can and should help save the world Initiatives like the Paris Climate Change Agreement are pushing firms globally to instate zero-emissions drives at the heart of their business strategies. The urgent need to prevent further damage to Earth is now at the forefront of most minds, given the steady flow of stark statistics about the destruction to vital ecosystems. Payments, and the financial industry in general, have not necessarily been the first thought when considering our planet’s biggest problems. However, they’re far from exempt. The power required by vast data centres to process the kind of information now inherent in the rapidly increasing flow of financial transactions worldwide, is huge, and will grow again with the implementation of the ISO 20022 messaging standard, which requires

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additional context – i.e. computational power – for every payment made. But financial players also have unique potential to catalyse positive change by offering environmental, social and governance (ESG)–weighted solutions, like the Green Hedging Product forged from a partnership between Western Union Business Solutions (WUBS) and global ESG benchmarking organisation the Gold Standard Foundation. It’s aimed at helping organisations large and small to change the world, little by little. Alex Lawson, director of hedging for UK and Europe at Western Union Business Solutions arm, explains: “We wanted to see how we could enable business customers to start taking steps to address climate change through transactions they’re doing anyway.” So, it embedded potential carbon offsets into hedging against the currency risk inherent in cross-border payments, where the market can shift in the period between ordering and paying for/taking delivery of goods. Purchasing a hedging product can fix the rate of exchange to an agreed future date, reducing or eliminating that risk. “Customers importing or exporting goods and services have to do this all the time. So, we decided we could harness this and use such transactions to divert some of

the revenues generated to a partner organisation, which could invest them into environmental projects, with carbon offset outputs,” says Lawson. Western Union Business Solutions charges a small premium, of 0.1 per cent of the amount to be traded, equating to an additional cost of $1,000 on a $1million transaction. This amount is inconsequential to the companies concerned, it can sometimes be offset by constantly shifting exchange rates anyway, explains Lawson. But the amount diverted towards ESG projects as a result, can have a hugely positive impact, especially as WUBS matches whatever is raised. Its customers can also choose from six project options in return for a carbon offset certificate for the full amount – which could equate to 200 tonnes or more of carbon offset with a $1million transaction. The collaboration with the Geneva-based Gold Standard Foundation, which was founded 20 years ago to maximise the impact of climate intervention, gives the initiative credibility and, Lawson hopes, will serve as a ‘jumping-on point’ from which organisations will go on to do more. “We wanted to be ambitious in who we partnered with, and Gold Standard sets the benchmark for the whole world,” he says. ffnews.com

Lawson adds: “Our customers worry, at board level, whether they should just be offsetting using this WUBS solution, or doing more. Yes, they absolutely should, but they shouldn’t let a fear of being called out for greenwashing stop them from doing anything.” Sarah Leugers, Gold Standard’s director of communications, explains how important initiatives like this are to the organisation’s overall goals: “These funds will support efforts to expand our project activity, such as community-based activities throughout Sub-Saharan Africa. There, people who were cooking over open fires are transitioning to clean energy solutions, which has a positive climate impact by reducing emissions and changing people’s lives, day-to-day, because they no longer have to inhale toxic fumes and spend hours fetching firewood – it’s transformative in places that are most vulnerable to climate change already.” Making it easy for firms to initiate change is key, according to Lawson. “Simplicity and ease of use are the reasons why we generated this. Any business could set this up themselves, send money directly, invest in particular projects, but where do they start? There are hundreds of carbon offset projects, so how do they know if they’re reputable and the money is going to the end user, as desired? It’s a minefield. So, we’ve made it easy and done the due diligence for them, by partnering with a very reputable

We wanted to see how we could enable businesses to address climate change through transactions they’re doing anyway Alex Lawson, Western Union Business Solutions

organisation whose projects address a minimum of three of the United Nations’ Sustainable Goals for Global Development. “It’s not going to make an organisation carbon neutral in one go, but it’s more than just ‘we’ve planted a tree in the car park’.” Businesses can choose to invest the gains in a project category that resonates most with their organisation, from clean water provision to reforestation projects and clean energy solutions like solar or wind power, or emerging green technologies. ffnews.com

“Through our partnership with Gold Standard and other resources, we also provide links to information on calculating and reducing their own carbon footprint, to help customers along this journey,” says Lawson. He believes it will be particularly useful for smaller businesses facing no less pressure to comply than their large-scale corporate counterparts, but without the resources to figure things through. “While the rules coming down from government are currently looking at large companies, they will eventually filter down from scope one to scope two and three emissions, because bigger companies need to measure scope three emissions from their supply chains. A small company could be making a part for something produced by one of these big companies, and they may already be asking what they’re doing about reducing their own carbon footprint.” What, exactly, do businesses waking up to the net-zero drive, need to get ready for? Leugers explains: “The North Star for net zero is the Paris Climate Change Agreement, which aims to balance carbon emissions with carbon sinks by the middle of the century. Following that global aim, there are an increasing number of initiatives and regulatory frameworks that are relevant for business. One is the Task Force on Climate-Related Financial Disclosures (TCFD), introduced several years ago to improve reporting of climate-related financial risk. Their recommendations are largely voluntary, but moving towards regulation; the UK, for example, has already announced it’ll be the first G20 country to make TCFD-aligned requirements mandatory for Britain’s largest organisations. “The first step is knowing the impact of business on climate change, and, the other way around, the impact of climate change on business, and publicly disclosing that. “But, beyond just calculating and disclosing, the next step is actually doing something, driving change. Again, there are voluntary initiatives and increasing compliance regulations for businesses. “For example, the Science-Based Targets initiative, which helps companies set their decarbonisation pathway in line with the net zero Paris ambition. We’ve seen more than 2,000 companies setting such targets, and they’ve recently launched guidance for the financial sector, which is what a lot of people had been waiting for.”

Leugers adds: “We’re also seeing regulation around carbon pricing, where polluters have to pay for their carbon emissions, hitting their bottom lines. The financial sector, in particular, has an opportunity to get ahead of that legislation, build it in, future-proof businesses and help customers do the same.” Lawson stresses that SMEs are not exempt from these goals. “Our traditional customers are more SMEs and smaller corporates, and these guys might be thinking that it’s not something they need to worry about yet. But soon net zero targets will involve everybody,” he says. “The largest bulk of businesses in the UK, is SMEs – they’re going to need to do their part. Sooner or later, regulations are coming, but it’s way better to get ahead of the game, start managing that risk early and have a plan in place.”

The financial services sector enables the future we’re going to build, whether we’re locking in fossil fuels, unlocking clean energy, or providing cleaner air and water Sarah Leugers, Gold Standard Foundation Lawson adds that the financial services industry needs to take its responsibility, as well as its power to act, seriously. “It’s ubiquitous, we’re transacting with every part of the economy, and often the size of the transactions going through is substantial, too,” he says. “The payments industry, and the finance industry in general, can help make this easier for businesses to take those first steps.” Leugers adds: “The financial services sector enables the future we’re going to build, whether we’re locking in fossil fuels, unlocking clean energy that helps countries be energy independent, or providing cleaner air and water for their citizens. Embedding climate risk and impact into its decisionmaking, products and services, is where it really has an opportunity for driving change.” “The direction is fairly clear,” concludes Lawson, “and now it’s about who’s going to be getting there first, and who’s going to be left behind.” Issue 11 | ThePaytechMagazine

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INNOVATION & TRANSFORMATION: THE ACQUIRERS’ DILEMMA Sweet spot: People in Brazil have adopted PIX instant payments much faster than anticipated

PIX PIXandmix mix

The Central Bank of Brazil’s instant A2A payment tool took less than a year to pass into the language on the street. Now, everyone knows you can ‘make a PIX’ anytime and virtually anywhere. But how has the payments industry responded? Edson Santos, Founder of Colink Business Consulting, and Eduardo Goni, Country Manager Brazil for ACI Worldwide, consider the opportunities and threats The success of the Brazilian Central Bank’s instant payment system PIX has been breathtaking.

Within six months of its launch during the chaos of late 2020, the new mobile service with a simple QR and code key-driven interface, had moved more than BRL 1.109trillion (US $220billion), mostly in person to person (P2P) transfers. A year in, and it had clocked up six billion-plus payments, the total value of the transactions the rail handled had trebled and it was being used by six out of 10 Brazilians – increasingly, for retail payments, too, both on and off line. It didn’t take much to persuade ordinary people – many of whom were in receipt of COVID-19 government support that could only be immediately unlocked digitally – that a payment method which was not only instant (taking roughly two seconds), but available 24/7, free to use, and available to anyone, with or without ffnews.com

a bank account, was a good idea. But, for the payments industry, the speed of adoption was a shock – especially since, in theory, PIX could freeze out acquirers, card schemes and issuers: account-to-account rails don’t need them. According to a survey of 90 senior executives among Brazil’s leading payment institutions, published in January 2022 by ACI Worldwide (Brazil) and locally based Colink Business Consulting, ‘the success of PIX poses an immediate threat to the maintenance of current acquirers’ margins’. Perhaps that’s because they can see what fintech commentator David Birch has described as ‘cardmaggedon on the horizon’. “Ninety-five per cent of the executives we interviewed believe that PIX is going to cannibalise debit card transactions,” says Edson Santos, founder and partner of Colink Business Consulting. “They understand that the acquirer as we know

it today, only capturing, processing and settling payment card transactions, maybe won’t survive. Back in 2020, the great majority weren’t concerned about PIX; they thought it was going to affect banking services more than the acquirer world. It’s an incredible change of attitude.” To be fair, there was a lot going on in 2020. Simultaneous with the arrival of PIX, the industry was having to come to terms with legislation that makes it mandatory for acquirers to publish data to a credits receivable register – a record of future payments that will fall due to merchants from acquirers for credit card sales (usually in 30 days) and against which merchants can raise liquidity. And, of course, all financial institutions were impacted by the introduction of open banking, which has required major banks to integrate a standard set of APIs for the permitted exchange of customer transaction data since 2020. Issue 11 | ThePaytechMagazine

INNOVATION & TRANSFORMATION: THE ACQUIRERS’ DILEMMA The Brazilian payments apple cart is now being well and truly overturned and the industry – particularly the country’s 35 acquirers and 350 sub acquirers – has to work out how to respond. But, worryingly, for Santos, the Colink Business Consulting/ACI study revealed that still only 47 per cent of payment executives see a business opportunity in integrating PIX at point of sale. Whereas, when it comes to the new regime for registering receivables, 95 per cent have already developed a strategy for using it to advance credit to merchants. The report points out that: “In general, there is an understanding that the best way to monetise the new service should be through value-added services on top of PIX transactions and not exclusively through the capture and settlement of transactions. Thus, the opportunities depend on the integration of the payment method with the store’s automation system to enable the reconciliation of payments with sales, improving the store’s operational processes.” “A lot of acquirers will take PIX inside the point of sale, inside the terminal, which can be a palliative solution, but not a definitive one,” says Santos. “The experience today of a merchant that does not have an integrated POS terminal is that they use two systems: one to prove the payment was made and another to reconcile it. If the customer wants to pay with PIX, there is a third system to confirm it was paid. It’s the biggest risk and also opportunity that we have identified.” The interplay between PIX, where funds are transferred instantly from payee to beneficiary and are immediately available, and traditional credit/debit payments, where they’re not, is important in a country where, according to Santos, pre-payment of transactions with credit cards ‘was always one of the most important revenue streams for acquirers. “To the point that, for a lot of sub-acquirers, prepayment was a reason for their existence,” he says. “A lot of times, the transaction comes out at cost and they obtain the margin through pre-payment, [representing] up to 70 per cent of all the value transacted.” Hence, the acquirers’ focus less on PIX and more on trying to get ahead of what could be a vanishing credit revenue stream by extending advances to merchants. And

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that was just as the central government intended; it has long wanted to erode domination of lending by five local banks (Itaú Unibanco, Bradesco, Banco do Brasil and Caixa Econômica Federal and Santander), who, together, own more than 80 per cent of the credit market. “And it addresses something really important, which is that small and micro entrepreneurs weren’t being served well,” observes Eduardo Goni, country manager Brazil for ACI Worldwide. “They didn’t have so many lending options available to them. I think it’s a great driving force for the Brazilian economy – new participants working within credit to improve and amplify lending, mainly related to receivables.”

Ninety-five per cent of the executives we interviewed believe that PIX is going to cannibalise debit card transactions Edson Santos, Colink Business Consulting

Coupled with open finance rules, it could be transformational, agrees Santos. “We start with banks but it will extend to all financial services so that, eventually, if I am a merchant, I can authorise a creditor [acquirer] who’s making me an offer to access all of my transactions made with other acquirers. That can generate more value for me as a merchant – and [this change] worried the majority of the executives we spoke to. It’s going to be very easy for a merchant to ‘sell’ their receivable and that brings competition.” So, PIX is part of a much wider game plan: a critical element in the Central Bank’s strategy to, ultimately, drive out cash (although PIX does allow users to withdraw cash from ATMs and as cashback from merchants) and bring everyone into the financial system, while at the same time,

improving competition in financial services. As Goni says, current players need to ‘open their strategic mind’, if they are to survive and thrive against such a backdrop. One that’s demonstrating it can think beyond the threats to the golden uplands of opportunity is Itaú Unibanco, which has taken advantage of the Central Bank’s first regulatory sandbox to explore using PIX as a vehicle for buy now, pay later consumer credit. The ITAUCARD project was alone among seven projects in the first sandbox cycle to look at leveraging the PIX rails. But, as the raft of changes to Brazil’s payment systems and wider financial infrastructure begin to bed in and companies move beyond compliance to innovation, there will undoubtedly be more, especially as acquirers move out of traditional roles. “If acquirers don’t use their technology to improve their services to increase the scale of their product offer, they will miss the history bus, that’s very clear,” says Santos. And, in his opinion, proprietary platforms will not be enough. They will need to embrace entire ecosystems – integrated communities of providers, some of which will offer a high degree of specialisation. “Co-operate and collaborate,” he says. “Sub-acquirers in particular, can specialise in different segments and deliver a lot more value that way to the merchant and in a way that the main acquirer cannot achieve. So, the sub-acquirer turns into an important partner to deliver a service to a very specific economic segment or maybe even a specific geography. Brazil is very big. We have an enormous territory; there are many ‘Brazils’ inside Brazil. Every region has a different need and the sub acquirer can take advantage of that.” So, what does PIX teach the rest of the payments world? That decisive intervention by central bodies can create a rapid, positive and seismic shift for ordinary consumers that leaves legacy players racing to catch up. That such intervention is best delivered as part of a well-thought-out wider strategy. That you should never under-estimate how quickly users will switch allegiance from payment methods that have stood the test of time across multiple channels for years – that rug can be pulled at any moment. And that account-to-account payment rails such as PIX are as much an opportunity as a threat. ffnews.com

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PAYTECH FOCUS: UKRAINE Finding a way through: Can finance help broker a ceasefire where diplomacy has failed?

Payments The path to peace? Payments have been on the front line like never before. But could the West’s response to war in Ukraine strengthen its arsenal in repelling a wider assault on the integrity of the financial system? When the ‘European Wall’ between Russia and Ukraine was violently breached in early 2022, a shocked West groped for a non-armed response forceful enough to bring Moscow to its knees: finance became that counter-weapon. Governments took aim at Russia’s politically exposed super-rich with sanctions on a scale never before seen. Its central bank reserves, stashed abroad, were frozen. Ordinary people mobilised anonymous donations of cryptocurrency to support the Ukrainian resistance. But the financial warhead that could undoubtedly cause a broadside was one that disabled the cross-border payments system on which the country’s banks relied. ffnews.com

In March, the independent SWIFT payments messaging service, which facilitates the majority of transactions settled between the world’s banks, dealt what was, at that point, the biggest blow to the Kremlin. Initially, seven major Russian banks were shut out of the flow of international, multi-currency transactions or had their access to the SWIFT network severely limited after a tense debate between European states, mindful of the damage such a move inflicted on their own financial systems. As the shelling intensified, Russia’s ally Belarus saw its banks coming under the same heat. The consequences of the financial tourniquet applied to Russia were rapid and severe: 30 per cent wiped off the ruble’s value, to which the Central Bank responded by hiking interest rates to 20 per cent, making life for ordinary Russian citizens even more challenging. Given all transactions for major network cards (VISA, Mastercard and Amex included) operate through SWIFT, many point-ofsale and e-commerce payments were crippled. PayPal, too, turned off the tap.

It was perhaps appropriate that SWIFT’s communication superhighway, which has done so much to introduce transparency and trust into the payments process, should emerge as the secret weapon against a regime that appears to rely on false ‘truths’ and opacity. Payments, and how they are handled, in 2022, reflect many of the values now at stake: a democratised financial service characterised by openness, fairness and freedom of movement – the very antithesis of tyranny. In fact, freedom of communication, more broadly, made President Vladimir Putin’s well-practised flow of disinformation hard to sustain. It’s trickier to maintain an iron curtain of propaganda in a Gen Z world of Facebook (Meta), Twitter, WhatsApp, YouTube and Tik Tok. On the other hand, modern payment systems’ very interconnected-ness and enhanced speed make it hard to stop a flight of cash from any one country, or take action against it without sustaining self-inflected wounds. Issue 11 | ThePaytechMagazine

PAYTECH FOCUS: UKRAINE Such blanket sanctions are always morally problematic, too, and how effective they will be in ending the conflict is, as yet, unproven. Russia launched its own rival to SWIFT – the System for Transfer of Financial Messages (SPFS) – after similar threats of suspension following the annexation of Crimea, and it will likely seek to use it to transact international payments, given time. And the alternative finance that has flowed into Russia to help the war effort is almost certainly also flowing the other way; an avenue for individuals and businesses to launder Kremlin-linked cash through unregulated vehicles such as non-fungible tokens (NFTs).

It was perhaps appropriate that the communication superhighway, which has done so much to introduce transparency and trust into the payments process, should emerge as the secret weapon against a regime that appears to rely on false ‘truths’ and opacity One of the inevitable but still painful consequences, too, of freezing out Russia – not to mention the privations it’s likely to visit on blameless men and women in the street – is the threat of swingeing fines on any financial institution in the West that falls foul of rapidly changing sanctions lists. They are faced with continuously having to update screening procedures and monitor compliance programmes to keep pace with the latest politically exposed person or business whose beneficial owner is on some state’s list. A small price, you might say, compared to Ukraine’s sacrifice and the gravity of the threat, but sanctions will only be effective if those actioning them can get through the layers of ‘Russian dolls’ that oligarchs and others typically hide their assets inside. Offshore bank accounts, spurious holding companies and shady corporate structures designed to hide the sources of, particularly property-related, asset holdings in metropolitan centres

ThePaytechMagazine | Issue 11

like London, are commonplace. And What Professor Louise Shelley, director of the Terrorism, Transnational Crime and Corruption Center at George Mason University in the US, described in one interview as the ‘desperate movement of all kinds of commodities and resources through investment vehicles’, is hard to follow in a panic. “Our technology can only be as good as the regulations and it is currently legal to set up corporate structures and trusts that obfuscate who actually owns certain assets,” points out Garient Evans, SVP of identity solutions at global identity verification provider, Trulioo, which has already done much to tighten the noose around spurious entities. “We saw it with the Panama Papers, we saw it with the Pandora papers,“ he says. “They shone a light on these structures that allow people to park their assets and avoid sanctions. Now, here we are again, with everybody really understanding the criticality of preventing activity by individuals where we don’t know who owns assets in on- and offshore trusts.” Trulioo’s data analytics technology is actively playing a part in efforts to pin such activities to sanctioned individuals. “The moment a government puts an individual on a sanctions list, our data is updated in real time, so that our systems can help identify that match,” says Evans. But lawmakers are still failing, he adds. “One area where governments are going to have to have some willpower, is real estate. A good example of that is, in the United States, in 2020, we updated our anti-money laundering laws, to make them stronger. One gaping hole is real estate, where there’s no obligation to post suspicious activity reports on transactions. “So, somebody shows up and buys a castle, all in cash, and there's no obligation to report that. And, if it’s bought through these blind trusts, nobody knows who the ultimate beneficial owner is. So, even though the US had an opportunity to pass legislation on where money laundering is happening, it still has not had the willpower. And it’s not just about Russian oligarchs, but also drug traffickers and other criminals who are doing the same.” In the UK, the Economic Crime Bill has been fast-tracked so that British authorities can ‘pursue Putin’s allies in the UK with the full backing of the law, beyond doubt or

legal challenge’. The bill, which was due to be passed in March, would set up a public register of beneficial owners of non-UK entities that own or buy land there, giving authorities clearer sight when imposing sanctions and financial institutions a reliable data source to inform screening. Evans is hopeful that this time things will be different. “What I expect to happen now is regulators and legislators put in long-term legislation that targets executives. In the past, sometimes banks just saw dealing with money laundering as the potential cost of doing business, to some extent. However, lack of tolerance and legislation will prevent this situation continuing the way it has done for the past 20 or 30 years.” So, is this a wake-up call in a way that the Pandora papers were not? “I’m naturally optimistic,” says Evans, “and when I read about the implications of these sanctions, I take an optimistic perspective that it was a massive miscalculation on the part of Putin to go into Ukraine and do what he’s done, because he didn’t believe the rest of the world would be so unified in its outreach and action. And there is now the willpower to take on what was previously taboo – to take on the dirty money, these trusts and the lack of clarity around who owns such assets. I think that's possible in a new way that was not imaginable before. It just requires that willpower.

We saw it with the Panama Papers, we saw it with the Pandora papers. They shone a light on these structures that allow people to park their assets and avoid sanctions. Now, here we are again Garient Evans, Trulioo

“I think this is a time where people stop thinking we just have to live with the likes of Putin and dirty money, that’s the way life is. This situation has given us a chance to say ‘no’. Our governments can rally, they can be intolerant, and they can increase the righteousness of our money flows. We can do something about this. This is an opportunity for a reset.” ffnews.com

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NEW WORLD ORDER: HYBRID WORKING

Where the he rt is? Working from home has touched all industries and sectors. Howard Moore from Mobiquity discusses the implications for payments with Standard Chartered Bank’s Laura Cole and Jessie Danyi from Pleo The work-from-home (WFH) movement is more than just a temporary side effect of the pandemic. It’s also a reflection of the transformative power of technology and the way the internet and mobile communication have been redefining work culture for many years. Indeed, tech was changing payment practices and roles long before COVID-19 accelerated digitisation and made remote working a necessity. But now there is a new dimension to digital progress, spurred on by the pandemic and the development of the so-called ‘metaverse’, where everything is potentially digital, and detached from, though enabling, physical reality and experience. So, what might this mean for financial services, the world of payments and the army of employees who make them happen, in the near future? And will the latest technology and shifts in work practices bring risks as well as benefits? As senior director of digital banking at digital consultancy Mobiquity, and a designer of immersive digital experiences, Howard Moore is well-qualified to comment on such trends and work culture.

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“There is a human-centric perspective to everything we do at Mobiquity,” says Moore. “The challenge over the last two years, across all countries, has certainly been about people in a changing workplace. Everyone has had to work in restricted ways and obey government regulations. That has meant working fully remote, hybrid, or still fully within the workplace where essential.” Laura Cole, head of HR for UK and Europe at Standard Chartered Bank, is equally committed to human-centred design. It’s a role she has recently taken on, with a particular focus on hybrid working and mapping employee journeys with the latest design techniques.

The challenge over the last two years, across all countries, has certainly been about people in a changing workplace Howard Moore, Mobiquity

“I think the implementation of hybrid working has been a bit mixed across different geographies,” says Cole. “Government guidelines have varied, depending on the market concerned. Because Standard

Chartered is in a lot of emerging markets, we’ve seen challenges such as internet speed for people working at home. There are also cultural differences that impact working from home as a concept.” Cole says that in non-European markets, such as Asia, and particularly countries like Hong Kong and Singapore, people typically live in smaller accommodation, often as part of multi-generational families, which presents additional challenges for would-be home workers. She adds that, in Hong Kong, people like going into the office because it allows them to escape the confines of home life. In her position as head of people at Pleo, which provides smart company cards for businesses across Europe, Jessie Danyi also has a strong focus on the workplace. “Despite the terrible situation caused by the pandemic, we’ve had some refreshing developments with hybrid working,” says Danyi. “Pleo has always worked hybrid, so it’s been an easy step for some workers to go remote full-time, doing their normal thing, while others remain on-site. If you already have this type of culture, it’s easier to extend it. From what I’ve seen, people are comfortable working from home; they can stay close to their families and gain additional intimacy and quality of life. So, some good has come from a terrible situation.”

ffnews.com

Now that COVID-19 restrictions are easing for many, will we see a return to the office? Cole believes it depends on the experience of enforced homeworking since 2020 and how company culture and hybrid models were evolving pre-pandemic. “Many organisations had no experience of hybrid pre-pandemic,” says Cole. “Their culture was based on face-to-face working, four or five days a week. We’ve now had this universal experiment, thanks to COVID, but it’s not necessarily ingrained for some organisations, as the ‘presenteeism’ culture has deep roots in banking, which means it can be a challenge to depart from tradition. We need to make the workspace different, to reflect hybrid working.” Cole says there is plenty of research on this topic and cites Lynda Gratton, from the London Business School, who says work needs to be more purposeful and that, for hybrid to be successful, firms must use space differently and encourage people to come into the office to collaborate and connect in ways that can’t be duplicated when working from home. That highlights the need, of course, to have the right technology, adds Cole. “If you don’t have the right infrastructure, it will be a barrier to hybrid working. What’s happening now is that a lot of employees are saying that the technology actually works better at home because, for example, they might have better internet connections, and they can use different tools to the ones in the office.” From a user perspective there are plusses, but the IT managers, particularly in sensitive areas like payments, there are critical issues around security. Work activities that take place outside a regular office environment, and thus beyond an

organisation’s normal security infrastructure, are vulnerable to data breaches and cyberattacks. This has been amply demonstrated during the pandemic, with cybercriminals taking full advantage of weaker security due to different work practices and routines.

‘Presenteeism’ culture has deep roots in banking. We need to make the workspace different to reflect hybrid working Laura Cole, Standard Chartered Bank

“New technologies and work practices must not place an organisation and its customers at risk,” says Moore. “When we look at the banking sector, which is heavily regulated, there are plenty of security issues. Information access and transfer is more complex and challenging when people work remotely, or when they are in different locations in a hybrid setup. “It’s a physical and integration challenge as well as a security one, as you must ensure that everyone is working in an environment that allows them to thrive.” Like Cole, Moore says change is an intellectual

challenge for banks. Despite the digital revolution, he says banks were still wedded to presenteeism in the early 2000s because managers wanted their staff in front of them, and this culture may persist even if times and technology have changed. “Another consideration is meeting equity,” says Danyi. “By that I mean the difference when people are not all in the same room. We are used to having important meetings together, in one place, where people could look each other in the eye and pick up on body language. But now, if you have an important meeting, with people calling in from separate locations, it’s a different experience. “You must ensure the meeting is conducted on equal terms if people are not seated round the same table. “So the question, now, is how do you create meeting equity? I think it’s about design. You must design for active participation so that the more introverted participants won’t feel even more distanced and separate because they are joining remotely. You must draw them in, make them active members of the conversation and gain their valuable input. Another thing to overcome is that if you don’t see people in person that often, and water-cooler conversations are no longer a given for everyone, it’s harder to know what’s going on and to have office transparency.”

Domestic chores: Not everyone welcomed home working

ffnews.com

Issue 11 | ThePaytechMagazine

NEW WORLD ORDER: HYBRID WORKING Moore says that attracting high-calibre “I agree about the importance of transparency,” says Moore. “Notwithstanding staff will be a big issue in 2022. “We’re facing a war for talent in our sector,” he says. “It’s the other issues, this is what determines the been a growing concern in banking for a success or failure of hybrid working. From while, as people are being drawn to cooler a cultural and infrastructure perspective, tech industries. With a hybrid work setup, transparency is critical and people will be we can widen the potential talent pool if we quick to say what is and isn’t working. And attract people through flexibility, through when you talk about meeting equity, it can the hybrid approach, then we’ll have a great become very emotive if people are only advantage in the war for talent this year.” experiencing things virtually, which then However, it will be difficult to compete leads to the debate about the metaverse against the United States, observes Danyi. and the merits of digital realities.” “If you consider starting salaries in Silicon If digital connectivity makes hybrid Valley, you’re looking at between $100,000 possible, the next technology twist and $120,000 a year. Those are unrealistic may well be the metaverse. figures in Europe.“ Still more concept than Wherever staff are reality, this could have based, Cole admits a profound effect on that some functions the way people interact and roles are not ideal on every level, in and for flexible working. out of work. It includes For example, even technologies such as with video technology, virtual and augmented a branch teller would reality, and could find it difficult to move work practices serve customers from and payments deeper home. Nonetheless, into the digital world. she says that most Imagine headsetknowledge-based wearing meeting workers should be able participants – or to work flexibly, and players in a financial or organisations that don’t payment transaction Jessie Danyi, Pleo offer this option will – being able to sit struggle to attract and retain the best people. around a table with one another, in a “Research shows that employers are 3D reality which feels almost as though beginning to think about using office they were all really there. space differently,” says Cole. “Space may “Technology developments require be reconfigured, rather than reduced, behavioural adjustments,” says Danyi. “As to encourage better connections and humans, we’re all trying to connect and collaboration for those times when hybrid find meaning, but the way we’re used to workers are in the office. Moreover, some connecting is changing. When we work organisations are focussing on wellbeing, with people digitally, we want the same addressing the social elements of office trusted connections, but the etiquette may life in the new work culture.” be different. For example, is it right to ask Sustainability may not spring to mind someone to activate their camera?” as an immediate concern if people are When it comes to productivity, Cole working remotely, but if the war for talent says there is evidence that working means employees are recruited from all at home brings gains, but they must over the world, they would probably be be balanced with the negatives. required to travel for occasional physical “We now have data that says hybrid meetings. That means more global travel approaches are good for productivity and and bigger carbon footprints. Equally, flexibility,” says Cole. “A lot of our research, working from home would mean a conducted internally over the last couple big rise in energy consumption, given of years, underlines that employees like premises are often still powered, even flexibility and that if you want to attract and retain great talent, you need to provide when their staff aren’t there. “From a sustainability angle, people may a flexible work environment. It’s not a be commuting less day-to-day,” says Cole, nice-to-have anymore; it’s an expectation.”

From what I've seen, people are comfortable working from home; they can stay close to their families and gain additional intimacy and quality of life. So, some good has come from a terrible situation

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“but it means they are using energy at home: heating, air-con and lighting are all adding to their carbon footprint. So, it’s going to be hard for organisations to measure the sustainability impact and find the right balance.” This applies to office space as well, says Moore. “I was in the City of London yesterday for a face-to-face meeting. I noticed there were a number of offices with lights on, but there was nobody in the open-plan space; so everything was running, using resources, while people were working remotely. From a sustainability viewpoint, that’s the worst of both worlds: people working at home draining energy, and near-empty offices draining energy.” Moore adds that we are at a point where sustainability and hybrid working aren’t necessarily compatible, so we need to introduce sustainable goals to make the new work culture succeed environmentally as well as economically. He says those goals should be part of company values and be included in hybrid and remote working guidelines. Although hybrid working is now established, fully remote will probably never happen, says Cole. “When we’ve done surveys, less than five per cent of people were in favour of working full-time at home,” she says. “Humans are wired for connection, and if you take the human connection away entirely, you create an emotional void as well as a physical gap. We need to meet our colleagues or business stakeholders face-to-face some of the time.” Moore agrees that face-to-face communication must not be eliminated. While he thinks high-quality virtual connections in the metaverse could play a role one day, he says they are only ever a substitute for real human contact. “We’ve been exploring the concept,” says Moore. “People are excited about the possibility of holding meetings in the metaverse. But what you’ll have is avatars in meeting rooms, not actual people. I’m more interested in augmented reality where participants can join a meeting on equal terms and the human element is retained.” Pre-pandemic, no one in payments would have believed working from home for most staff was possible; it’s surely a small leap of imagination to see their avatars in the office! ffnews.com

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NEW WORLD ORDER: B2B PAYMENTS

Digital Embracing digital isn’t just an aspiration for B2B firms – it’s an urgent commercial imperative if you want to build lasting customer relationships, enable sales and access credit, say TreviPay’s Brandon Spear and Digital River’s Adam Coyle

transaction completion. That’s where people like Digital River and TreviPay offer great solutions that people can leverage for that experience.”

The devastating impact of the COVID-19 pandemic has reshaped our lives forever. Measures by governments to try to contain its terrible toll, including lockdowns, have forced behavioural changes on populations to an unprecedented degree. And that meant legions of businesses and consumers suddenly had to pivot to doing things digitally. The evolution towards e-commerce, steered mainly by a younger generation of tech-savvy consumers, suddenly turned into a revolution, affecting everyone, of every age. And it’s a transformation from which there will be no return as customer demands and expectations have permanently changed, both for business-to-customer (B2C) transactions and, increasingly, for business-to-business (B2B) ones, too. Against this backdrop, two companies that are working together to further shake up the B2B payments space are digital payments provider TreviPay, which provides credit lines for businesses akin to buy now, pay later (BNPL) terms, and Digital River, an e-commerce enabler that provides a merchant of record solution covering payments, taxes, compliance, fraud mitigation and logistics. ffnews.com

Brandon Spear, the CEO of TreviPay, which deals with $6billion of transactions across 27 countries each year, is in no doubt that the pandemic super-charged B2B payments digitisation. “It’s been a macro trend for a while but there’s been a huge acceleration of this in the last two years, principally driven by the pandemic,” says Spear. “From our point of view, it’s really pulled forward, or compressed, three to five years’ worth of digital transformation into probably the last 18 months.” Adam Coyle, CEO of Digital River, is also convinced that other changes that were borne out of necessity, like sales pitches using digital conference calls rather than face-to-face meetings, are here to stay. “I think the days of us getting on airplanes and flying hours to a customer’s site to have a one-hour meeting are gone,” he says. “The buyers want to have an experience that is very much like the consumer experience that they’ve become accustomed to in their personal lives. “That’s where we’re seeing this huge transformation in B2B, both in terms of online go-to-market and online

THE WAY TO GO Given the global pace of change, Spear warns firms that have yet to digitise could quickly find themselves becoming uncompetitive. Indeed, research published in 2021 by PYMNTS and Worldpay in their Global B2B Payments Playbook, has shown that digitising B2B payments data and managing it via enterprise resource planning (ERP) systems, can improve collections, days sales outstanding (DSO) and operations. The study showed that just under half of firms that have adopted automated accounts receivable (AR) processes had lower overall delinquency rates; 62 per cent reported reduced DSO; and 72 per cent made savings on their operational costs. In addition, 87 per cent of those that had incorporated automated AR technology said it had produced faster processing speeds. Another 79 per cent said it had improved team efficiency, while 75 per cent thought it had provided a better experience for their customers. While it’s not too late for businesses to make the change, Spear says they should hurry up. Issue 11 | ThePaytechMagazine

NEW WORLD ORDER: B2B PAYMENTS “I would definitely say that the cost curve with all of these processes moving to a more digital-first experience is being significantly shifted,” he says. “So, if a company has not yet embarked on a digital transformation journey, at some point it’s going to become uncompetitive. It’s not too late, but if they wait much longer, maybe another two years, the ship may well have sailed.” Thought-provokingly, Coyle adds, it is now too late for companies to go it alone when going digital, as many early adopters did. “I think the smart people who are now saying ‘I’m going to move into this online B2B model’ are the ones who are also saying ‘you know what? I’m going to go

Joined-up approach: Digitisation helps smooth processes

look for the best solutions that are available to me out there, and I’m going to put a solution together around other components that can be delivered through third parties’. That’s to really catch up, in some ways, with the marketplace,” he argues. Of course, a switch to digital is not without risks, and fraud is probably top of a pile that also includes cyber-attacks and security. Spear reveals that TreviPay sees ‘thousands of cases a year’ of its customers being approached by ‘bad actors’, pretending to be genuine companies to fraudulently obtain lines of credit to buy goods. “It’s a bit of an arms race in terms of how quickly you can flush out these sorts of bad actors, and look at a variety of other data sources and information, to try to validate, confirm that the company is a real company, that the entity representing the company is a real company, and so on,” Spear says. “If you’re just trying to do this yourself

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now you probably don’t even know what you don’t know around how dangerous some of these challenges are and how quickly you could get exploited.” Spear suggests that a version of business digital identity verification could be a solution. “I wonder, as in the commerce world, if there’s going to be some form of digital ID that becomes more pervasive, as a way of knowing you’re dealing with a real company, and somebody who’s in a position of authority in that company,” he says. Of course, the sheer complexity of many B2B payments, which can often involve multiple stakeholders across different borders, provides enormous potential for

Spear explains that TreviPay is already working with businesses to help them better analyse the data they now acquire from directly dealing with customers online and use it to make key decisions. But he also emphasises that the payment experience is a vital factor in developing brand loyalty. “If all things are equal, if the products are similar, if the services are similar, if the prices are comparable, then our general experience is that, if you’re easier to do business with – you can provide lines of credit to your customers, you can provide longer payment terms, you can give them all the data they need on their invoices, so that it’s simple for them to make sure that you get paid – then that will increase your share of wallet.” Coyle believes the relationship between supplier and customer has radically changed for those who have switched from a paper-based world to an online one. “One of the beauties of the direct-to-consumer online world is that you can provide optionality, so that the seller can get what they need out of a transaction and the buyer can get what they want, and everybody walks away satisfied,” he says. Another pivotal change for the B2B world is the introduction of open banking, which Spear says will help level out the playing

All things being equal, if you’re easier to do business with, that will increase your share of wallet

sticking points, and is another area where digitisation can massively help. That process is expected to become even smoother with the introduction, later this year, of the ISO 20022 global payments messaging standard, which will add significantly more transactional data to every payment. It’s an area which clearly excites Coyle. “I think, particularly in the B2B context, we’ve only begun to scratch the surface of what’s possible,” he explains. “The B2B firms really have the ability to begin to think about their buyers in a much more consumer-like way and ask what patterns they are seeing from these customers. Most businesses haven’t even touched that kind of analysis, but the possibilities are almost endless when it comes to profiling and understanding their customers, their buying behaviour and the demands in the marketplace.”

field by vastly improving the availability of trade credit for smaller businesses. “The open banking approach that’s coming is going to facilitate the provision of credit and trade credit, which is obviously what underpins the whole BNPL space,” he explains. “Open banking, where you can actually see, or have access to, what the cashflows of a business are, puts you in a position to provide lines of credit to those smaller businesses that can’t necessarily get it today. So, in some ways there’s a democratisation of credit coming. The more we can do that, over time, the more it’s going to free up a tonne of working capital for these smaller businesses, which are probably the end of the market that, frankly, needs the capital more than any other segment.” ffnews.com

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PAYTECH FOCUS: REQUEST TO PAY

Adrian Smyth from NatWest, PayUK’s Simon Brooks and Louise Shorthouse from Icon Solutions, explore why Request to Pay is still waiting in the wings, and what more can be done to put it in the spotlight

A new digital payments system aimed at being fast, flexible, secure, data-rich, available to those traditionally underserved by banks, and with the added benefit of communication between payer and payee, came into being in the UK last year. Pay.UK’s Request to Pay (RTP) secure messaging channel has been built to overlay the UK’s existing payments infrastructure for ease of incorporation and interoperability. But, despite it sounding like a potential gold standard, take up, so far, can only be described as patchy since its launch in May 2021. According to a detailed international survey of industry stakeholders by payments fintech Icon Solutions, while almost 70 per cent of respondent banks

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and payment service providers (PSPs) saw the potential of RTP, only 18 per cent already offer it, and only a little more than a quarter of them (27 per cent) intend to do so within the next 12 months. The biggest obstacles to doing so were banks’ readiness (67 per cent), the need for secure customer authentication (54 per cent), and needing message standardisation to promote simplicity and interoperability (48 per cent). More than half of respondent banks and PSPs (54 per cent) listed limitations of existing technology and systems as holding back any RTP rollout, while fewer than half (48 per cent) had a clear strategy for adoption. On the plus side, nearly three-quarters of respondents (73 per cent) agreed that demand for RTP from corporates is

increasing; and that corporates have most to gain (75 per cent), followed by merchants (70 per cent). In the UK, RTP’s ability to help democratise digital payments has been highlighted from the get-go: its first certified provider, and the first to perform a live transaction, was digital platform Answer Pay, which was specifically founded to help the growing numbers of businesses and workers in the often financially under-served gig economy. Simon Brooks, faster payments service line manager at national payments authority Pay.UK, which moves more than £6.7trillion annually, says it has taken a holistic approach to creating the RTP service. He explains: “Unlike anything else I’ve ever done in the payments industry, we’ve ffnews.com

actually gone out and researched exactly what consumers want, what corporates want, whether large or small, what the banks want, what building societies want, what even the fintechs are looking for, in terms of development in this space; and also government as its really important for the collection of bills, taxes etc. “The version in the UK is a bit more advanced than the one in Europe, in that we can allow five different options to take place, which is pay all, pay some, decline, request an extension or communicate. “We’ve done that because most RTP propositions out there today, if not all, are basically driven by sending an email or a text, with a link within that, and I’ve spent 30-odd years in the banking industry telling people not to click on links, or give out information, such as account details. “So, when we started to build the RTP proposition in the UK, foremost in my mind was making sure that we keep it safe and secure. That’s imperative because fraud in the UK is going through the roof and we need to do something that enables the users, both billers and payers, to have confidence that what they’re receiving is coming from a bona fide source, and to allow the biller to receive the information that they need to reconcile that bill. “That’s why billers typically like direct debits,” says Brooks, “because they do all of those things for them; they give them the reconciliation information they need and they don’t have to spend vast sums of money trying to reconcile millions and millions of payments. “When we built RTP, we wanted to replicate all of the good things that exist within the payments industry today, but also incorporate security features that will make it safe and secure.”

NOT WITHOUT CHALLENGES That threat of fraud cannot be overstated. Late in 2021, UK watchdog the Financial Services Ombudsman reported a 30 per cent year-on-year rise in complaints about financial scams. The majority of those were associated with authorised push payments (APP), where victims are tricked into making a bank transfer to an account used by fraudsters masquerading as a legitimate payee. ffnews.com

“I can’t promise that RTP will prevent fraud completely, but it will definitely help,” Brooks adds. So, given RTP’s huge potential to provide an alternative to long-established payment methods, such as direct debits, cards, cheques and cash, why is there an initial reluctance by major banks and PSPs to get onboard? Adrian Smyth, the domestic sterling scheme and innovation partnerships lead at UK banking giant NatWest, re-emphasises one theme in Icon Solutions’ poll findings: that, rather than solely having an RTP strategy, banks are pitching it into a forthcoming tidal wave of developments and requirements, including the evolution of open banking, advances in digital identity, the introduction of ISO 20022 and that of the UK’s overall New Payments Architecture (NPA).

Respondents [to our survey] felt there was a much greater demand coming from corporates [for RTP] than from retail customers Louise Shorthouse, Icon Solutions

Smyth adds: “I think what may have stymied the adoption of RTP was the initial view that it was a replacement for direct debit. Yet the key thing here is – which is what the team at Pay.UK have been really pushing – that this is an alternative, it’s complementary, it should be seen alongside that service. “We’ve got a lot to think about around direct debits as we get into the NPA. I don’t think anybody has a full answer to that at this moment in time, but you can see how RTP could support that as, initially, a complementary service or proposition, getting people comfortable, helping them to move from the physical to the digital. “There’s a whole education, onboarding, and a comfort journey we have to go through here, from the commercial customer through to our retail customer.”

AN UNSUNG STAR? Louise Shorthouse, payments consultant at survey provider Icon Solutions, believes RTP’s lack of public awareness is also a significant factor in its slow take up. “Respondents to our survey felt there was a much greater demand coming from the corporates, but fewer than half felt that demand was coming from retail customers,” she says. “I think the reason that most people in the street aren’t really aware of RTP yet, is that people don’t really know what it is. And until the products are out there, I’m not sure awareness is really going to rise that quickly. “I appreciate that there’s a bit of a chicken-and-egg situation there but it reminded me of when Transport for London introduced contactless payments for tickets. “I didn’t know I wanted or needed that, before it was out there; but now I don’t know how I would live without it, and it’s really changed the uptake of contactless payments. “In terms of the benefits, what the survey found was slightly different depending on the segment. When it came to corporates, it was felt that it improved reconciliation, visibility and real-time cashflow, and, actually, those benefits do cross to the customer segments. “For merchants, it reduced dependence on cards and card fees – a big topic with the Visa and Amazon conflict – and created more choice for customers. “For retail customers, again, more choice, flexibility around the date of payment, and, overall, an enhanced customer experience.” Brooks agrees that a fast-changing world in which many workers face uncertain or irregular incomes, firmly presses the case for change. “People now want choice,” he continues. “In our research, millennials are saying ‘we don’t like direct debits. We want something that gives us more flexibility’. “Therefore I think the adoption of RTP needs to come from the UK economy, if you like, from UK PLC. It’s not just Pay.UK that is going to deliver this. We need support from the banks, from the fintechs and from the likes of Icon Solutions; we need them to take up the baton.” Issue 11 | ThePaytechMagazine

PAYTECH FOCUS: REQUEST TO PAY

Spotlight on banking: Consumers want options beyond direct debit and card

Brooks also believes that there will eventually be a tipping point when a bank, either an incumbent or a challenger, offers RTP in realisation that it provides a commercial opportunity as well as fulfilling a customer need. “There’s enough noise about it now to say it’s going to happen. I think we’ve got something that offers more versatility, more flexibility, more control, and UK PLC can deliver a world-beating proposition,” he says. When it come to democratisation, both Shorthouse and Brooks see not only banks but also some big billers like energy companies and, possibly, retail giants, using RTP to help people on low or irregular incomes get better value.

We’ve something that offers more versatility, more flexibility, more control. UK PLC can deliver a world-beating proposition Simon Brooks, Icon Solutions

Indeed, Brooks adds that helping to deal with the ‘poverty premium’ was front and centre during RTP’s development. Providing the same reconciliation information as a direct debit, it should enable utilities and large companies to offer similar payment discounts to RTP customers, he argues. From his banking perspective, Smyth ventures that the use of now publicly accepted and trusted technologies like QR codes – something he says NatWest has been testing for payments for at least five years – could both drive the adoption of RTP and expand its consumer, peer-to-peer and business-to-business use cases as well as cross-border.

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“We know from the pandemic that our supply chains are evolving, so, as you develop new relationships is RTP, for cross-border, the way to generate that trust?“ he asks. “And also, from an ISO 20022 perspective, what more can go into the payment request that can create those simple, efficient consumer, peer-to-peer and business cross-border processes?” Brooks is confident RTP will quickly morph into cross-border payments after it conquers domestic markets, and there will be a continual development of message contents by governments, banks and fintechs, to enhance its uses. And he has this prediction: “Crystal ball-gazing, I would say within the next three-to-five years you’ll see RTPs appearing cross-border. It’s going to happen. If we don’t do it, and if we don’t set some standards around it, then it'll be a bit like the Wild West and this will allow the fraudsters and the gangsters of this world to come in and manipulate it, and we’ll lose a bit of control. “SWIFT is a brilliant example of a messaging service that sets the standards for the world. Every organisation around the world, particularly banks, utilises that service to send messages, and it’s pretty safe and secure. “Here in the UK, we’ve built RTP so that it can accommodate BIC (business identifier code), IBAN (international bank account number) and ISO 20022 capability. And the other difference, from any other proposition around the world, is we’ve made it payment-agnostic, so you can pay using Faster Payments, debit and credit card, PayPal and even, to some extent, cash. “We think we’ve built a really solid RTP proposition, here in the UK, and we’ve also future-proofed it in the global proposition that we’ve put together.” Shorthouse also sees other use cases for RTP as an overlay service.

“There are opportunities to overlay other services on top of it, say with financing, like buy now, pay later (BNPL); there are opportunities to upsell, to link to open finance. Banks have opportunities to offer additional products, but customers also have opportunities to get the right product at the right time.” Shorthouse also argues that forging partnerships with third parties, including fintechs, will be essential for banks to successfully implement and utilise RTP. “The banks are facing so much change at the moment – I know one of the executives we spoke to talked about change congestion – so, partnering with the right fintech, the right third party, will help them get those products out to market quicker,” she says. “And, because fintechs are increasingly specialising in RTP, they’re also going to be able to help you develop these into fully-featured products. I think RTP is going to be part of bigger products, not just on its own.”

Crystal ball-gazing, I would say within the next three-to-five years you’ll see RTPs appearing cross-border Adrian Smyth, NatWest

While acknowledging that there’s lots being thrown at banks, Brooks argues that RTP can help rather than hinder that process. And he concludes with this message: “It’s down to the banks now to say ‘what do we want out of RTP?’ “Talk to us, talk to Icon Solutions and all the other providers to find out what it is we’ve got to offer and what the propositions can offer your customers, both on the personal side and the corporate side.” It’s a compelling sales pitch. ffnews.com

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CUSTOMER EXPERIENCE: HYBRID PLATFORMS It’s getting personal: But what’s the best technology approach for legacy providers?

, e m ’ e e e ‘S m w o n k Modern payments need to service the needs of users, before even theyknow what they want, says Philipp Baecker, a partner in Bain & Company, and Mambu’s Kunal Galav

Consumers today want that ‘Netflix experience’. They want their products and services to know them and know what they want, before even they do, and payments are no different. The last few years have seen financial services revolutionised by mobile payments, embedded finance and, more recently, buy now, pay later (BNPL) services – a digital revolution only accelerated by the COVID-19 pandemic. But simply providing a quick and efficient solution is no longer enough. “Now what customers are expecting is ‘how can you do something which is for me?’,” says Kunal Galav, who runs the advisory team for EMEA at Cloud banking platform Mambu. “I don’t just want a credit card, I want a credit card that acknowledges who I

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am as a customer – treat me like you know me. So, what banks need is innovation around how products are offered to customers.” Such personalisation, enabled by data, is becoming one of the key drivers for banks’ growth strategies, agrees Philipp Baecker, an expert partner in digital financial services and advanced analytics at management consultants Bain & Company. However, providers need to remain wary of putting technology ahead of the needs of the customer – and not just innovate for innovation’s sake. “I’ve spoken to many people from the industry and you get that quote that ‘we need to become technology-first, mobile-first, AI-first’. Which is all fine but, at the end of the day, it strikes me as a bit of innovation theatre,” he warns. “It’s very easy to get into a situation where you have a solution in search of a problem. But if you start with the customer, you can actually turn it around.” So what, exactly, do customers want today? If the mile-long queues outside any Apple store at each of its latest tech launches are anything to go by, it’s the convenience of having the world in their pocket. They can surf the web, organise

their affairs or see something they like and buy it, at the touch of a smartscreen – meaning banks face a competitive threat also from outside their own sector. “I always use the analogy that, when a bank launches a credit card, there are no customers who line up on the street,” says Galav. “But when somebody launches a new iPhone, there’s always a line of customers. So, I think it’s about that connectivity, being closer to customers, and customer expectations are rapidly changing.” Indeed, super-apps such as Alipay and WeChat are already leading the way in the payments revolution in places such as China and parts of Asia. E-wallet app Alipay also enables users to hail a taxi, get a credit card and buy insurance, while Tencent’s messaging app WeChat facilitates payments, gaming, ride-hailing, and more. In India, Paytm lets users do everything from paying bills to booking cinema tickets and investing in stocks. Europe and the US may currently lack obvious equivalents, but are already seeing the rise of embedded finance, with major retailers such as IKEA and Amazon expanding into the payments space. Meanwhile, the BNPL market is thriving in

ffnews.com

its efforts to make achieving those hearts’ desires ever-easier through instant credit, with platforms such as Klarna and Clearpay leading the way.

INCUMBENTS CAN DO IT, TOO! Baecker would argue that banks and payments providers can address, and meet, this change in customer expectations by taking a shared legacy approach – using a combination of Cloud-native digital platforms alongside, or on top of, banks’ existing digital capabilities. They should also look beyond their own capabilities, to partnerships, in order to help them think outside the box. “It may seem obvious, but if you look at many of the more successful technology businesses, a lot of the value creation actually comes from outside the firm,” says Baecker. “It’s about orchestrating different players and coming together, in the sense of delivering differentiated, customer-focussed products.

I don’t just want a credit card, I want a credit card which acknowledges who I am as a customer – treat me like you know me Kunal Galav, Mambu

“In banking, I think that’s the biggest mind shift. That you open yourself up to an open platform and become more agile in making those partnerships work. And they are no longer limited to financial services; it’s about branching out into other areas, too.” Agility is vital from both a technological and customer experience point of view. Taking a shared legacy approach enables banks and other providers to use their current digital capabilities and plug in a new Cloud-native, Cloud-core platform – or digital product factory – meaning they can combine services without compromising customer experience. Simplification is paramount when it comes to making such things work, even if it may initially seem counter-intuitive when apparently adding technology complexity to the system. In former days, ffnews.com

the focus was largely on keeping systems lean and efficient, but that focus needs to change, says Baecker. “Nowadays, one needs to keep in mind the complexity you’re adding, or the technology you’re adding, and ask ‘does it make it easier for you to adapt to new customer needs?’. And if this is the case, you are actually simplifying – not necessarily in the sense of having a highly-efficient engine that does one thing very well, but you are building capabilities that are more valuable, because they are removing complexity around changing the system, adapting and bringing new products to market.” Galav stresses, too, that any new changes should answer the questions that firms are trying to solve, and also not disturb the existing infrastructure. To eliminate hurdles and ensure they don’t create new ones, he suggests organisations need to stick with current processes and have digital platforms aligned to their existing business model. Providers also need to be very specific about what kind of connectivity they need when building on legacy systems, so that they don’t replace a monolithic backend with a monolithic middle layer, warns Baecker. “You need to carefully think through what you actually need at this point. There are many things you can build on later, once you go to market and find out, for example, which specific customers are interested in a new product and what is critical for them,” he says. “While it’s likely they will eventually go for something that is fully integrated, that’s not necessarily what they always need on day one, when they go live with a minimum viable product (MVP). Exactly the opposite, in fact. Banks need to be very focussed when they think about integration.” Flexible APIs that can be readily tweaked make connectivity easy, and this avoids unnecessary disruption to the customer experience. Chile’s BancoEstado, for example, is leveraging Mambu’s Cloud banking platform and a shared legacy approach to offer new and intuitive products and services to its 13 million customers. Amsterdam Trade Bank has also used Mambu’s platform to successfully pivot into digital lending to small and medium-sized businesses. After reinventing its business model under the

new brand FIBR, it has also expanded into the UK and Germany. The effect on both banks of taking a shared legacy approach, explains Galav, is that they have been able to pivot their strategy and offer new products, because they are experimenting, rather than fundamentally changing their system. Echoing Baecker’s comments about innovation, he adds: “The principle to bear in mind is, it’s not a tech-for-tech problem; it’s a business problem, which is being solved in an efficient way, using technology.” Maintaining a hybrid proposition also empowers customers to make a choice as to which channel they prefer, which is much more advantageous and scales – in some respects – a lot faster, as it’s easier to capitalise on the existing brand and create something truly customer-centric, says Baecker. While some users will greatly welcome the opportunity to pay for goods with their mobile, others still prefer the simplicity of using a debit card, for example. What’s key is it’s their choice.

I’ve spoken to many people from the industry and they say ‘we need to be technology-first, mobile-first, AI-first’... It’s very easy to get into a situation where you have a solution in search of a problem Philipp Baecker, Bain & Company

Banking hasn’t changed much in the last 100 years – it’s still fundamentally about moving and borrowing money, and creating wealth. But what has changed is how customers interact with it, and the arrival of initiatives such as open banking means there is a lot more choice for consumers and a lot more data for providers to understand them. That enables better relationships to be built – something that is likely to prove vital as consumers expect an increasingly personalised, more intuitive banking service… much like the one they receive from their favourite streaming service. Issue 11 | ThePaytechMagazine

CUSTOMER EXPERIENCE: DIGITAL WALLETS

Holding on to the past? The notion of what a ‘wallet’ is, has already altered beyond recognition. But the biggest change could yet lie ahead, according to G+D’s Jukka Yliuntinen Banks and financial institutions like to talk about ‘share of wallet’, by which they mean the amount of customer spend their brands command. Now, there’s a new twist on that phrase. Financial and technology companies are competing for a share of the growing digital wallet marketplace, which is opening up many opportunities for payment and personal identification – not to mention emerging cryptocurrency – services. One company with a strong interest in this space, which Graphical Research says will be worth $60billion in Europe by 2026, is Giesecke+Devrient (G+D). The specialist in security technologies operates across connectivity, identities and digital infrastructures as well as banknote and securities printing, smart cards, and cash handling systems. There’s not much it doesn’t know about ffnews.com

the evolution of payments, having watched them develop since 1852 – not quite as old as the physical wallet that emerged with the first banknotes in the West in the late 17th century, but an impressive heritage, nonetheless. As its head of digital solutions and part of the company’s mobile security initiative, Jukka Yliuntinen is at the heart of the company’s digital transformation strategies, looking after the digital solutions portfolio for financial institutions. “Although printing is still something we do, we’ve come a very long way since the 1850s; digitisation is now the driving force behind all our specialist areas,” he says. Digital cards and mobile communication are at the heart of wallet solutions that have been developing for more than a decade on the back of smartphones. But, Yliuntinen admits the semantics around ‘wallets’ are often confusing, the technology described in different ways for different objectives. And, as use cases increase, the definition has become even more open to interpretation. “Nowadays, most people think of wallet technology as an app that you run on your smartphone,” says Yliuntinen. “The first implementations were around 15 years ago, through mobile money

providers such as M-Pesa in Kenya and GCash in the Philippines. The arrival of near-field communication (NFC) was a big enabler and we saw the rapid emergence of the now-familiar ‘Pay’ brands – Apple, Google, Samsung, and so on.” It’s become a very crowded marketplace since, with many different types of wallet, operated by a sea of brands. And, as adoption has increased, people are using them for a variety of purposes, linked to, but with utility way beyond, payments. Samsung, for example, has just unveiled a digital wallet with crypto and digital documentation capabilities. Among other features, it can store student IDs, driving licences and national ID cards in digital formats. Apple, meanwhile, is improving usability with the announcement that it will enable millions of merchants across the US to use their iPhones to accept Apple Pay, contactless credit and debit cards, as well as other digital wallets. Tap To Pay will be available for payment platforms and app developers to integrate into their iOS apps and offer as a payment option to business customers. Stripe will be the first. “Positioning has become important over the last two years, in terms of who the wallet issuer is,” says Yliuntinen. Issue 11 | ThePaytechMagazine

CUSTOMER EXPERIENCE: DIGITAL WALLETS “Banks are very conscious that, if they’re not active in this space, they might lose some of their business, or at least lose relevance in the eyes of their customers. The question for them is: if you don’t have app-based financial services, how can you reach and retain customers? And, of necessity, over the last two years everything has become more digital because of the pandemic.” In particular, COVID-19 has highlighted the case for digital identification and verification, with digital health certificates becoming a hot topic, and fuelling the debate around digital identity as one of the services wallets could offer beyond payments.

thinks digital wallets haven’t changed much in the short term as a result of the pandemic, not least because regulations need to keep pace with digital transformation, it has demonstrated how switching to a digital infrastructure can work smoothly for essential services. It has also shown that the more digital we become, the more digital identities will be part of our online and connected world. “Payments, of course, is where the big change has already occurred,” says Yliuntinen. “Payments are a must for banks because they’re an everyday interaction. If you don’t offer this facility, you don’t have Smart moves: Mobile providers are driving the wallet agenda

Access all areas Yliuntinen points to the European Commission’s recently introduced proposal for electronic identity wallets, in the form of smartphone apps, whereby EU citizens would be able to access a wide range of public services and store official documents. The Singapore government’s Singpass operates on similar lines, but across one jurisdiction. “It remains to be seen who the issuing organisations [in Europe] will be,” says Yliuntinen. “Will it be the government, a bank, a coalition of banks or other companies? But what it does mean is there will be a very high level of identity assurance, via a digital wallet, for every European citizen as well as every business. From a banking and financial services perspective, even if you don’t issue an identity wallet, you need to accept one.” Yliuntinen says wallets have an innate versatility because they can embrace different attributes and data elements for identification and verification. For instance, for age verification, it’s only necessary to know how old someone is, not their name or where they live, while other data in the wallet could also perform specific functions to access a service. As for the pandemic, although Yliuntinen

If you look at what the big techs are doing, you see a portfolio of attractive and readily-available services through their apps. If your bank can’t provide the same service level, the same experience, you may transfer your loyalty to another provider

ThePaytechMagazine | Issue 11

appeal for the consumer. On top of that, you can provide other essential banking and financial services, and perhaps even offer insurance. Some of our customers are insurers, and they now want to embed payments to engage customers.” Digital identification is a nice add-on, he says, but, as a consumer, you need to know who to trust as the provider – in other words, the digital wallet issuer – amidst an ever-growing array of providers and loyalty schemes. Trust and security are clear issues, as is interoperability, which is still a challenge for the widespread adoption of digital wallets. Tokenisation is one of the technologies that is helping to smooth the path for

wallets and mobile payments. Yliuntinen explains how it can help improve wallet security by digitising payments and masking sensitive data with non-sensitive information so that transactions can’t be exploited by fraudsters. “If I have a credit card or debit card, I can tokenise it,” he says. “That means I can use surrogate data, which could be in my Apple Pay wallet, or my issuer wallet, or it could be with my e-commerce provider. I can use it to make the payment securely, like any physical card, because it runs on the same card rails. “Moreover, if I lose my Apple Pay or Google Pay or something is compromised, I can terminate the token, but my real card still works and my Google Pay still works. All I need to do is generate a new token, then I’m ready to make another purchase with my Apple Pay.” Yliuntinen says that this simplicity and ease of use has obvious appeal for consumers, and that the availability of so many services has big implications for loyalty and customer relationships across the financial industry. “Nowadays, you have so many different options for the same services,” he says. “And if there’s a deterioration in user experience, an individual will consider shifting their assets to another provider. “If you look at what the big techs are doing, you see a portfolio of attractive and readily-available services through their apps. If your bank can’t provide the same service level, the same experience, you may transfer your loyalty to another provider.” But while usability and convenience are the most important factors for the long-term success of digital wallets – as well as the need to progressively add new use cases and enlarge their scope – trust, believes Yliuntinen, will remain a key issue. Convenience and slick functionality are not the only criteria for consumers. Big tech may have power, reach, plenty of resources and innovative ideas, but the likes of Facebook and Amazon still need to win the confidence and acceptance of consumers. While the ‘wallet’ for many banks and established financial institutions is still that dog-eared card carrier in your back pocket, rather than a mobile app, they have earned trust through generations of reliable service and dependable security. Those are the ties that will still bind many consumers. ffnews.com

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CUSTOMER EXPERIENCE: HOME LOAN AI

MOVING

FORWARD UK lender TSB and Australia’s Sandstone Technology have both seen artificial intelligence come to the fore during one of the most volatile homebuying periods in history. The bank’s Mike Gamble and Sandstone’s Ross Watts swap stories

There’s no place like home, but millions of us were desperate to change ours when the world was told to stay indoors. Eight months after the first UK lockdown in 2020, demand for mortgages was at its highest in 13 years. Breakneck property sales were still going strong the following autumn, with spiralling house prices defying the rules of normal economic activity, as a set of extraordinary circumstances combined. Near-zero interest rates, low inflation and fiscal and monetary policies designed to support the economy and the property sector in particular, a demographic shift as working from home became the norm for many, and household savings accumulated from months of restricted activity, all conspired to create the boom. On the other side of the world, a similar picture emerged. In Australia, where, if anything, COVID restrictions were even more severe, house prices in Sydney rose by 15.1 per cent in the first five months of 2021 alone; Melbourne, which endured the world’s longest lockdown, saw a 9.4 per cent increase over the year. By the end of 2021, there were more home loan applications in the system than at any point in the last decade. The public’s sudden desire to up sticks and move left many financial institutions in both countries overwhelmed; such hot ffnews.com

property markets put direct and collateral stress on banking systems and forced lenders to look for ways to stay ahead of the game. TSB Bank was one that massively benefitted as the UK packed its belongings into removal vans because the lender was digitally well-prepared for the challenge. Remembered by many in the UK from its 1980s advertising slogan, ‘the bank that likes to say yes’, TSB had been forced to rebuild both its reputation and its IT infrastructure following a disastrous tech migration to new owner, Spanish bank Sabadell, in 2018, when millions of customers were locked out of accounts for weeks. And, as average house prices increased by 10 per cent over the year, TSB kept pace with buyers and said ‘yes’ to the tune of a record £9.2billion of gross mortgage lending. By placing an emphasis on digital, it had built what is widely acknowledged as one of the most modern banking systems of any high street lender – although, critically, as Mike Gamble, director of analysis and design at TSB, stresses: “The human element of banking is really key to us and how we connect the digital world to the human world is absolutely front and centre for TSB.” Ross Watts, chief customer officer of Sandstone Technology, whose LendFast platform processes about 20 per cent of all home loans in Australia, couldn’t

agree more. There, processing staff, in addition to dealing with the sheer volume of business, were also under pressure to stay on the right side of compliance after a series of scandals that had seen major lenders fined for sending billions of dollars to operations overseas without appropriate governance – errors that, Watts argues, could have been avoided by using AI. In both TSB’s and Sandstone Technology’s cases, AI has been the answer to meeting the needs of customers during a pandemic, in a fast, compliant – and human – way. It could take care of the hard stuff in the background by making processes more efficient, while freeing up people to deal with issues that require personal interaction – to the benefit of the banks and customers alike. The jewel in TSB’s digital crown is its AI-driven TSB Smart Agent, developed with IBM and launched in the mobile app within just five days at the start of the pandemic to give customers immediate access to measures such as repayment holidays for mortgages and loans. The live chat service – which uses IBM Watson’s natural language processing and is powered by LivePerson – answered more than 40,000 customer requests between March 25 and May 1, 2020, alone, using a combination of virtual assistant and employees. Issue 11 | ThePaytechMagazine

CUSTOMER EXPERIENCE: HOME LOAN AI “Our AI Watson brain within TSB Smart Agent is very good at identifying when customers are in financial difficulty, for example, or they’re vulnerable,” Gamble explains. “And we just flip them straightaway from talking to a TSB Smart Agent and connect them in real time to a human being. We see that as the most powerful development in how we are learning how to use this channel and technology going forward.” About 70 per cent of TSB’s five million customers are fully engaged with digital and the vast majority (90 per cent) execute their own transactions such as paying bills or moving money, says Gamble. “But, for me, the biggest learning is that it cannot be just standalone AI. When you want to speak to somebody about buying a home or restructuring your debt, or you’re in financial difficulty… that’s when the interaction is really important,” he says. “In retail banking, we’ve had to move fast to catch up with that.”

For me, the biggest learning is it cannot be just standalone AI Mike Gamble, TSB

TSB Smart Agent is on a continuous evolutionary path of improvement – another advantage of using AI and machine learning-based systems, adds Gamble. “We’ve seen more than 1.2 million conversations since launching with our customers. We teach the bot some basic principles of how banking works and how to support our customers, and then keep building on it. We get the analytics out and we’re tweaking it every day, As we keep learning, we keep re-educating it.” Gamble gives an example: “I never knew that a common term for ‘I’m moving home’ in Scotland is ‘flitting’. But our TSB Smart Agent now recognises that and will immediately help the customer record their new address.” Key to evolving, particularly at speed, has been working closely with partners such as IBM Watson and LivePerson, as well as with Adobe on introducing digital forms and electronic signatures.

ThePaytechMagazine | Issue 11

“We recognise we can’t be experts in everything,” says Gamble. For Sandstone, it’s AI’s role in back office processes that has really came to the fore over the past two years. “It’s almost impossible to handle the amount of data that is going through legacy systems, from a transactional perspective, using anything other than an AI-based solution,” says Watts. “Not only are we able to speed up the time per application, in terms of days to approval, we’re also able to increase the number of applications that are handled, and reduce the amount of work and error.” Sandstone’s AI-enabled Digital Intelligent Verification Assistant (DiVA) platform, for example, claims to reduce manual touch time in the assessment process by up to 80 per cent. As such, AI has become a critical part of the home-buying process in the fiercely competitive Australian property market. “AI is integral to our home-lending offering. It’s almost impossible to think how

asked for she knew, she knew how it worked, she knew how to support them, she pretty much knew every customer, as they walked in the door as well. I was just blown away with how professional this woman was,” he says. But then he sat with her behind the counter and realised that, on the other side of the screen, were hundreds of Post-It notes

much longer the home loan process would be for customers, for those people in processing centres, for the brokers who are referring loans, if we didn’t have AI intelligently sorting and managing those documents, in terms of identifying the key phrases, putting them the right way round, making sure that the dates are correct and valid, and then sending out notifications to accelerate that process,” says Watts. “And then AI is also helping lenders in so many ways to meet the obligations they have – to their customers, the regulator, and to their boards. “Those financial institutions that have AI within their processes are able to get to an approval in three or four days. There are other, really big banks over here being criticised because their approval timelines are about 23 to 24 days. That illustrates the quantum of difference,” he adds. AI in the back office can keep everyone in the property buying chain automatically updated – freeing up time and space for those human moments that really matter for customers dealing with one of the most stressful purchases of their lives. Gamble harks back to watching an in-branch colleague who was ‘absolutely amazing’ at her job: “Everything a customer

on the wall, telling her everything she had to remember. AI is modern banking’s automated equivalent of the Post-It note prompt. “Much of the conversation with our clients around AI is about how we can remove low-value, manual handling processes from the system,” says Watts. “How do we speed up the capture of information that’s going to provide insight to the business, to make decisions more efficiently and with more accuracy? AI plays a really important role in that, in addition to the areas that are customer-facing. “What you get, as a result, when you think about cost-to-income, is a happier customer at the end of the process, and a happier introducer (the vast majority of the market here in Australia is broker-introduced). And, if you’ve got happy brokers, you’ve got someone choosing you over a competitor. You’ve also got happy colleagues; people in the processing centres don’t have a customer or a broker breathing down their necks for information. That leaves the great, high-five moments. And those are the interactions that can be had between humans, because AI is taking care of the difficult stuff and creating a really efficient process.”

It’s almost impossible to handle the amount of data that is going through legacy systems using anything other than an AI-basesd solution Ross Watts, Sandstone Technology

ffnews.com

Automate the w*rk out of it. Integrate everything. Automate anything.

PAYTECH FOCUS: CATALYSTS FOR CHANGE Ratings war: Streaming services changed the movies; paytech promises to do the same for banking

Could PSPs be about to follow the likes of Netflix, offering customers an experience they don’t even know they need yet? We ask Workato’s Jonny Gaffney and Neil Drennan from Currencycloud By most metrics it’s clear that payments are going through something of a revolution. The combination of ever-improving Cloud technology and a consumer base increasingly demanding speed and ease of use, means that how we interact with our finances is likely to undergo almost limitless change. Being ‘nimble’, ‘agile’ and ‘fleet of foot’, seem to be the prerequisites for surviving, or indeed thriving, in a changing landscape. That’s why we sought the perspective of two people front and centre of this financial ‘revolution’. Jonny Gaffney from Workato, an integration and workflow automation platform, and Neil Drennan, chief technology officer at international payments solution provider Currencycloud, share their expert views on how the payments sector, and financial services generally, are likely to adapt and transform in the coming months and years. THE PAYTECH MAGAZINE: We’ve seen the rise and rise of challenger banks, which sell themselves on quicker and ffnews.com

more efficient payments. What opportunities and obstacles will these guys encounter in the future? JONNY GAFFNEY: First and foremost, consumer expectations have changed so drastically, over the course of the last 10-to-15 years. We, as consumers, really want information in our hands immediately, we want things to happen straightaway, we need speed, we need agility. That’s part of the reason why consumers are moving from some of the more traditional high street banks to these digital banks. But, at the same time, they face the challenge of how to scale up when they are growing so rapidly. For example, is their technology really capable of scaling with them? I personally think they are well-placed, typically, because of the mindset they’ve adopted in creating their organisations. Critical to scaling up is maintaining the personalised customer experience, like when you contact a customer service agent and they immediately have all of your customer information at their fingertips; they can talk to you in a tailored, non-robotic way. Customers now want and expect that.

NEIL DRENNAN: There are, indeed, opportunities but also obstacles. Challenger banks run at a fundamentally lower operating cost than the incumbents. So, they’ve got the advantage of being nimble, agile, working with new technologies and generally being fast, in terms of the products they provide to the market. Their big challenge is that it’s capital intensive to be able to acquire customers and entice people to move away from the incumbent banks that they’ve typically been with for a very long period of time. At the other end of the spectrum, the incumbents have an infrastructure that is extremely costly to run. If you look at, say, JP Morgan Chase, they spend more than $10billion a year on their technology operations – it’s the single biggest cost line. So, you’ve got a situation where incumbents are having to really address their cost base, while challengers must ensure they’ve got enough capital to entice customers away from the incumbent banks. It will be fascinating to see who wins out, in the middle ground between those two ends of the spectrum. Issue 11 | ThePaytechMagazine

PAYTECH FOCUS: CATALYSTS FOR CHANGE TPM: You’ve touched on it already, but how can the incumbents evolve in this digitally-focussed space? ND: Operationally, they have things to overcome. Incumbent banks grew up with the branch and then had to add telephone banking, then web banking, then mobile banking. These were typically vertical silos that were bolted on, organisationally, into the bank, and so, consequently, there was a lot of duplication in the underlying architecture, to be able to deliver the service, and they were treated as quite separate things. A number of the Tier 1 banks have this problem, because you’ve got this organically growing architecture where the question ‘what problem set are we trying to solve holistically?’ wasn’t considered.

We’re seeing that people are inherently impatient, they want things quick and easy, so their experiences with banks and also retail must reflect that Jonny Gaffney, Workato

Therefore, making changes within that is hard, especially if you want to do something across channels. You’ve got to make changes to the branch, to the telephony, to the web, and to the mobile space. Whereas, when designing and architecting a Cloud-native platform, you start with the architecture first, then map the team structure to the architecture, to deliver the thing more efficiently. You’re not starting with a very complicated spider’s web of technologies; you’re starting with the opportunity to do things in a common and consistent way. That gives you the ability to scale, through common processes, across the organisation. That is a fundamentally different competitive advantage point in terms of how the wave of technologies are being applied, through Cloud-native approaches. It’s very hard for incumbent organisations to break apart those silos. I think a number of large institutions are thinking about those different technologies, but the fact that they’re thinking about it now, and it is a conversation at board level,

ThePaytechMagazine | Issue 11

and at CEO level, is a bigger shift than I think has happened in the last five years or so. It’s now an organisational imperative to come up with a strategy and an approach, because you simply will not be competitive in five years’ time, if you don’t do it. JG: For sure, the banks that have that agility, the mentality to adopt change, and change quickly, are the ones that we anticipate are going to be the ones that scale the fastest. Traditionally, the high street banks have not been able to adapt to change quite as quickly as their digital counterparts, and so, in order to keep progressing forward, that kind of mindset really might have to shift. TPM: Customer expectations are driving a lot of change, particularly in retail payments. How has this fed into the rise of the challengers? JG: Customers see speed and a seamless experience as absolutely paramount. For example, we’ve all used a market checker tool, or a price comparison website, right? There are lots of different ones, all competing with each other, and the smallest thing, like a confusing question, means that we click off it and go to something else. That kind of pick-up-put -down approach is rife. And I noted that a popular car buying service has reduced its waiting time for getting a new quote for your car, from a minute, down to 30 seconds. Just 10 years ago, the process for selling your car took weeks and now we’re talking about half a minute! People are inherently impatient, they want things quick and easy, so their experiences with banks and also retail must reflect that. ND: The Cloud and automation are essential if you look at it from an end-consumer point of view. Availability, latency and error rates are the key metrics. Automation has played a significant role in improving availability. Gone are the days of a private datacentre, where you’re doing an active-passive failover between two datacentres that you spent several billion pounds building. Now, running in the Cloud, it’s self-healing. If one component goes down, it identifies this and brings another one up in its place, automatically. It dynamically scales, based on the load profile, the custom metrics that you set up. But then, when you look on the business

processing side, if you look at payments processing, foreign exchange and collections, the level of automation and replayability of messages, which previously would’ve had to be manually scrutinised, and manually replayed, has increased significantly as well. TPM: What are your predictions for the future of the financial sector? JG: We can already see the emergence of Cloud technologies, the emergence of AI, all contributing to a digital banking revolution. Those things are going to continue, over the course of the next few years. I think we’re really still at the start of something special – the art of the possible here is really wide ND: We’re going to continue to see Cloud-native platforms become the dominant mechanism going forward. The second trend is going to be in AI – although there are challenges around auditability, and being able to prove to a regulator why a given model made a decision, which we need to crack.

We have an opportunity to fundamentally rethink the basics of the financial services sector, and how we can deliver a far better experience than how it’s been done previously Neil Drennan, Currencycloud

I think the third trend is driven by end user experience and end user demand, and that’s about moving to real-time processing. Not real-time payments taking two hours, but, instead, milliseconds. We have an opportunity to fundamentally rethink the basics of the financial services sector, and how we can deliver a far better experience than how it’s been done previously. We’re going to see similar changes in financial services to those we've seen in media and entertainment – wind back to Netflix providing DVDs, compared to where they are now, completely transforming the sector. Financial services is going to have that moment, over the next few years, and that level of disruption is going to come into play. It’ll be an interesting ride! ffnews.com

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RISE OF THE SUPER-APPS: SCALING THE HEIGHTS As Curve prepares for a full launch in the States, Founder & CEO Shachar Bialick sets out why it will succeed in its super-app mission – and why others might fail What do US grocery chain Walmart, French healthcare insurtech Alan, UK challenger bank Revolut and Mexican buy now, pay later (BNPL) platform Kueski have in common? Answer: they are among dozens of companies worldwide to have declared their ambition to build a financial services super-app – a project that the CEO and president of payments giant PayPal admits is one of the most difficult that it, too, has undertaken. PayPal is going for global scale – its president Dan Schulman is quoted as saying that around one billion users would be ‘ideal’ and it’s been busy acquiring companies to populate a super-app ecosystem that can deliver it. Those acquisitions include operators across buy now, pay later (BNPL), crypto, logistics and internet search capabilities. Without the capital resources of a PayPal and with a slightly less ambitious geographic horizon – indeed, its founder is quoted as saying that ‘it would be highly improbable that a single super-app takes over the world’ – Curve is steadily building a similar proposition in Europe and the US, but by stealth. Seven years ago, just as challengers reached a feeding frenzy, tearing chunks out of the traditional consolidated banking model to offer up discrete services, Curve launched its ‘over-the-top’ card aggregation technology in the UK – correctly predicting that the inevitable consequence of things breaking apart was that, before

too long, there would be a great ‘rebundling’ – and it would be ready for it. The logical conclusion of the re-bundling process is for a number of powerful providers to emerge with propositions that, ultimately, take care of all of a user’s financial needs, plus some. In other words, in Curve’s genesis was its destiny: to become a super-app. Indeed, in its new report, The Race To The Super App, fintech-focussed advisor FT Partners observes that Curve ticks all the necessary boxes to succeed. The report identifies a super-app’s defining characteristics as being able to deliver greater value, in terms of a user’s time, money and customer experience, than the user would receive by going to individual apps for each product; and it must have a large and engaged base of customers who are willing to expand their interactions with the app – because the super-app business model is dependent on cross-selling: “Every incremental product sold to an existing customer comes with essentially zero consumer acquisition cost (CAC), making these cross-selling opportunities highly profitable,” the report said It also noted that, in the past 12 months, Curve has changed its place in the super-app food chain: having started out as a pure, ‘over the top’ aggregator model, it’s now taking a hybrid approach, no longer just connecting customers to third-party accounts, but offering in-house products as well. Having worked with regulators to allow its proprietary tech to bring ground-breaking new tools to market, such as its ‘go-back-in-time’ feature (savvy users can flip transactions between their cards after payments have been processed – thus beating fees and interest and easing cash flow), Curve launched its own flavour of BNPL in

2021, a tool called Flex, under the slogan ‘F*** it… not what you think!’. It’s all going nicely to plan, according to the man who wrote the pitch-deck for what was known as ‘Plastic’ back in 2015 – Curve founder and CEO, Shachar Bialick. “I think you can measure the strength of a vision by looking at what that vision was in the early days of the company and what that vision is today,” he says. “Instead of us changing the vision, the market evolved as we predicted it would – which put us in a unique position as the ultimate aggregator in that market. Now, we only need to keep growing the geography and product activity.” It’s worth noting that Bialick’s pitch-deck also included a BNPL prototype. “There’s a slide on the deck that tells you we will introduce the ability to pay with instalments anywhere in the world,” he says. “I’m from Israel and you can go into any merchant there and ask to ‘pay in three’. That’s existed since I was one year old. So, I knew it was a great product, but I also knew we could make it much better. “About two-and-a-half years ago, we started to put investment towards Curve Flex, hired a team led by Paul Harrald (a former credit and risk advisor at Google) as head of Curve Credit globally, and started to apply for licences in the UK and the European Economic Area (EEA). The BNPL market then became super-hot and we are there with everyone else, but offering a unique experience that no one else can.” That unique experience is tied to the app’s go-back-in-time feature, which also allows users to revisit payments made up to a year before, split them into three, six, nine or 12 monthly instalments and be refunded the original amount by Curve. “We saw BNPL five years ahead of time and acted on it two years ahead. That’s why it’s important to have a clear direction and vision of where things could go,” says Bialick. “And, while sometimes that means you’re, in effect, taking bets,

Super-charg 52

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ffnews.com

good founders and good teams are rigorous on the inputs to realise a predictable output.”

FINTECH’S MR FIXIT Early Curve adopters were hooked by its ‘one-card-for-all’ payments and withdrawals utility, allowing them to combine all their credit, debit and loyalty cards in one. They raved about the user experience (UX) and, as more features and rewards were added, the fandom has grown – especially among affluent, well-educated users who know a good thing when they see one. Its two million-plus customers spend between £1,000 and £3,000 a month over the platform and have been largely responsible for its organic growth by enthusiastically referring others. The fintech has made a virtue of becoming the ‘Mr Fixit’ of financial services, coming up with workarounds such as allowing Amazon’s UK customers to continue to put spending on their Visa credit

cards after the marketplace stopped accepting those payments; and striking a partnership with Huawei to allow its European mobile phone users to enjoy near-field communication (NFC) payment functionality, courtesy of Curve Pay, when

To come to the US with a product whose entire proposition is user experience – as N26 and Monzo did – I believe will fail… Why would Curve succeed? Because the wedge we’re trying to bring to customers doesn’t yet exist in the US

they were prevented from downloading Google Pay as a result of US sanctions against the Chinese technology company. Within weeks of it announcing, in January 2022, that it would enter the US market this year, there were 8,000 people on the waiting list. They clearly weren’t bothered by who Curve chooses to share its technology with, but other European challengers haven’t exactly received a hero’s welcome, State-side. German neo N26 pulled out of the US in January after acquiring a disappointing half-a-million customers in two years; the UK’s Monzo appears to have given up trying to get a full US banking licence after 18 months in Beta, fully launching, instead, on the back of Ohio-headquartered Sutton Bank early in 2022. So, why is Bialick so confident that Curve will make a smooth journey across the Pond? He says it’s all too easy for European fintechs to treat America as a nice-but-dim cousin, and underestimate how sophisticated the US banking market’s customer experience has become. They also fail to realise how important it is to have boots on the ground in order to fully grasp how different from Europe it really is. “Banks in the US – Chase, Bank of America, Citi, Capital One – are providing remarkable customer experience,” says Bialick. “Take the Chase app. When I saw it two years ago, it was beautiful – already equal to Monzo. There is nothing that Monzo is offering that Chase doesn’t offer, and Chase is one of the strongest brands in the world. So, to come to the US with a product whose entire proposition is user experience – as N26 and Monzo did – I believe will fail.”

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RISE OF THE SUPER-APPS: SCALING THE HEIGHTS He’s not convinced that European neo Revolut (which launched there in 2019 and has also declared its super-app ambitions) will fare much better. “Revolut is about consumer foreign exchange (FX) and travel. But the problem is that most banks in the US do not charge you FX to begin with, so there is no wedge there. And, secondly, the majority of Americans don’t even have a passport, so they don’t have the currency problem that exists in Europe.” Curve, he insists, isn’t going to make the same kind of assumptions – or mistakes. “Why would Curve succeed? Because the wedge we’re trying to bring to customers doesn’t yet exist in the US,” says Bialick, citing figures that suggest Americans are juggling twice the number of cards in their wallets as the Brits and Europeans, making Curve ‘a better fit’. And, he says, it’s learned from the failures of others when it comes to team-building in the US. It installed American military special forces veteran Amanda Orson as general manager and gave her freedom to decide what would work there and what wouldn’t. “She’s built a Curve proposition with similar positioning to a super-app, but the product experience in the US will be different to that in the UK and European markets because there are different needs, different problems to solve, different regulations to operate under. We’ve been quietly launching in alpha over the past few months and, as soon as we’re happy with where the product is, we’ll scale it up,” says Bialick. He continues to insist that Curve ‘is not here to disintermediate or displace the banks’, and yet it’s hard to see how it won’t, given that the first commandment of super-apps is ‘thou must own the customer relationship’. “We believe banks are doing a great job,” says Bialick. “But what do you define the job of the bank to be? We define the job of the bank to be the long arm of the regulator and to multiply money for the economy; from a customer’s perspective, it’s to keep money safe and banks do that better than any fintech in the world.” Notwithstanding his admiration for US banking apps’ above-average UX, he says that, on the whole, existing providers don’t offer the sort of experience customers expect. “It’s not in their DNA,” says Bialick, “and this is exactly where Curve comes into play

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and says ‘keep your money where it is and we’ll super-charge the experience you expect from a bank’. “The result of that is that we must transfer as much information as possible to that underlaying bank. So, for example, prepaid products that require you to load money in advance of using them would not be sending any information to the bank – it would see £500 leave the account to go, for example, to Revolut, but it would have no idea what the customer was doing with it. When customers use the Curve card, we send information in real time to the bank – so, if I use my Santander card with Curve to buy a Starbucks, for example, Santander knows about it. “And that principle has been very important to our success because the banks realised we weren’t here to compete with them, but to help them understand their customers better.”

Nothing can stand between Curve and the customer… you must be the only instrument they’re using Clearly, not everyone agrees: the third-biggest credit card network Amex has consistently held out against its members integrating their cards with Curve, despite a long campaign by the fintech to bring it onside – a battle that demonstrates just how critical being ‘top of wallet’ with each and every customer is for a would-be super-app. “Nothing can stand between Curve and the customer,” says Bialick. “You must be the only instrument they’re using, in the same way that Amazon is top of e-commerce and Netflix is top of screen. Because, if you’re closest to the customer, you have maximum access to data. And not just any access, but read and write access, because your job is to advise the customer what to do, ask the customer what they want and do it for them.”

FINANCIAL LIFE HUBS Bialick’s own two definitions of a super-app are that they are ‘a self-contained and curated marketplace where customers know they can reliably find high-quality financial products and suppliers’ and that they are ‘the central component in a person’s financial life. They are closest to

the customer, and the focal point of access to everything money – their go-to source of truth for spending, sending, seeing and saving their money’. There’s no lack of ambition in the Curve camp to be that ‘source of truth’ – and all of it, so far, has been propelled by a comparatively conservative $200million of fundraising. The US has proved it can be an expensive graveyard for European fintechs, but Bialick is confident that its triple-bottom-line revenue model – made up of the income Curve receives every time a customer spends money with the Curve card; the monthly subscription fee a significant cohort of customers pay to be able to access premium capabilities; and platform revenue lines, such as those from Curve Credit lending products and insurance – makes it sufficiently resilient. While all eyes are on how it fares in America, 2022 will be a significant year for the fintech in other ways, too. There are plans to launch a new Curve app in Europe and to extend Curve Credit products beyond ‘go back in time and pay later’, to refinancing card balances. “We see all your cards and we can perhaps see you’re paying a lot of money on one of the cards that we might be able to re-finance,” explains Bialick. “Instead of paying 25 per cent APR you might be able to pay 12 or 13 per cent. We can be fairer to the customer because we understand the data and the risk model better. With one tap you will stop owing anything to a credit card company and have an instalment loan to repay that debt with us.” It’s also recently added limited cryptocurrency functionality – something, Bialick admits, it didn’t see coming seven years ago. In October 2021, Curve cardholders were given the freedom to buy cryptocurrency at certain merchants including Banxa, Bitpanda, Coinbase, Crypto.com, Kraken, MoonPay and Uphold. Ultimately, says Bialick, decentralised finance will present just another opportunity to curate and advise because, as the financial space accelerates with choice it ‘merely acts as a tailwind in Curve’s sails’. “There are very few companies that can achieve the stardom of Spotify, Amazon, Netflix and the like,” says Bialick. “They rebundled music, commerce and movies. We’re rebundling finance, which is probably bigger than all three of them. And the impact we can deliver is pretty significant.” ffnews.com

RISE OF THE SUPER-APPS: THE BIG QUESTION They’re our virtual valets, poised to fulfil our every whim… we asked Gijsbert Pols from Adjust where the super-apps’ super-powers might take them next Anyone with kids – and many without – will be familiar with Iron Man’s virtual assistant, Jarvis – and will no doubt have mused on how wonderful it would be to have a Jarvis at their own beck and call. Could fiction now be about to blur into reality with the rise of so-called super-apps and numerous financial firms, big tech providers and even traditional retailers queuing up to develop the one that trumps all others when it comes to fulfilling our every wish? The explosion in both popularity and capability among Asian super-app frontrunners like AliPay and WeChat Pay has proved the possibilities, believes Gijsbert Pols, lead product strategist for marketing analytics specialist Adjust, which supports app developers in better understanding their target audiences to thereby increase reach. At the heart of all super-apps, and their reason for being, of course, is payments the gateway to all the associated experiences they have evolved to provide. Alipay, for

example, started life as a digital wallet, later adding everything from e-commerce to stock exchange trading. The recent Industry Analyst Consensus Report from research house CB Insights, describes mobile wallets as ‘one of the fastest-growing industries in the world’, predicting explosive growth from $1trillion now to $7trillion by 2027. It also suggests that what it calls ‘super-wallets’ will replace single-function digital banking and payments solutions, and add functionalities from AI-powered digital assistants to digital IDs and document stores, with ‘a growing number of companies striving to become the go-to app for all things finance’ and so have ‘substantive impact on individuals’ day-to-day lives’. Companies vying to offer what the report

describes as ‘a connected ecosystem where users can manage payments, savings, investments, crypto, budgets, loans, insurance and more, all in one place’, include fintechs like SoFi, which started out as a student loan provider and added banking, investment, insurance and credit products, and Venmo, which has added a cash account, a debit card, a credit card, in-store QR payments and crypto investments. Then, of course, payments giant PayPal now provides access to high-yield savings accounts in collaboration with Synchrony Financial, as well as a bill management tool covering pay early as well as loyalty and rewards functions. In fact, life could get tricky for traditional financial services players that fail to embrace this trend, given the report’s prediction that ‘super-apps will be the dominant fintech strategy of the next decade, and pose a growing threat to legacy financial players as well as single-function fintech apps’. These players also face stiff competition from the likes of big tech, not to mention mobile technology providers, also keen to leverage their phenomenal user bases to gain a foothold in the super-app and super-wallet space. Adjust’s Mobile App Trends 2021: A Global Benchmark Of App Performance report found the pandemic had acted as a further springboard for super-app culture, concluding that ‘as lockdowns were

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introduced across the globe, users downloaded and opened apps at rates that eclipsed previous years and projections’. However, Pols believes the greatest evolution for these flexible, digital friends, through which we’ve become used to doing everything from ordering pizza to sourcing tradespeople and ‘meeting’ with friends around the globe, could yet lie ahead. We asked him how… THE PAYTECH MAGAZINE: There is clearly a lot of competition, with a wide range of providers considering entering the super-app space. What comes next? GIJSBERT POLS: Understanding what might be possible in the future, requires a glance back at the origin stories of some of the world’s current, most influential apps. Thanks to environments where there was no Google or Facebook, archetypal super-apps like WeChat and Alipay grew rapidly across a lot of verticals and into something that allows you to do basically anything. To explain super-apps, I always use the example that, one morning, you wake up and find your bathroom flooded. Then, you call a plumber and notify people at work that you have a home emergency you need to fix. You wait for the plumber, clean up the bathroom, and while you wait you might answer emails, check your stocks, watch the news, do some procrastination on social media. When the plumber arrives, you pay them, maybe also review them and call a taxi to get to work. In a super-app environment, you could do all that inside one app. And, in future, users will be able to do more and more. Super-apps are very well positioned to thrive in regions where there is a gap in terms of under-banking, or under-servicing. Indonesia is a very good example, where you have [ride-hailing app] Gojek that managed to profit from a situation where people were underbanked and where a lot of services were not available. In countries like Nigeria and Kenya, payment apps copy WeChat, in the sense that they try to grow across verticals, and offer as many services as possible. It’s something to bear in mind when you think about the Nigerian diaspora, for instance, sending huge sums of monies to their relatives back home. Super-apps like WeChat – and Paytm [in India], up to a point – are already starting to function as platforms or operating systems, ffnews.com

rather than tools. In WeChat, what they call mini programs, mini applications or applets, function as add-on pieces of software on the platform rather than an app next to another app, allowing users to do things and third parties to offer services. In terms of a social function, it would be pretty hard to operate in China without WeChat these days. If I went there to work, as an expat, I would have to install WeChat to do business, socialise or even pay for finger food on the street. Super-apps can be a concierge in your pocket, you take them anywhere and you can do whatever you need to do, wherever you are. TPM: Clearly, the particular needs of developing countries acted as a catalyst for super-app creation. Could this potential be matched in the Western context? GP: In regions where there is a gap, or a vacuum, in terms of underbanking, or underservicing, super apps have been very well positioned to thrive. In most Western contexts, you still need six or seven different apps to do the same things. There are specific use cases emerging there, though, that are super-interesting. Right before the pandemic, for instance, a San

I don’t think we will ever see something on the scale of a WeChat in the West because regulation, at some point, will get in the way Francisco museum developed a mini program that could function on WeChat, which enabled guided tours for Chinese tourists. As an advertiser in North America and Europe, if you want to reach the Chinese diaspora, or Chinese tourists, there is no way around the super-app. Even Chinese people living in the UK use WeChat there, albeit not on the everyday basis as they would in China. I don’t think we will ever see something on the scale of a WeChat in the West because regulation, at some point, will get in the way, and adoption would be much slower because there is no under-banking and we have functioning legacy services in place. But it’s possible, as history does prove the case for convenience!

TPM: What is that secret ingredient that has made existing super-apps, well, super? GP: As well as the convenience, there’s the power of sheer mass. If your mother, your boss, your best friend and your nephew are using it, and your bakery allows you to pay with it, at some point, you’re going to have to, too. Then, super-apps have filled market gaps. Indonesia is the best example where, when it comes to banking, they jumped over a couple of phases, from cash directly into digital payment, because people can do so much with their Gojek or Grab apps: hail a taxi, book a massage, order goods, do their grocery shopping, and even, with Gojek, watch movies. What also makes them interesting, particularly Gojek, is people’s strong identification with them. Gojek, for example, has become a symbol of Indonesian economic development and prosperity. There was one point where Gojek was offline due to some regulatory issues and there was a massive outcry on social media, with the hashtag #savegojek. People start to identify with these super-apps – I would argue even more than they identify with the big techs. Digital payments and mobile are the basis of the super-app. The fact you can pay with it allows it to grow across the verticals. Even Gojek, which started as a ride-hailing app, smartly implemented payments so that Gojek drivers could be paid using the app, which allowed them to start other services pretty rapidly. It saw that its drivers, who are all employees of the company, were only busy during rush hour and weren’t doing anything in between. So they said ‘let’s start using them to drive people that offer services to people who want to consume them’ – driving people who offer massages around, driving groceries around, and that’s how the ball started rolling. TPM: Do you foresee any change in the companies dominating the super-app top table? GP: Not only are digital players like Facebook, Google and Uber trying to work their way into the super-app phenomenon, with things like Uber Eats, we’re also seeing more traditional, non-finance companies like Walmart starting to adopt super-app tactics. Issue 11 | ThePaytechMagazine

RISE OF THE SUPER-APPS: THE BIG QUESTION Walmart has been trying to develop a super-app in India, and is investing a lot of money in trying to beat Amazon and Paytm there because it’s such a big consumer market and they see that people have become used to doing a lot of stuff in one app. Given super-apps’ scope to disrupt the traditional financial landscape, in particular, banks urgently need to get in front. In the West, instead of just allowing people to manage their finances, banks should innovate by asking themselves ‘how do we enable people to do things?’, on a basic level. If they fail to do that, despite the huge trust people have in banks, and all the legacy that’s there, they will lose the game in the end. Having said that, banks are in a fantastic position to innovate. Because, let’s face it, what makes digital so successful? It’s data. And banks have a lot of data. With my bank, I sometimes think ‘you know what I’m spending, why aren’t you advising me where I’m spending too much, or too little?’. Why can’t I see how much I’m spending in different categories when I open my banking app? If they don’t start providing that, pretty rapidly, they are going to lose customers towards apps, super-apps or not, that do.

results in monopolies. Some super-app monopolies exist already, Gojek and Grab are in a monopoly position, and Paytm in India is heading there. The only way to do something about that is regulation. We will have to wait for a moment where the people who have legislative power are digital natives, too, and then we can reform, or legislate, the digital space in such a way that it doesn’t get in the way of business.

TPM: Are there inherent dangers in more super-apps forming digital monopolies, which could act as barriers to entry for others and potentially harm innovation? GP: Any major concentration of power, be it political, economic, social or cultural, has deficits, and monopolies have a very negative side that doesn’t fit easily with the concept of democracy. There’s the ever-growing gap between rich and poor, prompting concern over how rich the owners of existing monopolies are. That’s problematic and the same can happen with super-apps. The other thing we’ve seen with such monopolies, is that governments can make use of, or abuse, them. That’s something which is particularly topical, given current events. For example, the gigantic centralisation of data on people’s behaviour being used to basically spy on and repress them. And we know that governments, both in the West and other regions, have been doing this. Censorship takes place everywhere where these monopolies arise. We’ve seen that, in the digital era we’re currently in, laissez-faire politics

It’s a bit paradoxical, in that government is both part of the solution and part of the problem. They’re the only ones who can put the legislation in place that breaks these monopolies, but, on the other hand, they can also profit from them. It’s a tricky situation.

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The next revolution: We’ve only just scratched the surface of super-apps’ payment potential

TPM: Despite such concerns, where could the road eventually take super-apps, in terms of game-changing innovation? GP: We’ll see some consolidation in specific regions, particularly Southeast Asia, Africa and Latin America, where a lot of super-apps are emerging and, in the end, there will be only one, two or three. It’ll be exciting to see to what extent super-apps fulfil the platform function, as WeChat has started to do in China. Paytm, in India, has started experimenting with this, too, so you have third-party vendors that operate on the Paytm system, and it’s going to be interesting to see whether an app like Rappi, which is very successful in South America, will be capable of doing that, too. There’s still a lot of opportunity, in terms of capability, before they run out of road. In

the short run, we’re going to see this ‘concierge’ function, where it’s all about making sure the bakery around the corner from you, allows you to pay with the super-app, and so does your hairdresser and other such services. In the long run, it gets a bit futuristic and it’s about to what extent super-apps are going to provide a virtual experience, as well. WeChat is already offering gaming. In the very long run, I wonder whether super-apps will be able to allow users to interact as just a way of meeting, as well as playing games, in a virtual way. Up to now, super-apps have been mostly about digitising real-world services. However, in the future, I might use a super-app to play ping pong with a friend on the other side of the world. I'm not talking about video ping-pong, but actual ping-pong, facilitated by virtual reality. It’s going to be exciting to see how they can expand their offerings to a virtual space and, potentially, change the form of human interaction across geographies. The potential is definitely there to start experimenting in that direction. Something I’m also currently working very, very hard on, is connected television. What we saw in desktop computing, in the 1990s, and for mobile phones at the end of the 2000s, or beginning of the last decade, we’re currently seeing happening in television. In the US, people are, at an ever-faster pace, doing away with their analogue cable television in favour of connected, internet-based television. That’s a major disruption that I think will lead to the kind of creative explosion we’ve seen in desktop computing and mobile. Television content is distributed digitally, which already has a major impact on how it is consumed. It also results in the television device becoming connected with others, predominantly mobile phones, so there will be a lot more interaction between the mobile phone and the television device in people’s households, and they will manage their television consumption via their mobile phones much, much more, using them as a kind of remote control. We are already witnessing shoppable TV commercials and the mobile phone is going to play a major role in that. And, if you add then the whole idea of digital payments and further super-apps on top, it starts to look a lot like the next potential revolution to hit this space. ffnews.com

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PAYTECH FOCUS: FUTURE OF PAYMENTS

Where to now? It’s commonly assumed that COVID-19 sparked a dramatic directional shift in payments. But it was already happening, say Ray Brash from PPS and 11:FS’ Simon Taylor, as they predict more twists and turns ahead The rules of the payments game have changed, with the next generation of consumers more likely to have grown up playing Minecraft over Monopoly. Instead of coins, notes and cheques, digital finance is now the default. Today’s consumer places more worth on experience and getting the best deal over loyalty, so traditional financial services need to keep up. And, while COVID-19 has undeniably accelerated changes to payments, major shifts were already under way, pre-pandemic. So, where are we now, how did we get here and, more importantly, what could lie ahead? The first ‘real shift’ was characterised by the arrival of operators like online payment processor Stripe, and Square, which offers both online and in-store processing, in 2009/2010. These changed the payment acceptance landscape to make it developer-friendly and software and Cloud native by default, says Simon Taylor, co-founder and chief product officer at challenger consultancy 11:FS. “When payments became API-first, it didn’t mean doing what we used to do with XML, it meant being API-first businesses,” he explains. “[Stripe and Square] unlocked a whole world of innovation for developers. And when you empower developers, new, amazing things start to happen.”

All of the same suppliers, ecosystem and infrastructure were there underneath, but developers could suddenly use them in a way that made more sense, in modern software stacks. “I think a lot of the innovation we’ve seen on the acceptance side has come from that,” he adds. A similar trend can be seen on the payment execution side, with companies like e-money institution, digital banking, issuer and payments processor, PPS; payment processing solutions platform GPS (Global Processing Services), and digital banking service fintechs like Railsbank, also focussing on developers, says Taylor. The entrepreneurs and builders of these new experiences changed the default, the expectation and what people needed to do. PPS CEO Ray Brash agrees that ‘the tech has usually been sitting around for years and then someone decides how they can move in’. Mobile phones, for example, were not a form of payment mechanism for quite some time – until banks realised it was the single most important way they would talk to their customers. Regulators have also played a role in accelerating the move away from analogue, particularly for companies such as PPS, says Brash.

“From our perspective, electronic money was designed to allow payments to be used by non-banks in business applications,” he says. “That’s where the first pre-paid cards came from, and where guys like Monzo, Monese and Revolut all started – as e-money institutions. It was a way of getting into payments without being a full bank.” Did COVID-19 change the conversation around payments? Not necessarily. “The future was already here; it’s just not evenly distributed. What the pandemic did was just make everything faster, similar to a lot of inflection points in history, whether it’s television, radio or the internet,” explains Taylor. “All of them were there before they had hockey-stick growth.

Direction of travel: The payments compass points to digital all the way

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PAYTECH FOCUS: FUTURE OF PAYMENTS “Possibly the best examples are the iPhone and BlackBerry. You sort of had this weird period where everyone went ‘oh, you know, that’s great and we should look at it, but it’s not a serious thing’. Then it flipped overnight to become the only thing that mattered, and it concentrated minds.” Brash is in line with prevailing opinion that the pandemic didn’t so much drive change, as hasten it. “I think the players that were ready with a 100 per cent digital offer, saw demand for services increase during the pandemic. It probably gave them a bit of a capital boost, in terms of numbers. But I don’t think it changed payments specifically,” he says. The UK, for example, saw contactless payments limits raised to £100 during the pandemic. But, in many ways, that was irrelevant, when services such as Apple Pay and Android Pay have no maximum transaction limit, he observes.

Players with a 100 per cent digital offer, saw demand for their services increase in the pandemic. But I don’t think it changed payments specifically Ray Brash, PPS

“Clearly, there are parts of society that were not digitally savvy, people who had to suddenly become cognisant of what a contactless payment was, because retailers were asking for it. But there was [already] a momentum that’s been there for 10 years.”

A QUESTION OF CHOICE Across the world there’s been an explosion of payment types in recent years – from card transactions to e-wallet ‘super-apps’ like Alipay – and merchants are looking to provide their customers with as much choice of execution at the checkout as possible, keeping traditional acquirers very much on their toes. Will all this eventually consolidate? “Maybe,” says Taylor. “But, at the moment, it seems like the more of these options a merchant has on its website, the more sales it’s getting. And, when you throw open banking into the mix, as well, with PISPs [payment initiation service providers],

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innovations around payment types at checkout are exploding globally. It’s becoming a real battleground.” Users worldwide tend to hone in on ease, observes Brash: “Consumers want to be able to pay conveniently and get out of the website checkout experience as quickly as they can.” But, while that might be a universal desire on the part of the consumer and change looks inevitable, that change is not necessarily uniform – providers still need to be aware of regional needs and nuances. One huge determining factor that tends to vary wildly across markets, is the level of security and regulation surrounding the payments process. Standards in South America, for example, are very different to those that payment processors have to work with in Europe. Underlying technology is also key to how payment solutions work and there will likely continue to be a divergence in that across markets, as illustrated by mobile phone-based money transfer service M-Pesa, which is well-established in Africa but an attempt to launch it in Romania was short-lived. Culture and market context also matter. Consumers in Indochina and Southeast Asia, for instance, place great emphasis on getting a good deal and value for money – more so than in the US and Europe – and that tends to define their payments preferences. “How this manifests itself is with loyalty, rewards and offers,” says Taylor. “The consumer is quite happy to have five or six apps on their phone and flip between them for the best deal. And the apps are happy to promote different offers, because it supports customer acquisition, brings people through the door and is, therefore, seen as a cost of doing business.” One emerging alternative payments rail that’s making real headway, thanks to dramatic growth over the past two years in all regions, is buy now, pay later (BNPL). “That’s because BNPL isn’t a point-of-sale lending solution; it’s a shopping app that also does lending,” says Taylor. “These folks aggregate many different merchants, help you find new offers and new places to buy, manage delivery risk, and you can send things back. Why wouldn’t I use that app, when I see it at checkout, for everything? So, I think we might start to see innovations come from that corner of the world.”

Buy now, pay later solutions also have an added advantage over cards in that they directly connect buyers and sellers, enabling the latter to learn about the former’s spending preferences. Indeed, what BNPL providers are really selling to the merchant is more sales, says Taylor. “And I think that’s been something missing from some of the incumbent banks, historically, which have been selling payment acceptance,” he adds. With so much choice at their fingertips, those banks’ retail customers, too, are far more likely to shop around for services. “My kids’ generation will expect to switch, and they will be brutal,” predicts Brash. “That is the generation that is going to move payments and financial services forward, because the market is going to have to be super-competitive and it will have to adapt to them.” Taylor agrees, particularly in the US and Europe, where younger consumers are far less likely to own a home and have less average income over their lifetime than their parents enjoyed, so their choices are much more likely to be driven by value propositions.

There’s going to be a massive intergenerational wealth shift and a massive shift in who the core suppliers and market winners are. And I don’t know if that fact has really landed yet with a lot of providers Simon Taylor, 11:FS

“People make fun of this generation for buying too much avocado toast. They don’t make fun of them for their rents and the price of property being too high, because the generation before them lived off low interest rates and the asset boom,” says Taylor. “There’s going to be a massive intergenerational wealth shift and I think, with that, there’s going to be a massive shift in who the core suppliers are and who the market winners are,” he predicts. “I don’t know if that fact has really landed yet with a lot of providers.” ffnews.com

Auriga wins the

Peter Kulik Innovation Award

Today’s market demands that the ATM behaves like any other digital channel so that customers are able to access their bank however they want, whenever and wherever it suits them. By breaking ATMs and ASSTs out of their silos, they can go far beyond the cash-dispensing role they were originally designed for and become a super versatile connected hub for innovative digital banking services. Auriga’s WWS ATM acquiring software, designed to manage complex ATM networks end-to-end, including advanced self-service systems, has won the Peter Kulik Innovation Award from the global body ATMIA. This confirms its outstanding technology and advantages in cracking major ATM industry challenges such as improving ATM security or enhancing the customer experience of digital self-service banking. www.aurigaspa.com

ISO 20022: MIGRATION STRATEGIES Transplant or bypass? There’s more than one way to survive the ISO 20022 trauma

MAJOR SURGERY... or is there a less painful way for firms to get their IT systems fit for ISO 20022? Elmar Handke, from UBS, and Volante Techologies’ Chris Stares, believe they’ve found the panacea Payments providers worldwide are working frantically to hit the winter 2022 deadline for implementing the new ISO 20022 messaging standard. But, do financial organisations need to put their legacy systems ‘under the knife’ and carry out costly infrastructure transplants to have a hope of achieving that? No they don’t, says Elmar Handke, who is responsible for IT infrastructure and payments messaging at UBS – and even if that were the best option, they simply don’t have time. He explains that UBS is currently in rude health, ISO 20022-wise, after discovering the ideal balance between timely and

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well-planned IT system redevelopment, and well-chosen plug-and-play solutions, such as those provided by technology partner Volante Technologies. One of the most revolutionary changes so far in the way payments are handled, ISO 20022 is largely welcomed by industry players, who recognise its potential to radically improve failure rates by including significantly more data in every message, as well as cracking long-running conundrums such as real-time cross-border transaction processing – essential efficiencies for an industry battling to preserve bottom lines amidst the pandemic-induced explosion in high-volume, low-value payments. However, the medicine needed to make their payment processing systems better,

in time, is proving a bitter pill to swallow for many organisations. Low- or no-code solutions such as those provided by Volante could represent the ‘spoonful of sugar’ the industry needs to help it go down though, explains Handke. “We analysed the proposals – especially the CBPR+ push from SWIFT that will hit us in 2023 – and discovered we had close to 100 IT systems that required an update,” he says. “Looking at that, we also realised the timeline of the project did not start from that point of recognition; it had started already. Basically, at the beginning of 2020, we realised the timeline was too short to get all our systems up to the market standard, so we had to come up with a mitigation strategy.” ffnews.com

He adds: “The message broker I ‘own’ within UBS, is the last point in the UBS architecture before the dataflow is fed back and forth to the different subsidiary systems – the payment engines, accounting and client reporting systems, etc. So, we decided this was the point in the dataflow at which to build an enabling layer for these upstream applications, to gain the necessary time on the market side.” Although its outside-the-box thinking means UBS is now fairly well-placed compared to many competitors, Handke firmly believes this is just the beginning of more sweeping changes that the new standard will herald. “We’re incredibly busy, and are about two weeks in front of this year’s standard release, but that is only like a preview of things to come that will hit us next year,” he continues. Our advantage is that we aren’t doing this for the first time, we have supported other migrations in the past, especially in the ISO space. About four years back, the Swiss franc clearing, or SIC, migrated from a legacy system to an ISO 20022 standard, because, even within ISO 20022, there are multiple variants in different markets. “For that, we built a conversion layer capable of translating back and forth between MT and MX messages, and shielding upstream applications temporarily from the market change, to give the additional time needed to build, implement and test these new flows and message times.”

DON’T FORGET THE LEGACY! One of ISO 20022’s core purposes is to marry up varying global payment requirements for more seamless cross-border flows. However, therein also lies one of its greatest complexities. “A lot of people are currently looking at the CBPR+ change upcoming in 2022,” says Handke, “but it’s not the only one. We have the British pound and Singapore dollar going live next June. Hong Kong dollar clearing, or CHATS, was originally the first-mover, in the planning in 2019, but in 2020 had some definition and specifying problems and is now probably going to hit us in 2023, together with the Fed and CHIPS side. “But we also see movement in the Japanese market, Australia and Taiwan, ffnews.com

away from the old SWIFT FIN, MT103, MT202 legacy formats, and the other subsidiary message types, to XML-based standards. That’s really a huge change for the whole industry.” Although an advocate for low- and no-code for dealing with such issues, Handke also believes there’s a balance to be struck by giving long-term legacy system upgrades the attention they deserve. “There are three different approaches to this. As a financial institution, you can rip out your existing payment engine and try to replace it with something new, nice, shiny, commercial, off-the-shelf. But you will still be challenged with integrating that into your accounting and reconciliation systems, etc, so it’s not as easy as it might seem,” he says. “The second option, which is basically exactly the opposite, is to make sure all your existing systems are upgraded 100 per cent, at the point of market go-live, and look down on the rest of the world as it struggles to adopt the standards. But you still need to keep in mind that you have to continue to also support the old standards in parallel, at least for the transition phase, until 2025, when CBPR+ is supposed to have switched everything to the ISO 20022 standards.

At the beginning of 2020, we realised the timeline was too short to get all our systems up to the market standard, so we had to come up with a mitigation strategy Elmar Handke, UBS

“Last, but not least, is something like the path UBS has chosen, with some applications ISO 20022-ready, especially the super-large payment engines we have for our major business hubs. But we support 39 legal entities and, with 100 affected applications, not all of them will be ready. So, we need a man-in-the-middle approach, a provider that is the go-between, that takes the market format and switches that into something the current application can still understand, so that, from a consumer perspective, you

have something like a regression test, at least for an intermediate period of time. It’s not the final solution. You pay money to purchase time and get to a solid and stable architecture within your organisation.” Handke gives his perspective on just how far-reaching ISO 20022 is for the payments market. “What we’re seeing at the moment, in the payments space, is one of the most fundamental changes to SWIFT-based flows ever made; and it’s not only SWIFT, but also quite a lot of regulators jumping onto that wagon. That’s also different to changes we saw in the past – like SWIFT’s – which were technology-driven, with in-depth details like upgrading from SAG 7.3 to 7.4, or switching certain services to Microgateway – IT topics for IT geeks like me that don’t affect business. However, with ISO 20022, we move from a payment format that was, at the end of the day, defined in the last century, to a more modern standard, meaning we will see a far more structured way of executing payments in the market. “If you just look at creditor or beneficiary information and at different payment types that are being defined, especially purposes and additional functionality on top of the payment itself, SWIFT started to move in that direction on other topics, as we saw in recent years, with UETR. And all this ties together in a new landscape that we will see in the upcoming five years.” Volante has helped UBS overcome some of the potential pitfalls around doing this. “We got a library from Volante, which did this conversion for us, plugging into the framework we already had in place for our in-house-built conversions,” says Handke. “So, that’s what we are using at the moment. In the message broker itself, we have a so-called static data configuration. I would not want to go into too much into detail, but we have definitions for each of the dataflows, from the market to an upstream application and back. As part of that, we can define a dataflow, more or less, on a very easy switch level. Does the upstream application already understand ISO 20022? Yes/no. Does the application send out an old SWIFT FIN message, and does UBS want that SWIFT FIN message to go out as a MX message? Issue 11 | ThePaytechMagazine

ISO 20022: MIGRATION STRATEGIES “Having set up these switches, we can now go into the migration phase with SWIFT and move forward, switching all the different legal entities, from a market point of view, to MX, and still enable the upstream applications to work as they do today.” Chris Stares, principal technical consultant at Volante Technologies, describes the range of use cases Volante is applying such plug-and-play technology to, to help organisations like UBS adapt. “We’ve always had this development workbench, with what we call format plug-ins, message packs, or message libraries, that implement all the syntactical and semantic validation rules for different clearing schemes, standards-based specifications, and so on,” he says. “And that is, essentially, what many of our customers use to accelerate building their own capabilities and functionalities: visual modelling, automatic code generation, documentation generation. Then the resulting Java runtime libraries can be deployed into the platform. “But we also wanted to unlock the potential within that visual modelling development platform environment, and make it more generically consumable. So, we provided the pre-built, runtime libraries Elmar is talking about, which perform those translations in accordance with the published specifications, in this case of CBPR+ by SWIFT. “We also extend those services out for use with other schemes and standards, through standardised API mechanisms like REST and Java, or through a software development kit, so that, for organisations that have a different tool, or don’t want to buy or licence our development tool, we can still make services available in a more generic and standardised way, without that dependency on our development platform.” Stares explains the sense of urgency his company is witnessing, market-wide. “We’ve been talking to customers and prospects in all geographies. I’ve been on early morning calls with banks in Australia, and evening calls with banks over in the US and Latin America, and all manner of banks in between. Particularly organisations that have a highly distributed, maybe multicountry landscape. Because the other big challenge is that it’s not just about CBPR+. There are other schemes, in different regions, that have their own cadence, as far as ISO 20022 adoption is concerned,

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and it’s being able to have solutions for that. I don’t think there’s any one-size-fitsall capability, so it’s about trying to standardise and harmonise, where you can, but also providing as much flexibility as possible to handle the adaptations for different schemes and go-live periods, with as much capability as possible around simplification, automation and testing. “The solution is one thing, but the ability to, in a consistent, accelerated way, automate testing around different flavours of ISO 20022 adoption, is also important.”

back-end system might require, these are, for me, the three major challenges, at the moment, in this context. “There are, of course, other ones – the timeline, a lot of things happening in parallel, and, certainly in our case, even if you are fully on with ISO 20022, what happens if such a message crosses the border of different clearing networks, which is what we’re looking at currently. “What happens if, for example, a CHAPS MX message, British pound payment, comes into UBS and has, worst-case scenario, a final beneficiary connected to Singapore dollar clearing? That would mean such a transaction changing hats, even in the ISO space, two or three times; it arrives as a CHAPS MX standard, is internally processed as a CBPR+ and has to go out to clearing again as a MEPS MX.” Volante has the answer to such issues too, says Stares: “One of the potential pitfalls I’ve seen is people believing it’s purely a data transformation challenge. But when you consider that you have a valid MT202 message with eight mandatory data elements, but you have tens and tens in the corresponding pacs.009 equivalent that begs the question: if you’re receiving a pacs.009 payment, for example, and have to squeeze it into an MT202, where does the truncated data Figuring it out: go? It’s not just about The complexity of transformation from MT parallel messaging to ISO, and ISO to MT; it’s formats is a challenge also a data truncation and Handke agrees: “And management challenge. You here is one of the biggest need to have the capabilities challenges in the context to store those rich payloads of ISO 20022 – the data and be able to glue them variance we get in these back, later on in the types of transactions is payment processing flow. Chris Stares, dimensions bigger than “For example, when Volante Technologies what we’ve seen before. you execute a sanctions “If you look at the screening, you want to minimum definition of a bank-to-bank do so on the full-fat ISO message, not on payment, in an old MT202 you only the truncated version, because some of populate the mandatory fields, and you that key information that’s going to be have maybe six, seven, or maximum eight screened may have been omitted from attributes for a valid transaction. With the corresponding MT message, which the corresponding pacs.009 payment, means you’re not getting the full effect of that’s far from enough. There are a lot the sanction screening. more attributes and, correspondingly, a “That’s just one, very high-level, lot more variance and mutations of your simplified example of the importance of test data, and you need to keep that in managing the truncated data through the mind for doing the necessary testing.” lifecycle of that transformation exercise” He continues: “Even without looking ISO 20022 is complex but vital signs are at any special processes your bank or good: there’s hope for the patient yet.

One of the potential pitfalls I’ve seen is people believing it’s purely a data transformation challenge

ffnews.com

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ISO 20022: MANAGING CHANGE

thinking Despite years in the making, the migration of tens of thousands of participants in the world’s payments networks to ISO 20022 is proving infinitely complex. A recent discussion panel, mounted by Intercope, with Andrew Muir, Daragh Kirby and Olaf Grossler, explored some of the consequences and offered at least one solution Payment messaging standard ISO 20022 isn’t new; but its adoption, simultaneously, by many of the key financial networks from this year, is. The move in Europe, the US, and Asia is an acknowledgement that the world now needs a common language between financial institutions transferring funds cross-border – a task becoming increasingly fraught with regulatory and compliance pressures (as recent geo-political events testify) and under irresistible pressure from participants and their customers for better payments speed and transparency. Already, more than 70 countries have adopted elements of ISO 20022, many for domestic, low-value and instant payment schemes. But, over the next five years, those that haven’t may well find themselves at odds with the correspondent banking networks, unable to receive or send messages in the required format. How internal processes adapt to IS0 20022, which is predicated on using a common dictionary, a standard modelling methodology, and the use of extensible markup language (commonly known as XML) and abstract syntax notation (referred to as ASN.1) protocols, is mostly the concern of financial data teams and specialists in the high-end, interbank messaging market. That said, ISO 20022’s consequences will ripple through organisations, impact multiple business units and open doors on potential ffnews.com

new revenue. By 2025, it’s forecast that it will support 80 per cent of global transaction volumes and 87 per cent of their value. But between now and then is, arguably, the most testing stage of the migration to this new data-rich format: its co-existence with those that went before. A particular concern is how companies plugged into the dominant network, SWIFT, will support SWIFT’s legacy non-XML proprietary message format, known as MT, alongside the new MX messages. It’s important because more than 11,000 global SWIFT member institutions sent an average of 42 million messages per day through the network in 2021, using SWIFT’s core service for exchanging MT format financial messages, known as FIN. Andrew Muir, a financial transactions and ISO 20022 consultant currently working with high-end messaging software specialist Intercope, the company’s head of sales and marketing, Daragh Kirby, and Olaf Grossler, head of implementation and client support, recently joined a panel discussion and Q&A to help organisations face this challenge. Muir kicked off by acknowledging that SWIFT’s (and Europe’s) stop-start timetable for transition to ISO 20022 hasn’t helped

businesses engaged in an already complex preparation, although, given that the new ‘international language of payments’ has been flagged for several years, it’s still, in his view, an ‘underestimated challenge’. “Real-time gross settlement systems across the eurozone, in the UK, the US, Singapore, Hong Kong, the Philippines, Australia and elsewhere across the globe, will have migrated to ISO 20022 by the end of 2025,” said Muir. “Individual schemes already using ISO 20022 messages include SEPA Credit Transfers, SEPA Direct Debits and Instant Credit Transfers. Of course, correspondent banking starts from this November. And the picture keeps changing.” Only in January, SWIFT published updated usage guidelines and translation rules for its CBPR+ (Cross-border Payments and Reporting plus) specification, which defines how ISO 20022 is to be used for cross-border payments and cash reporting on the SWIFT network from November. The Bank of England also announced a significant change to its own ISO 20022 rollout plan, effectively removing the like-for-like deployment for CHAPS originally planned for this summer. Issue 11 | ThePaytechMagazine

ISO 20022: MANAGING CHANGE “The complexity of handling scenarios that cross the boundaries between schemes is becoming clear, as is the challenge of how to reconcile all the new message exchanges internally,” Muir told the panel. And he stressed that it wasn’t just banks and payment service providers who would be impacted. “The number of institutions now affected by ISO 20022 is in the tens of thousands, but the number of business relationships affected is much higher. The need for knowledge sharing and collaboration has never been more compelling,” he said. “At Intercope, we believe the optimal architecture includes one single technology for transformation and integration, to manage all ISO 20022 migrations, and keeping control of those transformations in-house, where possible, is key to managing the complexity of these migrations, and potentially harvesting this richer payments data exchange, which is what ISO 20022 is all about, in the future. “Maintaining one solution for this across real-time gross settlement (RTGS) schemes like CHAPS and TARGET2 is relatively straightforward, because those market infrastructure programmes, typically, do not provide additional transformation or amendments to messages. The challenge we face is in the new SWIFT CBPR+ setup, which does introduce new elements, like the SWIFT Transaction Management platform, and in-flow translation of messages between ISO 20022 and MT. This introduces additional functionality and therefore risk, with some transformations done on the network, through SWIFT, and others not. It also adds overall solution complexity, with potential gaps and overlaps from the use of multiple technologies, and different business and technology entities, to provide message handling and translation from different schemes, even within a single bank. “We also face challenges like truncation and ‘glue back’ – removing, accessing and adding back in stripped-off fields for return messages. In short, there are grey areas around where some functions go.” Daragh Kirby agreed that scheme interoperability issues will challenge institutions over the next four years , given the multiple ISO 20022 timelines, their adoption strategy, in terms of like-for-like full data mapping, the changing role of CBPR+ and changes to SWIFT’s Relationship Management Application (RMA).

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“The RMA is a mandated filter that was created to enable banks/financial institutions to define which counterparties can send FIN messages back and forth.It allows a more granular view of what can be sent and what can’t, the timelines, whether a signature is involved, etc. SWIFT has introduced a new application on its network in 2022, which will change how these authorisations work. You can still use your RMA database as you do today and check the data store, but records maintenance will be handled by SWIFT in future, and all validations, etc, will happen from that point. “In the context of a cross-border payments journey, where you have an old MT message, and a new MX version, SWIFT will hold new RMA authorisations for FIN until the corresponding new ISO authorisation is sent out. But, if both authorisations don’t occur within 10 minutes, the RMA request may be discarded. Banks need to understand how they will manage these RMA authorisations.”

At Intercope, we believe the optimal architecture includes one single technology for transformation and integration, to manage all ISO 20022 migrations Andrew Muir, Intercope

Many technology providers have sought to insulate customers from the pain and expense of ISO 20022 transformation by offering message hubs with built-in relationship management apps. Intercope’s is called BOX, an infrastructure-agnostic platform than can support multiple financial networks with a single window for customers’ financial messaging and gateway requirements. As well as connectivity, BOX, which stands for back office exchange, promises comprehensive functionality for back-office integration, manual message processing, warehousing, and archiving. “The largest challenge around ISO 20022 is message transformation, as it’s often needed twice, once to the scheme, and once to the in-house system,” said Kirby. ”It’s all well and good upgrading the bank to do ISO 20022 at the edges, but what

about back-office systems? Somebody put it well the other day: there’s no point in a hotel having an Amazon or Netflix streaming service in the lobby, if rooms only use VHS videotapes. People will want to see the message taken through the whole bank. That means transformation. “With four years of the coexistence, no matter how ready you are – with the MTs, and the ISOs, the RTGSes and the CBPR+s – at some point, you will receive FIN messages that have to be transformed to ISO. So ,controlling the transformation through one central solution, and having a payments message warehouse, are key.” Grossler added: “Transformation scenarios are different, for different banks; not all have the same back-office systems, or are upgrading their payment system and processes to be ISO 20022 native at the same time. “SWIFT’s Transaction Manager is handling the MT/MX transformation only for a handful of cross-border payment messages, in the beginning. The remainder will stay as FIN, or be transformed by the In-Flow Translation of the SWIFT network. So, banks processing transaction payments have to work with messages from the Transaction Manager, with the In-Flow Translation from SWIFT, or with legacy FIN messages. Then we need glue-back and reconciliation scenarios, for example, in the creation of pacs.004 (payment return) messages. Our BOX payment messages warehouse is playing a key role in this.” Individual institutions are finding their own workarounds. One major UK bank, for instance, whose back office doesn’t natively process ISO 20022 messages, separates MT and MX formats as they pass through BOX and, on the return journey, truncated fields are ‘glued’ back on to an MX message before it’s sent back out to the SWIFT network. “The bank reconciles the payment, on the back-office side, and BOX works on the transformation,” explained Grossler. “If we have to truncate data, the information is stored with the original message, which is available for the back-office application. If needed, it’s returned back to BOX, but the bank stays in control of the data that BOX is working on,” The big unknown is banks’ appetite to invest in transforming in-house systems further once the uncertainty is over. “Most are moving that way, but not all,” he added. “The business case is still unclear.” ffnews.com

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Fintech Finance presents: The Paytech Magazine Issue 11

Articles inside

Out-of-the box thinking

Where to now?

Major surgery

Super-charged for the US

At your service

Moving forward

Payments’ blockbuster moment?

See me, know me

Holding on to the past?

PIX and mix

Digital handshake

Where the heart is

Every Cloud

Issue 11 | ThePaytechMagazine

The curtain call

Green shoots of change

State of the Unions