Payments’ blockbuster moment?

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 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.

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, 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!