Fintech Finance presents: Discover Sibos 2020

VIRTUAL SHOW5-8 OCTOBER2020

WWW.SIBOS.COM

A network of trust Trulioo’s guide to frictionless onboarding

Due north SEB and Danske prove Nordic innovation is no myth

Disrupting the stack Why and how R3 believes CBDCs are needed now

Good vibes

Changing the future of finance with Finastra

Ready for the ‘big bang’

AIR we go again!

Haytham Kaddoura and Victoria Harverson unveil SmartStream AIR 2.0

UniCredit, Bottomline and Société Générale on the mother of all migrations

BRINGING THE FINANCIAL COMMUNITY TOGETHER ONLINE

Emerge Better

S A FE . INNOVATIVE. AGILE. C O NNECTED.

We can help support your strategy. Let’s talk. bottomline.com/ paymentsmodernization

The importance of payments modernization has never been more urgent in addressing new customer behaviours and expectations. We have the opportunity to improve our organizations. In our world, that means improving the way we help our customers pay and get paid – the way we engage with our customers and the way we protect them against fraud.

The modernization will be different for every payments organization, but this much is clear – manual and paper-based payments and analog banking processes simply aren’t agile or resilient enough for such an important function.

WE LCO M E TO

“Although the pandemic has affected so many areas of our lives, we need to become united across the globe in looking for new ways to succeed and flourish… To not see the limitations but the opportunities of change.”

That quote comes from Natalie Abalo-Ratcliffe.

Natalie is a senior member of the Agent Bank Oversight & Monitoring team at NatWest in the UK, but she made the comment in her capacity as a 2020 scholar in the Sibos Talent Accelerator Route, or STAR programme.

Each year, the programme unites women in finance, whatever their background and status, empowering them to be leaders of tomorrow. And, despite the obvious challenges imposed by COVID-19, Sibos has continued to support Natalie and her fellow scholars, who will benefit from an exclusive programme of facilitated networking and mentoring activities with senior financial and technology industry figures, every day of this Sibos conference and in the new monthly virtual Sibos sessions that will follow it.

The fact that the event is being staged at all should be a matter of huge pride for the Sibos team. Over the past months we’ve watched similar conferences – calendar highlights for the industry in normal years – fall like dominos in the face of the pandemic.

And yet, this is precisely the time when the industry needs to come together – not just for the ‘group hug’ that we all so badly need – but to spark new ideas, strengthen relationships and bring our combined experience, humanity and sector insight to bear on some pretty big issues – issues that, thanks to you know what, are demanding urgent attention.

Collaborative thinking is a strong theme in this special Discover Sibos edition – from the Nordic banks’ experience with their new crossborder payments system P27, to Finastra mediating relationships between banks and fintechs to solve financial exclusion once and for all. It’s what the future demands of us.

VIRTUALSHOW5– _ 8 OCTOBER2020

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AIR we go again!

SmartStream CEO Haytham Kaddoura on why using AI in reconciliations is a no-brainer

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Smart thinking As SmartStream AIR 2.0 is launched at Sibos, Victoria Harverson explains why she couldn’t wait to get her hands on it

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We might not be together physically for this show, but, as Natalie says, let’s not see that as a limitation.

In going virtual, Sibos has created a free-to-attend event... so let’s make the most of it!

EXECUTIVE EDITOR Ali Paterson

PHOTOGRAPHER Jordan “Dusty” Drew

US CORRESPONDENT Jacob Bouer

EDITOR Sue Scott

ONLINE EDITOR Eleanor Hazelton Lauren Towner

SALES Chloe Butler Tom Dickinson Karen Estcourt Shaun Routledge

ART DIRECTOR Chris Swales

VIDEO TEAM Douglas Mackenzie Lea Jakobiak Laimis Bilys Shaun Routledge Lewis Averillo-Singh Classic Dom Beasley

Northern lights?

Danske Bank will join the FinTECHTalents’ Virtual Nordics conference to answer the question ‘is Nordic innovation a myth?’. Well, is it?

A funny thing happened on the way to the Cloud The Cloud isn’t just a technology solution, it’s a journey that can fundamentally reshape banks’ business models, says ACI Worldwide P is for payments Next year, the Nordic countries will introduce P27, a new crossborder payments system that replaces domestic clearing houses, driven by the region’s six big banks. SEB is one of them FEATURE WRITERS Tracy Fletcher Martin Morris Natalie Marchant Sue Scot James Tall

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Redefining the future of finance Collaborative fintech has a vital role to play in changing the world for the better – and Finastra can help co-ordinate it

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Banks’ ‘big bang’ moment Meeting the deadlines for both TARGET2 and ISO 20022 migration will be tough, but worth it, says UniCredit’s Raphael Barisaac

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A network of trust An effective, risk-based approach to onboarding can be technologically almost effortless, says Trulioo

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A question of standards Is interoperability between crossborder payment schemes not just desirable, but possible?

Société Générale and Bottomline Technologies believe so

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Disrupting the payments stack Central banks are being forced to respond to changes that challenge the foundation of monetary systems. R3 believes CBDCs could be one solution

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FintechFinancePresents

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SMARTSTREAM: AIR 2.0

AIR we go again!

Fintech Finance Executive Editor Ali Paterson talks to SmartStream CEO Haytham Kaddoura as he prepares to unveil version 2.0 of the company’s groundbreaking reconciliations program, powered by its fast-learning AI ALI PATERSON: It’s a little over a year since you launched SmartStream AIR, your first Cloud-native product to apply artificial intelligence (AI) to reconciliations, at Sibos in 2019. Here we are again – albeit it under very different circumstances! – and you’re rolling out version 2.0 already. So, what have the last 12 months taught you?

HAYTHAM KADDOURA: Running AIR 1.0 with major Tier 1 institutions has given us a good understanding of where AI adds significant value to their operations.

As a result, we realised that there is even bigger scope for the service. So, our innovation lab in Vienna has been working since then on making AIR even better by incorporating features that have never been seen before in the industry.

Chief among those is Affinity. This is AI that learns not only from what people do – but also from what they don’t do. It’s called observational behaviour learning, and it’s pretty much what we all, as human beings, do from a very young age.

So, let’s we look at how we apply that to the reconciliations space. Once the records have been matched, there are 10 to 11 per cent of exceptions, on average, that need manual intervention. That 10 to 11 per cent represents billions of dollars of cost for institutions as well, of course, as additional risks. Our AI engine observes the operators, how they do the manual matching, and makes its first assessment of that data directly based on the history of what that institution has been doing, on how the records were being handled,

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in the past. Affinity then goes into live learning mode, observing in real time as operators change the rules and regulations, and the matching criteria.

Applying that learning pushes up efficiency significantly – it means we are talking way beyond 98 per cent – more than a typical reconciliation platform.

Reducing an 11 per cent exception rate down to two per cent has massive impact on a bank’s operations, whether you’re looking at capital-as-a-service or cash and liquidity management, it trickles down through most financial institutions and has an impact across different functions – because, in today’s world, we’re looking at many more people working from home with the increased potential that creates for errors, combined with massive growth in volumes of payments data and additional regulatory pressures.

AP: So, let’s address the elephant in the room here… AI takes over tasks that were performed by people.

So, why not just throw a huge number of staff at this problem instead?

HK: Doing it the old way, throwing people at it, is exceptionally difficult these days.

It’s hard to onboard them and they don’t have the physical environment where they can interact with each other and validate. Now that workforce is heavily work-from-home oriented, that actually creates exponential problems. By contrast, AIR, which learns from observing behaviours, has a massive impact on speed and efficiency, and allows people to really focus on what’s important – and that’s the exceptions.

What our AI takes over are the relatively mundane tasks, whereas people can be skilled up to make more meaningful and strategic contributions within institutions.

In very few instances have I found that the introduction of AI has led to the ultimate dismissal of people; it’s more about re-skilling and re-utilising them because there is a significant skills shortage across the board, especially for these operational roles. Whether it’s us, our competitors,

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financial institutions, or our clients, everybody is looking for the same people. And everybody wants to put them to more strategic use. Sometimes AI is incentivising people to upskill.

There’s a generational change, too.

Accepting mundane roles is becoming less and less attractive to younger generations.

AP: We’ve seen, during recent months, a huge increase in the volume of payments, I’m talking specifically about low-value card and wallet payments. If you’re doing a million reconciliations every hour, but then, in a year’s time, you need to do 20 million, how does adopting AIR help with that?

HK: That’s the beauty of a Cloud-native platform like AIR. It was built from scratch on Cloud technologies, so it’s able to expand by hundreds of times the existing volumes of some institutions. During lockdown, it was quite difficult – and still is, in certain geographies – to physically expand the hardware. We’ve seen instances of institutions reporting tenfold growth in volumes during the pandemic, which, of course, were totally unplanned for. But we coped with it.

A Cloud infrastructure, as opposed to a physical one, allows for much, much faster expansion and adaptation.

AP: We’ve been focussing on SmartStream AIR but, of course, you have a huge number of other products – not least your Reference Data Utility (RDU) – and managed services.

How does AIR 2.0 work with the rest of the SmartStream portfolio?

HK: Well, for a start, we are usually the first client for any new product. So, when my innovation lab comes up with a technology, we insist that it is first run within SmartStream’s managed services. We build our models based on maximising operating efficiency for us, and that translates into greater savings for our clients.

So, AI is fully embedded within our managed services and the benefits that www.fintech.finance

VIRTUALSHOW5–8_OCTOBER2020 our clients get from adopting AI within their environments directly are exactly the same as the ones we are driving for.

looking at other platforms), it’s done.

They can hit the ground running within less than a day.

AP: So, the Reference Data Utility (RDU), for example, is using AIR 2.0, which lowers its costs, and those savings are passed on to clients. Even if they’re not a direct customer of AIR 2.0, they are benefitting from it?

HK: Exactly, we tend to share the upside and clients expect that. I’ve had a lot of discussions where a bank’s senior management expects us to be building efficiency into their process and, subsequently, lowering what we charge them, over time. And that’s the proper model. Yes, there are higher onboarding costs, but that trickles down, with time, as a result of efficiencies.

AI is also being deployed and embedded within our flagship reconciliations solutions. In addition we're also looking into areas such as intraday liquidity stress testing for our cash and liquidity management solutions. So, yes, the impact of AI is exponentially growing, both internally, in what we utilise as services, and what our clients need.

AP: Decades ago, banks would try to keep everything in-house. They’d have their own internal datacentres, their own developer team, etc. New entrants are born into an ecosystem – a forest of services, so they don’t, for example, have to worry about being a specialist in know your customer (KYC). How do SmartStream and AIR fit into this ecosystem? How do they work within the marketplace of third-party providers?

HK: Surprisingly, you still have the odd financial institution that insists on doing it themselves, and, nine out of 10 times, that project is halted within a year or two, due to cost overruns. There is value in giving projects to a company that is experienced, knows what the best practices are, has learned from multiple institutions. We can simply do it faster, much more efficiently, and have proven it, over and over again.

We’ve been handling managed services for financial institutions for almost five years now, and we’ve seen a massive jump in demand. It’s expanding because it hits clients’ bottom line very fast, in terms of the efficiencies we bring, both from a cost and an operations perspective. Right now, it’s super hard to build a business case where a financial institution needs to bring in the hardware and the people necessary to run something not strategic.

Shareholders have an eye on that.

I don’t think there is an option for anyone running any significant reconciliation not to have AI-enabled technologies AP: Banks do have a bit of a reputation for investing in technology and then not using it properly – and with an incredibly powerful AI tool like AIR I’m guessing that could be a danger?

HK: The beauty of AI, and the way we are rolling it out, is that it really requires minimal intervention from the technology gurus at financial institutions. It’s like downloading an app on your mobile phone, clicking it, running it, uploading the files… it’s self-explanatory. I’d say practically idiot-proof.

For any client that wants to come onto our AI platform, it’s literally a matter of taking out a subscription. They just drop us a line, we enable access to our Cloud platform and, either through AWS or Microsoft Azure (and, by the way, we’re www.sibos.com

They expect performance. If it’s not a strategic or core function, so one that could be outsourced, it doesn’t make sense to bring it in-house.

AP: Returning to SmartStream AIR, what are the future potential use cases? Is there an opportunity to apply this technology to elements like security and data analytics or are there other, unexpected areas where AIR can be deployed?

HK: We're looking at heavily transaction-driven industries, from telcos to transport and insurance.

More broadly, the impact of AI will continue to grow, even in our day-to-day lives, where we see AI being integrated from our washing machines to our fridges, to the way we run our cars. It’s making our personal lives easier, and it makes the lives of financial institutions and other of our clients easier, too.

When it comes to reconciliation, I don’t think there is an option for anyone running any significant reconciliation not to have AI-enabled technologies. It’s nonsensical. You’ve got something that makes it more efficient, smarter, less error prone. Why wouldn’t you adopt it?

Will there be disadvantages? I don’t see that many yet. Whenever new technologies have been introduced, there are implications for resources, for the way we run our lives… but then it’s a matter of transition. ■

Intelligent choice: SmartStream’s AI is accelerating reconciliations

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SMARTSTREAM: AIR 2.0 Intuitive design: SmartStream wanted a user interface that behaved like a lifestyle app

Smart thinking Can AI really make running reconciliations as intuitive as a phone app? Just watch, says Global Head of Business Development for SmartStream AIR Victoria Harverson In the world of retail payment apps, it’s all about the user experience: you want it to be fast, intuitive, and reliably do what it’s supposed to do, under the watchful eye of regulators, time and time again.

But while, increasingly, that is what’s being served up to consumers, in the back office, where those real-time payments, initiated by a myriad of different payment options, are being processed and, ultimately, reconciled, things are often decidedly less ‘frictionless’.

So, last September, SmartStream Technologies, which provides Transaction Lifecycle Management solutions to thousands of customers in financial institutions, harnessed the power of artificial intelligence to inject some of the AI-powered user-friendliness that the world’s become used to into reconciliations. The aim was to create a smarter, faster, more accurate process – and Cloud-enabled SmartStream AIR, which had been trained on real-world data from top banks, didn’t disappoint. www.sibos.com

With a voracious appetite for large volumes of complex payment information, it proved capable of saving thousands of human hours in routine processing, while flagging exceptions that were becoming increasingly hard to spot.

Described at the time as ‘like having a highly skilled virtual operations team on hand that you can tap into on demand’, the level of interest in the service surprised even the CEO who’d expressed such confidence in it.

And, just as you’d expect to receive regular updated versions of your everyday apps, SmartStream AIR 2.0 is now ready to install.

Here, Victoria Harverson, who joined the company in April as a senior team leader in APAC sales and was promoted to global head of business development for SmartStream AIR last month, tells us why she is so excited about its potential.

“One of the reasons I joined SmartStream was to get my hands on AIR, because, as a data quality application, it’s entirely

unique! AIR leverages pure artificial intelligence to match any data, for any reason, in an instant. But with version 2.0 there are a number of enhancements.

“First, the company now has PCI DSS certification, which enables SmartStream to get deeper into the payments segment, as it allows it to host different kinds of card and digital payments data. AIR is also SOC 1, SOC 2, SOC 3 compliant and meets ISO 27001 and 2 standards.

“Second, the user experience has been enhanced so the interface behaves very much like a consumer application. Imagine you’re at home on the sofa and you download an app from the Appstore. If you can’t figure out how to use it in just a few minutes, you’re probably going to delete it.

SmartStream had that in mind when it looked at the user experience for AIR 2.0. You can figure it out intuitively; no training is needed.

Just provide it with any data, in any format, hit the ‘Start AIR’ button, and the AI does the hard work for you, giving good quality match result in the first pass. 

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VIRTUALSHOW5–8_OCTOBER2020  “The original version of AIR used self-supervised and unsupervised learning techniques, but with version 2.0 SmartStream introduced a new feature called Affinity. It’s an observational learning program that mimics human behaviour.

That took it to the next level.

“AIR 2.0 builds upon the concept that you don’t really need to understand the data, as a business analyst might, before you put it into the solution. Every single iteration that you make, every configuration, AIR 2.0 will learn from. When you feed it more complex data, different types of formats and structures, observational learning enhances the solution’s capability to understand what the end user is trying to achieve. If you tweak a setting, based on a dataset that you have given to AIR to achieve a better match result, Affinity will learn it. Now, in my industry, that’s ground breaking.

“AIR 2.0 will also help with ultra-high volumes, particularly in enterprise banking, where SmartStream is are very much the incumbent strategic solution for data management and reconciliation, and where you need to be able to process extremely high volumes.

“AIR is a very real, tangible AI product with a very simple delivery model. You can use AI to check any transactional datasets for accuracy and completeness, so this could be trades, positions, fees, instrument or asset class. It doesn’t matter to the AI, it’s completely agnostic. The AI in AIR can be used for data quality, as well, in the sense that you can look at linking system data together and checking that they reflect the same things. You can even use it to quickly define reference data standardisation designs, and, in the context of something like a small buy-side, use it to quickly validate third-party reports for the regulators that you’re currently using administrative staff or a third-party to execute. This is an area of operational control and efficiency that doesn’t always need the same level of human effort, interaction, and skillset.

“SmartStream has been very successful in defining optimum workflows to manage data, particularly in the reconciliation space, so it’s really the next logical step to disrupt itself and the market by removing a lot of the human heavy lifting and replacing it with AI and machine learning

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components. How far that rationalisation affects a workforce is really a question for each organisation that chooses to adopt AI to address for itself. Those organisations will be looking to reduce complexities and human error risks, and lower costs in their business. An outcome of that will be fewer people dedicated to mundane, manual data-matching activities. But there’s also an opportunity for those individuals to be reassigned to tasks that focus more on growth and differentiation.

Cloud first: Partnering with AWS gives a high level of security

AIR 2.0 builds upon the concept that you don’t really need to understand the data, as a business analyst might, before you put it into the solution

“Another use case where we’ve also seen a really big win for AIR is IT system migration projects. Replacement and switching out big tools and systems, is really the biggest barrier to change in financial services. We can compare a database of old architecture versus new architecture, using AI, in minutes, whereas those sorts of system replacement projects are often measured in months and years.

“My experience with banks, over many years in fintech, is that they have hundreds of legacy systems, landscapes of applications, some of which interoperate well and some that don’t. There’s non-standard information and data in each application – and that’s a reconciliation use case in itself! But you can’t really advance your technology stack unless you’re able to

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switch things in and out regularly.

This type of AI technology for that use case, is transformative.

“You need to be able to partner with the best in the business, when delivering AI. You need to build your AI on the latest technologies, and focus on performance, maintain the highest levels of security, and be ready to fit your AI into applicable ecosystems to stay up to date. SmartStream has built its solutions on the very latest technology – AIR in fact uses some of the same technology that Netflix uses. It’s also built on Kubernetes for fast upgrade capabilities, and the ability to change and deploy new features very quickly.

The company partners with AWS, because it can leverage the $1billion or so that AWS spends every year on cybersecurity.

“SmartStream AIR enables even large institutions to go live on the same day.

It’s a software-as-a-service, web-based application, so you can be anywhere in the world to use it. We just set up the security permissions and give access to the users. We can automate the data submissions going into the application, or you can manually drag and drop in the files yourself, but, either way, you’re ready to get started immediately, there’s no upfront implementation project to consider. Nine times out of 10, you’re likely start seeing a return on investment in the first week of using AI in this way, because it represents a genuine step change.

Processes that take weeks and months are measuring in minutes with SmartStream AIR and the software-as-aservice subscription pricing models for large institutions make total cost of ownership transparent and controllable.

“You have to disrupt or be disrupted in today’s world. SmartStream has been in business for 40 years, and combining that experience from around 2,000 customers, 70 of which belong to the top 100 banks, means it knows the clients’ business and technical problems inside out. It already designed the best practices for data reconciliation but with AIR, it wanted to achieve something unique, something really new. Believe me, it’s done it.” ■ www.fintech.finance

Redefining finance for good.

Join the virtual gathering for collaboration and innovation.

Find out more on finastra.com/sibos2020

DANSKE BANK: NORDIC PAYMENTS

Northernlights?

Northern lights?

A keynote session at FinTECHTalents’ Virtual Nordics conference will ask if the Nordics’ reputation for innovation is media myth or reality. Danske Bank’s Chief Digital Officer, Søren Rode Jain Andreasen, will be among the speakers. Here, he explores the region’s preference for digital payments and harnessing the power of APIs Much of the hype surrounding fintech and disruption in the Nordic region focusses on the tech titans that have their origins there, including Skype and Spotify.

The region is also known for fast-paced payments innovation, with Sweden moving especially fast towards a cashless society. It’s also the birthplace of Klarna, the ‘buy now, pay later’ payment service loved by Europeans, which was valued at $10.65billion in its latest investment round. Native payments authentication provider Zwipe, meanwhile, has just raised $10.5million to prepare for the launch of biometric cards.

While no Nordic cities made it into the first Global Fintech Hub world rankings, put together by Findexable, Sweden, Finland and Denmark were all in the Top 20 country rankings and Norway has been flagged as a nation that could soon rival some of the old guard because of its track record in innovation, ecosystem building and regulatory effort.

If you dig a little deeper into the online world, though – Twitter chats, forums,

blogs – some point to a different reality, one of incumbent bank complacency, a reluctance to forge partnerships and a lack of capital for the majority of startups. So, what’s the truth about the northern fintech lights? One session at the upcoming FinTECHTalents Virtual Nordics conference aims to find out.

INNOVATING THROUGH CHALLENGE It asks boldly Is Nordic Innovation a Myth?’ and one of the panellists will be Søren Rode Jain Andreasen, chief digital officer at Danske Bank, Denmark’s largest bank and a major player in the Nordic region with more than five million retail customers. What’s his view?

“On the one hand, Scandinavian countries are very innovative – we have seen some very large companies, global leaders, growing out of the region,” he says. “Within the financial services industry, we have iZettle and Klarna, which are now global leaders within their field.

“At the same time, there are also challenges for startups,” he admits.

“Access to capital, for example – it’s harder to get funded in Scandinavia

than it is in the US, the UK, or even Asia.”

Despite this, the fintech landscape in the Nordics continues to be one of the most successful at producing unicorns.

The increased investments and new initiatives made by local governments are primed to facilitate the continued success of fintech in the coming years. And when it comes to scale-up businesses, the Nordic region certainly punches above its weight. According to Findexable research, 16 per cent of European fintech scale-ups are located in Sweden, Denmark, Norway, Finland, and Iceland. While not as many as in an established financial hub such as the UK (38 per cent), that’s more than Germany, at 13 per cent.

There is also a confidence and a determination to get things done. The European Commission has now finally approved, under the EU Merger Regulation, the proposed acquisition of Nets A/S’ account-to-account payment business, headquartered in Denmark, by Mastercard.

The decision is conditional on the transfer of a licence for Nets’ Realtime 24/7 technology for account-to-account core infrastructure services as well as the relevant personnel and other assets.

In terms of payments, what sets the Nordics apart, and is driving much of the innovation there,

All points North: The Nordics have spawned some of the most successful payments companies of recent years

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www.fintech.finance

VIRTUALSHOW5–8_OCTOBER2020 is people’ s willingness, and governments’ keenness, to dispense with cash in favour of digital transactions. Facilitating that are a number of infrastructure services, including the soon-to-launch P27 crossborder network. A joint initiative

by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank, P27 aims to build the world’s first real-time, crossborder payment system in multiple currencies.

MEETING NEW CUSTOMER NEEDS “During the last decade, we’ve not only seen banks trying to make their customers go digital, but also customers wanting to go digital; they actually prefer to use digital solutions, especially in Scandinavia,” says Andreasen. “Most of our branches don’t have transactional services, only advisory, so they don’t even have cash in them anymore. While that means that we don’t see our customers as often as we used to, they still have an expectation that we know them, and the only way we can know them is by using data. So data becomes a very, very efficient and necessary tool in knowing our customers and being relevant for them, and being proactive; being able to advise them, at the right point in time, so that we can give them the right advice, and the right products, exactly when they need them.”

Andreasen is a big advocate of the Cloud, and credits it with a crucial role in his bank’s digital ambitions, working hand-in-hand with application programming interfaces (APIs).

“The scalability and flexibility that the Cloud provides are unparalleled by any other technology,” he says. “What’s really important is to use it efficiently.

So what we try to do is ensure that the technologies that are not running in the Cloud are API-enabled, so that we can

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efficiently communicate across all of our different capabilities and microservices.

When you are a big financial institution, you will have some solutions that a re not using the newest technology, simply because you have thousands and thousands of programs and just upgrading them would basically keep the whole company occupied for years.

So you’ll always have some legacy, and it really becomes a question of how you manage that legacy and how you make sure that, when you build new solutions, you use new technology.”

During the last decade, we’ve seen not only banks trying to make their customers go digital, but also customers wanting to go digital; they actually prefer to use digital solutions, especially in Scandinavia

becoming the region’s preferred banking interface. This deepening digital payments partnership encapsulates Danske’s and others' strong appetite to innovate through Nordic collaborations.

“We employ around 20,000 people and the sheer size of the company makes some things go slowly. Being in a heavily regulated industry, of course, also imposes some boundaries on what we can do,” says Andreasen. “But we are constantly working on improving it. We are learning from tech giants and startups alike, looking at what works and then trying to implement that in our organisation.

“Working in an agile way is something we have been doing for years, but now we are taking the next step in merging all our change activities – the business change functions will be merged with our IT divisions. Basically, we are implementing a version of the Spotify model.”

Spotify founder Daniel Ek has just said he’ll invest €1billion in deep-tech European moonshot projects. Perhaps that helps answer the panel’s question! ■

FINDING FINTECH’S ‘TRUE NORTH’

Payments innovation in the region is being fuelled by open banking.

There is, for example, the open banking platform, Nordic API Gateway, which some of the major Nordic banks, including Danske, are plugged into.

It has now extended its partnership with Danske Bank to enable customers to pay from other banks within Danske’s mobile banking app. In this way, Danske Bank is taking an important step towards

FinTECHTalents Virtual Nordics is a virtual-first festival for those involved with, or interested in, fintech and innovation in the Nordic region.

The half-day agenda will delve into lessons learned from successes and failures across Sweden, Norway, Denmark, Finland and Iceland – looking at, among other things, fintech for good, how startups and scaleups are being capitalised, the new P27 Nordic payment network’s journey, identity rules, and open banking.

The conference takes place on October 14, starting at 9am (CEST).

To register you’re interest, go to www.fintechtalents.com/ virtualnordics2020/

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Improve operational efficiency in the wake of Covid-19 Often an insurance company spends months designing and launching a product only ‘guessing’ if it will be successful.

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ACI WORLDWIDE: CLOUD

A funny thing happened on the way to the Cloud “Everybody talks about payments moving towards the Cloud – that it’s going to be this $300billion market opportunity in the next five years,” says Ciaran Chu. “A lot of banks say they are committed to the technology, but if you look at the actual workloads being run there, from a payments perspective, a lot of them are still in their infancy.”

ACI Worldwide’s Head of Public Cloud, Ciaran Chu, says it isn’t just a technology solution – it’s an opportunity to fundamentally reshape banks’ business models

As head of public Cloud services at payment solutions provider ACI Worldwide, Chu is involved in the digital transformation journey of many of the 6,000 organisations that it works with, including 18 of the 20 biggest banks globally. And while some may be slower than others, for those who ‘get’ Cloud’s full potential, he believes it can radically change the way they operate as well as their future profitability. And it all comes back to payments…

they’re able to charge less fees and interest rates are at an all-time low. They’re the two traditional revenue streams. Where you’ll see an acceleration of Cloud technology, is through artificial intelligence (AI) or other data aggregation services, that allow them to create alternative, new value streams that they wouldn’t be able to create today in an on-premise environment.

Those that are going to be really successful will move components, one by one, to arrive at value, assimilate the learnings and work in a truly agile manner. Ultimately, they’ll be able to unlock that value and transform the business, piece by piece, so that they’re diversifying their revenue, changing their cost base and, ultimately, spending more time on the consumers and less time on the maintenance.

A lot of banks and intermediaries I speak

FINTECH FINANCE: Can you give us a scene-setter – where banks are now and where they are heading to in their Cloud journey?

CIARAN CHU: I think the big challenge that a lot of banks are going to have in the next three to five years is that their traditional business model is under attack: www.sibos.com

to, be they merchants or processors, are saying: “I want to have a faster speed to market. I acknowledge there may be more upfront cost involved in that because I’m running two platforms – I’m not fully optimised when I’m deploying it in the Cloud – but, ultimately, my major driver is to get faster time to market and increase my agility. By doing that, my expectation is that I'll get new revenue streams that I wouldn’t have got otherwise in the short term. In the long term, much as I’ve done in an on-premise environment, I’m going to optimise my workloads as much as possible, to ensure that my cost comes down.”

FF: You talk about banks finding new business models and revenue streams, but where do they look?

CC: The most logical place for neo and traditional banks to find revenue outside of transaction fees – with the caveat that, while revenue fees per transaction are falling, the volume of electronic payments, especially off the back of COVID, is rising – is through improved customer experience. The easiest way to do that is by improving transaction convergence or giving customers more contextual data to go about their daily lives. 

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VIRTUALSHOW5–8_OCTOBER2020  The challenge for the established banks is that they’ve got spaghetti architecture – a customer has a retail account and a home insurance account, for example, but those two pieces of data are held in different databases. That means it’s very hard for incumbent banks to pull together a complete data picture of that client.

Some of the advantage with the neobanks, particularly in Europe, is that they have the ability to leverage open banking to pull together that aggregated account information – because they’re Cloud native and they’ve got the AI capabilities that the Cloud providers give them. It helps give a far more seamless experience to consumers, which helps to drive more transaction volume. That transaction volume then gives them the opportunity

Does it add up?

Revenue fees per transaction are falling but volume of low-value payments is rising

to provide more contextual information – and, as consumers, what we’re really looking for is the easy button.

So that, I think, is going to be one of the big battlegrounds. Can the incumbents simplify all their data structures, and can they commercialise the fact that they are trusted by consumers to hold information?

And who wins? Is it the trusted bank, which might have a lot of information and can’t quite get it together today, but, as they go towards the Cloud, can use the help of providers to better aggregate that info and make it available?

Or is it your neobank that’s jumped straight in and is going to make it so easy for you to use their product, and so easy for you to be able to aggregate all your accounts in their product?

That’s going to be a really interesting space in the coming years, because,

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ultimately, with transaction fees, it’s a race to the bottom.

FF: Do you see them naturally relinquishing some of the payment services they have traditionally supported in-house?

CC: As a bank moves towards the Cloud, there is obviously a natural pause, a point for them to consider what it wants to offer itself and what it can outsource.

The first big advantage of payments-as-a-service is being able to focus on your customers, while potentially outsourcing the technical infrastructure.

The second big benefit is that a lot of the banks are looking at the Cloud journey and realising it requires a very different technical skillset, which they might not

really neat solution because it just allows you to unlock the new capability as you need it and not worry whether you’ve done the right market analysis, whether you can get it built in six-to-18 months, and, if you do, has the market has already moved on?

Unlocking the payment capability, as you need it, using application programming interfaces (APIs), is massively powerful, because it transforms your go-to-market and your customer experience, not to mention your cost base.

FF: And what can ACI Worldwide bring to the table to help banks navigate this changing environment?

CC: We’ve huge experience of supporting clients that are running mission-critical systems in their own datacentres. But we’ve also been on our own Cloud journey as a company – we now have our own private Cloud business – and that gives us a massive advantage in that we understand what it takes to migrate to and operate in the Cloud.

So, I think our own experiences have really resonated with clients, because they can come to us to ask questions like ‘how do I solve the HSM (hardware security module) latency issue?’ and we’ve been able to say ‘like this… you can run it in your own datacentre, and here are the things you need to think about in order to connect to the payment application in the Cloud. Or, alternatively, here’s our colocation provider’.

Ultimately, they’ll be able to transform the business, piece by piece, so they’re diversifying their revenue, changing their cost base, and, ultimately, spending more time on consumers and less on maintenance have the abilities in-house today to be able to execute as quickly as they want.

So, the idea that you can just consume a service, as and when you need it, is obviously very attractive from an operation and a maintenance standpoint, and certainly from a resource perspective.

The third big benefit of payments-as-aservice is the ubiquity of the payment experience. If you think about how fast the market is moving – transaction fees are dropping, banks are looking for different revenue streams – one of the challenges is how banks respond to that in an effective time period. Payments-as-a-service is a

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We use our own middleware to connect our different applications, to make them seamless for clients, and particularly to API-enable them, so that customers can come in, use the services they need, when they need them. That’s really helped us think customer-first, about how we can make customers’ lives easier in so far as being able to consume the gamut of ACI’s technology in a really seamless manner, so that they can go to market faster, innovate faster, and also maintain their applications in a far more seamless manner – which, given the amount of regulatory oversight coming in, is in itself a massive challenge. ■ www.fintech.finance

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Helping you and your customers thrive

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Frictionless finance: using data to accelerate and connect businesses Watch the discussion live on Wednesday 7th October 21:00 CET, or on demand afterwards, via the Sibos 2020 Conference Portal.

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Š 2020 Visa. All Rights Reserved.

SEB: NORDICS’ P27 Flying the flag: SEB is enabling fast crossborder transactions for the Nordics

is for payments Next year, the Nordic countries will introduce a new, crossborder payments system that replaces domestic clearing houses. Driven by the region’s six big banks, it’s an example of how they can build trust and deliver superior customer service, says SEB’s Head of Transaction Services, Paula Da Silva Frantically digging around in your wallet to find a bank card will one day be a thing of the past.

Future generations will instead ‘consciously agree’ to pay, even if they don’t physically authorise a transaction, with payments embedded in everything we do – particularly when it comes to the more mundane tasks.

Want to buy a movie, as you do every time you turn on Apple TV? Your system will recognise that and pay for it accordingly. Run out of groceries? Your smart fridge will put an order through for you automatically, just as it did last week.

A pipe dream for now, but perhaps not for as long as we think. Payments are

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becoming increasingly frictionless and real-time – particularly in the Nordics, where countries have long led the way in cashless transactions.

“The banking industry cannot be the hindrance to the Internet of Things being adopted,” observes Paula Da Silva, head of transaction services at Sweden’s SEB, which is also the Nordics’ leading corporate bank. She’s seen the bank transform its payment services almost beyond recognition as society and technology have evolved over the past 30 years and she is only too aware of the commercial incentive and systemic importance of incumbent banks in the payment space.

Right now she’s in a position to make sure they are doing the right thing.

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SEB is one of six of the region’s banks that have joined forces on the P27 initiative, the first, bank-owned pan-Nordic payment infrastructure for Nordic currencies and the euro. The name derives from its ambition to facilitate payments for the Nordics’ 27 million inhabitants.

Da Silva is currently chair of P27, although she makes it clear that it will ‘eventually have an independent chairman, according to the rules and regulations of the shareholders’ agreement’. Meanwhile, she has been facilitating the set-up of the company, a task she has clearly relished, precisely because it facilitates the seamless data journey and circle of trust that she believes banks have the ability – indeed the necessity – to build. www.fintech.finance

VIRTUALSHOW5–8_OCTOBER2020 Along with Sweden’s Handelsbanken and Swedbank, Finland’s Nordea and OP Financial Group, and Denmark’s Danske Bank, SEB is helping to create not just Europe’s, but the world’s, first crossborder payments platform in multiple currencies.

P27 is due to go live by the end of 2021.

Its major, immediate impact will be to give individuals and corporates the ability to make payments across accounts in the Nordics in real-time, explains Da Silva.

But in order to achieve this goal, there will need to be trusted mechanisms put in place to replace the traditional correspondent banking routes – and that means a great deal of upheaval for the banks involved, not least in the way they manage data.

“Today, you have an account with us, we have an account with the correspondent bank, that bank has an account with the customer,” explains Da Silva of the current procedure for sending, for example, Swedish krona to Norway or euros from Finland (the only country in the Nordics to adopt the euro) to Denmark. Trust in the correspondent banking system is implicit.

The secret to crossborder real-time payments of the future will be having what she calls a ‘closed circuit’ of trustworthy partners, with systems such as P27 in place to ensure the parties are who they say they are from the outset.

“You can create mechanisms that ensure whoever is in that closed circuit is a trustworthy party, and then you can let the money go,” she says.

She cites Sweden’s peer-to-peer payment system Swish, which enables both consumers and corporates to make quick payments by smartphone, as a good domestic example of how such a platform can work.

“That can definitely be extrapolated between countries. You need to use the same mechanisms of trust,” she says.

That theme of trust is central to payments, whatever the context, and comes up time and again in Da Silva’s analysis of the banks’ role in modern payment mechanisms. It’s important that we trust that the contract between the buyer and the supplier has been set up correctly, and trust is embedded in the way banks use data analytics to sort routine automatic payments from those that need flagging to us. www.sibos.com

“Most of your life – is it 90 per cent or more – you do the same things over and over again,” says Da Silva. “We don’t need to alert you every time you pay rent, for example, but what if we see a really high bill from a restaurant that you’ve never been to before?

“We don’t need to inform you every time you make a payment because, most of the time, you have chosen to do so yourself. That’s where data comes in.

We can use it to predict your behaviours, and when those behaviours are out of the ordinary, whether you are a company or a private individual, and we inform you about it, as a customer you take trust from that. You know we are watching over you. That’s what we are trying to achieve.”

To get to that point, however, requires data handling in the back office to be radically different from how it used to be segregated between departments for their own discrete use. One of the biggest lessons Da Silva has learned over the years is the importance of ‘getting your house in order in the back to be really good at what you do at the front’.

“When you look at the end-to-end customer process, you understand that the back office is really the cumbersome part, but also the one that will make a bigger impact,” she says.

There have, of course, already been many significant changes in back office processes. Da Silva harks back to her early days with the bank, taking payment orders and sending them by post.

“When a customer asked ‘where is my payment?’, it was difficult to answer. But often they accepted that it took two weeks for it to reach whatever country and enter their account. That was OK but now they want it like this,” Da Silva adds, snapping her fingers. “It’s pretty different.”

The impact that is having on the back office is seismic. And the most important thing banks can do in response – in fact the thing they have to do if advances such as P27 are to be successful – is remove departmental ringfencing of information.

Da Silva believes banks now need to create a new role to manage this.

“We don’t have this kind of role in

banking’s DNA; we have credit people, front office staff and so forth,” she says.

Citing the example of payments data, Da Silva explains: “If you’re using that in the markets area, or in the financing area, you cannot go and alter it. It needs to be static, so that it’s predictable; so, field 12 needs to include exactly the same thing.

To make sure that happens, you have to have people that are responsible for driving that data across the bank.

“It’s a big undertaking but very important – for the industry, the bank and the customer – so that we have a predictability in what they use from us and know how we can best serve them.”

Streamlining back-end data processes comes with other benefits – notably in compliance. While the changes may be painful during the transition, the uniform presentation of data that systems such as P27’s platform will require, for example, matches up with what many regulators are looking for and makes the whole job of reporting easier.

“The good thing about what is required from regulators right now is that we need to do the same exact work for our customer offering. So, when we have the structured data with which to report to the authorities, we have the same structured data to be able to predict our customers’ needs.”

P27, when it arrives will be a triumph of co-operation between big banks that have done things their own way for a long, long time. The utility of the idea is clear: “Instead of having domestic clearing systems, we will have Nordic ones across the countries and currencies up here. And that, of course, means we won’t have to invest – all of us, in four different countries – in goodness knows how many systems,” says Da Silva. “It’s a way of getting together and using our combined investment strength to make sure we have something that is good for the community.”

It’s an historic change she’s helping to steer. “Yes, something to tell the grandchildren,” says Da Silva. And then she pauses. “Only, of course, they won’t know what a payment is, because by then it’s all going to be embedded!” ■

You can create mechanisms that ensure whoever is in that closed circuit is a trustworthy party

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FINASTRA: PLATFORMICATION Pulling together: Digitisation enables collaboration – and that’s good for all

Redefiningthe Redefiningthe futureof future offinance finance SMEs have long complained of being left in a financial services and funding wilderness by incumbents.

The solutions that Finastra is offering those institutions via its innovative FusionFabric.cloud aims to bring those businesses in from the cold.

In fact, as Finastra’s Wissam Khoury puts it, the company is on a mission to change the world, one app at a time, with SMEs high on the company’s broader agenda to achieve financial inclusion for all.

The Banking for Humanity strand at this year’s virtual Sibos explores just that – the role of the finance industry in everything from better access to bank accounts and loans, to lowering carbon footprints, digital adoption and diversity. Finastra’s contribution to solving some of those issues is to use platformification.

Khoury, who is head of international at Finastra, believes banks’ previous reliance on building their own in-house solutions has been one of the main inhibitors to innovation, because building out on complex legacy systems is challenging and takes far too long.

However, the new era of open banking provides a fresh opportunity for the collaboration essential to overcoming this.As well as fulfilling the needs of consumers, pulling together could fuel growth and new income streams. www.sibos.com

Collaborative fintech has a vital role to play in changing the world for the better, and Finastra can play a key role in helping to make that happen, says its Head of International, Wissam Khoury

FusionFabric.cloud is an open and collaborative development ecosystem designed to bring together banks and other financial institutions with analysts, fintechs, universities, consultants, developers and systems integrators, to find rapid-fire solutions to industry sticking points – and solve real-world problems along the way.

Among its three core components, FusionCreator developer portal and application programming interface (API) catalogue enable users to access datasets, build applications and roll out solutions quickly – including REST API management, a sandbox environment and developer documentation. Its FusionOperate secure production environment, hosted on Microsoft Azure, allows users to connect their apps to Finastra software without building their own Cloud infrastructure, and includes monitoring tools and reliability, redundancy and security. The FusionStore app marketplace is where apps developed

within FusionFabric.cloud can be ‘monetised, promoted, discovered and consumed’ – including quality checking and validation, and marketing. It also provides access to extensive marketplace data to drive decision-making.

Committed to increasing innovation speed, Finastra’s vision is to become the ‘number one platform for financial services’ by optimising cost of ownership; driving efficiency through open standards; accelerating growth through new and improved solutions; improving customer experience; offering ‘infinite’ innovation options through APIs, and investing in data curation and growth to fuel artificial intelligence (AI)-led developments, coupled with the breadth and scale of its developer network. Partners involved in FusionFabric.cloud are diverse.

Finastra is also collaborating on a microfinance initiative in Kenya, bringing together fintechs, a UK university and wholesalers to provide better solutions for assessing SMEs’ creditworthiness, thereby lowering the estimated $19billion funding gap in the country.

As Khoury puts it: “We’re redefining the future of finance. A key aspect is finance for good and improvements to financial services and literacy… helping our customers to create positive outcomes for millions of people, with the COVID-19 pandemic creating a fresh urgency. 

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VIRTUALSHOW5–8_OCTOBER2020  “The push for open banking, platforms and marketplaces… these changes, across the market, will have to happen, and will stay forever. Our CEO, Simon Paris, talks about deepening the role of finance services to help millions of individuals, small and medium enterprises and communities to navigate the future,” Khoury adds.

THE MOMENT IS NOW “There has been lots of progress in the last 10 years: open banking, open APIs, open communication between banks and third parties and between banks themselves. But more has to be done now, and it has to be done with a huge focus on how to do it the right way. It needs to take into account the new dynamics that have arisen during COVID, with a huge focus also on the existing challenges in finance, such as financial inclusion.”

and provide the banks themselves with new income streams.

“The power of data is under-utilised by the banking sector,” believes Khoury. “We can have access to metadata to model the creditworthiness of an SME and assess its credit ratios in many different ways other than just looking at its balance sheet and income statement. This includes the nature of the business, its experience, successes and gaps in the market. By deep diving the data that’s already there, financial institutions can change the way they provide their approvals for SMEs, to contribute better to that SME funding gap.”

Through FusionFabric.cloud, Finastra is looking beyond financial services, to offer the kind of forward-thinking technology being utilised by other industries to great effect.

“We are not using any creative technology that doesn’t exist today, and

Building blocks: Finastra aims to make it easier for banks to adapt for the greater good

SMEs’ restricted access to funding is an example of existing issues rendered even more difficult by recent events.

“SMEs have probably been hit hardest as a result of the pandemic, but it has potentially made business banking for small businesses a real focus. It has to.

Otherwise, we’re going to face lots of issues because SMEs rely on cash and often don’t have history for credit and struggle to access funds or negotiate better rates.

“There are two causes of this. One, it’s expensive for financial institutions to give loans to smaller organisations. The second problem is that SMEs don’t have the data required by the credit or lending models used by big banks to assess their creditworthiness and risk appetite.”

Which is where FusionFabric.cloud comes into its own, by enabling financial providers to rapidly build or access cost-effective solutions that both better serve consumers

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A COLLABORATIVE APPROACH But how can banks collaborate as he describes, without losing their essence?

Banks need to offer a range of services to the end user – and not necessarily their own. With a collaborative approach, they can become one-stop shops, says Khoury.

That will improve the end-user experience as well as increasing revenue.

“Today, banks face new entrants into the market, which are not traditional competitors or banks,” says Khoury.

“We all know that technology providers are entering payments and lending. Over the last two years, banks have realised the only way to ride that wave is to collaborate with fintechs, rather than putting them at arm’s length, to provide a single service to their clients.

“Banks can participate in this journey in many ways. They can partner with fintechs through direct investment; buy or launch their own fintechs.

Or they can open up their systems and utilise technology like ours to access multiple fintechs.

“They need an intermediary, which is what we are offering, utilising the latest technologies to enable them to develop apps, via our open APIs, within a few months to just a few days. Our store then enables them to manage their app in the Cloud. Or they can choose one that’s already there, download and use it.”

Thanks to this technology, the future is coming fast.

Khoury concludes: “Let’s collaborate, work together and, more importantly, since we are moving at a very fast pace, let’s not leave anybody behind.

“Take care of financial inclusion, narrow the gap for SMEs, get the money supply and liquidity up and running. At the same time, ride the wave of digitisation.” ■

Let’s collaborate, work together and, more importantly, since we are moving at a very fast pace, let’s not leave anybody behind

that’s the beauty of it,” explains Khoury. “The technology that allows us to redefine the future of finance, in theory, is already being used by other industries – look at retailers or ecommerce. We’re trying to bring that technology, in a very secure way, to the banking sector, along with the regulator and banks themselves.

We’re taking their history and solutions and adding these technologies on top, to provide new services.”

Collaboration is the way forward, he believes, including ‘open banking, open APIs, sharing of data’, for all of which Finastra wants FusionFabric.cloud to be a major catalyst, and all predicated on the platform-as-a-service principle.

“Moving forward, it has to be about arriving at a place where financial services,

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including smaller fintechs, can come together in a marketplace, exchange experiences and provide more insights, more data, more user-friendly interfaces for their client base, which is already used to getting that service from a non-banking environment,” he adds.

www.fintech.finance

Bridging real life to digital.

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UNICREDIT: CHANGING PAYMENTS

Change is coming: TARGET2 and ISO 20022 migration will, in effect, happen at the same time for many banks

BANKS’

‘BIG BANG’

MOMENT

The countdown has begun to two major changes to European payments infrastructure. Meeting the deadline for both TARGET2 and ISO 20022 migration will be tough, but worth it says Raphael Barisaac, UniCredit’s Global Head of Cash Management and Global Co-head of Trade In the heyday of English seaside coin arcades, there was always a penny push machine. You fed your pennies in until enough of them built up behind those perched precipitously on the edge for them to fall into the cash dispenser.

There was a heart-stopping moment when the weight of all those pennies literally hung in the balance – until the urge for them to move became irresistible.

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Just such a moment has been reached in the accumulation of systems, regulations, standards and reforms edging the eurozone towards a fully-realised, fully- integrated financial infrastructure. It’s been a long time coming, but the payout, in terms of infrastructure resilience, greater efficiency, improved security, access to new technologies and better usability for the EU’s central banks, retail banks and central securities depositories (CSDs), is huge.

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The vision for the ‘last mile’ of this journey towards a harmonised system, and an outline roadmap for getting there, was originally set out

by Eurosystem, the monetary authority for the eurozone, in 2015, a year after the Single Euro Payments Area (SEPA) – another important milestone in the harmonisation project – became fully operational in all states using the euro.

Eurosystem’s proposal, worked up in

www.fintech.finance

VIRTUALSHOW5–8_OCTOBER2020

consultation with the industry, was to build on the existing Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) and related services that had, at that point, been ensuring the free flow of cash, securities and collateral across Europe for almost a decade. They included TARGET2 (for settling bank-to-bank payments), and TARGET2-Securities, or T2S, (for settling securities). An extension of the service in 2018 would also see the introduction of TARGET Instant Payment Settlement (TIPS, for short), which allows individuals and companies to transfer money directly between accounts in seconds, outside bank opening hours, using central bank money for settlement.

Eurosystem, which is comprised of the European Central Bank and the central banks of eurozone countries, was working towards a November 2021 deadline for consolidating T2 and T2S in a single platform and launching a single market infrastructure gateway to make it easier for participants to access and use all its TARGET services. That timeline has now been pushed back to November 2022.

Meanwhile, the revised Payment Services Directive (PSD2) went live in 2019. It was another one of those ‘pennies’ nudging the eurozone towards an inevitable tipping point, as more players entered the market and payments complexity increased.

Running parallel with, but inseparable from, all of this was another, much bigger initiative – the rollout of a single, universal, data-rich language for payments messaging, using XML and ASN.1 file formats, not just in Europe, but around the world: namely ISO 20020. Described by one Bank of America exec as a ‘foundational change for our industry’, it promises to finally make different countries’ payments systems interoperable. That should automatically achieve efficiencies, transparency and, therefore, lead to better compliance.

ISO 20022 will be the adopted language for all the TARGET services in the new, consolidated system – so, the year 2022 will become the defacto deadline for banks in the eurozone to align under the ISO standard, too.

An enormous amount of work still needs to be done inside banks to successfully migrate their systems and ready procedures

www.sibos.com

for this ‘big bang’ moment, as Raphael Barisaac, UniCredit’s global head of cash management and global co-head of trade, describes it.

“Being a project that is regulatory by nature means there is no fall-back. This drives you to an end date, failure is not an option. You have to be ready and on time.

Pure and simple,” he says.

It’s a hold-your-breath event, but everything leading to that point will have been worth it.

“These types of projects are usually very difficult and painful to push through and you only start to see the benefits once the infrastructure is there,” says Barisaac.

“On the other hand, we have taken the opportunity to review and streamline our internal processes and systems.

“We are a big group of very successful pan-European banks, with a large retail and corporate customer base in each of the countries where we are present.

Collectively, we have a lot of different systems and legacy infrastructures, deriving from a history of mergers and acquisitions.

This is therefore an opportunity to say ‘OK, leveraging this new infrastructure, what can we do better?’.

“We have already identified some of the benefits that may result from these technical changes. The conversation then begins to shift towards the additional services that we can introduce, since with an XML-based infrastructure, you are able to create new, value-added solutions in, or very close to, real time.

“In the past, it had to be approached differently, because you needed to convert a lot of formats, which deprived you of cost and efficiency savings, in order to achieve the end result.

“I believe we will see a significant improvement in our existing service level, as well as in the new solutions we are going to be able to provide to our clients moving forward.”

All this fits with UniCredit’s open banking agenda, under which the bank is rolling out

an account aggregator feature for internet and mobile users in PSD2-compliant countries by the end of 2021. Already available to customers in Italy, it allows them to not only view accounts held with other providers, but also to make transfers from those accounts across the UniCredit platform. The service will be extended to customers of the bank in Germany and Austria this month.

“PSD2, in this sense, is an enabler for a free market to provide additional value-added services for both corporates and individuals,” says Barisaac.

“We are passionate about it because it allows open banking to really develop and show the type of maturity that brings wider benefits to the entire ecosystem. We are currently experimenting with application programming interfaces (APIs) in the corporate and retail space, looking at how to connect new services that were previously almost impossible to provide.”

He sees the TARGET2 and ISO 20022 migration as being co-dependent.

“We call it the XML ISO 20022 journey because it has several pillars.

TARGET2 is an important change, driven by the European Central Bank, but, as an industry, we’re already on a journey towards XML migration.”

SWIFT is key to that, even if it will continue to run its legacy MT (message type) protocol alongside ISO 20022 until 2025.

“SWIFT’s change to ISO 20022 means that, eventually, the entire financial industry will be fully XML, bottom-up,” says Barisaac.

“This creates a lot of opportunities, including the way that you are able to foresee different types of services related to liquidity and payments.

“It is a very intensive project,” he adds.

“The entire bank is working towards this migration, given that there are a lot of infrastructural and internal touchpoints.

On the other hand, we have embraced this as an opportunity.

“When you see the light at the end of the tunnel and the possibilities afterwards, that certainly energises the team.” ■

There is no fallback.

This drives you to an end date.

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TRULIOO: ONBOARDING

Joining the dots: Cross-referencing data from different identity streams means a higher barrier to fraud

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2020 Special

www.fintech.finance

VIRTUALSHOW5–8_OCTOBER2020 When a business is onboarding customers using a risk-based approach, some identifications require enhanced due diligence.

Payment providers, for example, must consider factors such as the country of origin, where the money is going to, the source of funds and the transaction value. If potential risks are identified during due diligence, adding layers of identity verification to onboarding workflows helps provide more robust fraud prevention measures without adding substantially more friction or effort.

Using digital identity, ID document and bank account verification can enable organisations to utilise a few reliable ways to verify and authenticate that someone is who they claim to be. By cross-referencing multiple networks, businesses can implement an even more robust fraud and risk mitigation system. Corroborating information from different identity streams creates a higher barrier for any would-be fraudster to overcome.

CUSTOM WORKFLOWS While fraud prevention and compliance measures are always necessary, requiring every customer to go through the highest level of scrutiny is often unnecessary and can sometimes even lead to transaction abandonment.

The individual, scenario and numerous other factors will affect the risk profile and, thus, the rule sets and workflows should also vary. They can be customised to offer the most appropriate onboarding experience, based on risk, allowing lower risk accounts to onboard seamlessly while requiring higher risk ones to go through more robust measures, as part of a balanced, risk-based approach.

For instance, Stake, an Australian-based investment platform that challenges traditional banks and brokers on investing costs and user experience, uses Trulioo to onboard and verify customers in four different locations (Australia, New Zealand, the UK and Brazil) with multiple legislations and other requirements.

One of the founding principles of the company was to address three major legacy issues within the investment

www.sibos.com

An effective, risk-based approach to onboarding can be technologically almost effortless, says Zac Cohen, COO of Trulioo industry for customers: paper forms, excessive fees and poor execution.

Stake needed to undertake appropriate anti-money laundering and know your customer (KYC) procedures for every customer, and provide the appropriate level of security, without compromising on service. Using its risk-based approach, Trulioo has helped Stake with this due diligence while enabling the company to scale globally, delivering verification to a vast market.

Validating personal identification information as a first step can provide insight into what further checks should be deployed. Beyond the information provided by the consumer, the

By cross-referencing multiple networks, businesses can implement an even more robust fraud and risk mitigation system simultaneous collection of significant metadata presents numerous signals that are useful for fraud prevention.

For the consumer, it’s just a few simple questions, but for a sophisticated identity verification system, it’s a multitude of data points and signals to determine the risk profile and the associated workflow. If, during the initial analysis, a need for enhanced due diligence is identified, a secondary ID document verification might be called for.

For these cases, the consumer is asked for images of their identity documents.

These images can then undergo security checks, including analysing them for signs of forgery or alteration. For a company that needs extra layers, this process could also require the customer to send a selfie along with the picture of their ID. This selfie enables a liveness check and

biometric comparison between that image and the ID photo. Using facial recognition technology, the image comparison is done quickly and with a high degree of accuracy, providing yet another layer of comfort.

If documents are unavailable or an even further due diligence layer is called for, a bank account verification may be requested. Bank verification is a mechanism to confirm that the person entering identity information into a form is authorised to use the identity they have supplied.

As banks have strict regulations around proper KYC and security measures, using banks as a verification layer helps to provide assurance that the prospect has passed other strict ID verification procedures and that the information matches a defined bank account.

As with any verification procedure, there’s always an amount of healthy friction for the consumer when adding security measures. Studies show that consumers appreciate the trade-off, as they understand the need for security and how those measures protect them when they open accounts. Providing the onboarding process prioritises data privacy, and is not complicated or slow in comparison to the value they receive, consumers will willingly proceed.

RIGHT VERIFICATION AT RIGHT TIME With the smart implementation of a digital identity network, an effective, risk-based approach is technologically almost effortless.

It goes without saying that compliance teams need to consider various risks and what appropriate measures should be in place to safeguard their operations.

Regular adjustments, reviews and manual investigations should always be part of the process.

However, effective identity verification workflows make remote onboarding safe, convenient and seamless – for both operational teams and consumers.

The right level of due diligence is expected by consumers in today’s digital world and will help pave the way for greater customer trust and loyalty. ■

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BOTTOMLINE & SOCIÉTÉ GÉNÉRALE: CROSSBORDER PAYMENTS

A question of standards Eric Bayle, Head of UK-based global transaction banking team for Société Générale, and Edward Ireland, Global Solution Lead for Bottomline Technologies, believe ISO 20022 and SWIFT gpi show interoperability between crossborder payment schemes is not just desirable, but possible Legacy banks across the world, which have long enjoyed a highly lucrative near-monopoly on providing complex monetary transactions, such as crossborder payments, now face a tidal wave of competition.

Blockchain-based newcomers, notably Ripple, as well as financial giants Visa and Mastercard, have been extending their reach as the ever-increasing digitisation of the financial world offers up new opportunities.

Against that background, SWIFT (Society for Worldwide Interbank Financial Telecommunication) network, a global messaging system for bank-to-bank payments, developed in the 1970s, remains the de facto standard for high-value international transactions, used by more than 11,000 institutions

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across 200 countries, including some of the newest fintech arrivals.

Founded by banks for banks and headquartered in Europe, SWIFT began to feel the hot breath of competition some years ago and responded with an enhanced messaging system, SWIFT gpi (global payments initiative), in 2017. A step-change in how the correspondent banking network operates, it vastly improved the speed of those transactions, from days to minutes, with full transparency of the payment journey between the counterparties.

Since 2018, all transactions have carried a UETR (unique end-to-end transaction reference), which offers full tracking of payments on the SWIFT network. And, from November 2020, it will be mandatory for all financial institutions to send confirmation of incoming payments, too.

However, perhaps the single most

2020 Special

important change to the payments landscape that affects SWIFT (and everyone else in payments for that matter), is the introduction of a new, open and universal messaging standard, ISO 20022. The standard for a modern, data-driven payments world, and one in which application programming interfaces (APIs) are increasingly becoming the accepted way of improving client experience. Already used by payment systems in more than 70 countries, ISO 20022 will run alongside SWIFT’s legacy MT messaging from 2021, with the latter phased out by 2025.

The migration of high-value payment systems in multiple jurisdictions to ISO 20022 at pretty much the same time has been described by Deutsche Bank as ‘probably the most impactful payments industry undertaking since the introduction of the Single Euro Payments Area’. www.fintech.finance

VIRTUALSHOW5–8_OCTOBER2020 WARM INDUSTRY WELCOME Société Générale was one of the first to convert to SWIFT gpi when it was introduced in 2017, and Eric Bayle, head of its UK-based global transaction banking team, is encouraged by the number of other financial institutions upgrading their systems to accommodate it. The numbers nearly doubled between 2019 and 2020, to almost 900. In total, 65 per cent of SWIFT’s crossborder payments, worth $77trillion, were made through gpi in 2019/20, mainly in the developed economies of Europe, the US and Asia.

“That tells you the scope of the pickup and the expansion,” says Bayle.

He’s convinced that a large part of that success is down to the added transparency offered by gpi. The track and trace function, previously only available to financial institutions, can now be exposed to those institutions’ corporate clients through APIs, too.

“You have the pure gpi, between banks, and then g4c, or gpi for corporates, which is the banks’ offer for their clients,” explains Bayle. “Very large companies might have an integrated gpi that allows them to automatically track payments, end to end.

SMEs might choose to initiate a payment using an online banking tool and then access the tracker via the internet to monitor the payment. Now there is the inbound tracking initiative, too, where customers have the option to receive an alert of their incoming funds. This, obviously, is important for them to manage their treasury, because, whether you are a very large corporate or a small SME, you need to know exactly what’s going to come into your bank account on any given day to decide what payments you can make out of it.

“All these gpi initiatives rely on standardisation of formats and the help and support of vendors. The vendors have a very important role to play in plugging these APIs – the gpi tracker, etc – into the customer solution.”

Bottomline is one of those vendors. It has worked closely with SWIFT to encourage the adoption of gpi and Edward Ireland, product manager for payment technology, sees the next phase of that to be possibly the most challenging yet.

“The big cash management banks have the dollars to invest in this type of project; it gets more challenging as we get down to the smaller banks, but the benefit is there www.sibos.com

for them, too,” he says. “That’s especially true of those that are very dependent on crossborder payments.”

Exposing the track and trace function via APIs as well as the universal confirmations initiative means the impact of SWIFT gpi is beginning to be felt way beyond SWIFT’s banking members. Implementing gpi triggers a whole raft of improvements in processes, applications and integrations across the payments ecosystem, says Ireland.

“APIs are key. The early adoption of gpi wasn’t really based on APIs, it was based on the old messaging rails. But now we’re increasingly moving towards APIs and institutions are becoming more familiar with them, I think it [has to be] API first, if you really want to get the benefit from the gpi programme.

“If we can give better visibility to our customers around transactions they’re making, and the detail within those transactions, there are other services and

The level of detail required by the [ISO 20022] standard is the level of detail required by the market, so if your payment system can’t deal with it, you’ve got a bigger problem than the standard other capabilities we can offer customers off the back of it. For example, if we have a customer making a Bacs payment in the UK, there’s very little information we can get from that. We can’t see what they’re buying, we don’t really know when the money’s going to arrive.

“When we look at how payments are going to evolve, gpi is going to give us better visibility of when that payment is going to settle and when it has settled. There are other ancillary products and services we can then bring to the attention of our customers, based on what we can see within that payment.”

THE SAME HYMN SHEET… SWIFT aims to provide an increasingly friction-free international, bank-to-bank payment network, but what happens

when it rubs up against local payment schemes, such as ACH (Automated Clearing House) in the US, Faster Payments in the UK and SEPA in Europe?

Both Bayle and Ireland acknowledge that interoperability between schemes – local and international – has been a major hurdle in crossborder payments, but they are optimistic that there will be greater alignment in future over both standards and formats. ISO 20022 will undoubtedly hasten that.

Explains Ireland: “If you look at the different faster payment or instant payment schemes, they’ve been developed at different times, in different standards. But the instant payment schemes are now standardising on the same format, which is a help. There is, increasingly, more interoperability between them.”

As an example of what can be achieved, he points to the emergence of P27, a new crossborder digital payments platform in the Nordics, built by the region’s major banks, which is due to go live in 2021.

“You’ll be able to settle instantly in various currencies across the Nordics, including the euro,” he says.

“We’re also seeing SWIFT looking at how it can pull confirmations from these instant payment schemes into gpi for settlements occurring off the SWIFT network.”

For Bayle, widespread adoption of ISO 20022 will make life so much easier, particularly when it comes to compliance.

“Regulators across the world want more transparency around what’s going on in the payment. You need to know who is the ultimate originator, the originator, the beneficiary and the ultimate beneficiary.

With ISO 20022, you can have all that in the payment, meaning that, for banks and regulators, the more we move to an ISO 20022 scheme, format or standard, the more transparency there will be in payments.”

Both Ireland and Bayle acknowledge that change means cost – a cost that many financial organisations would prefer to avoid. But take heed, says Ireland.

“The important thing to remember about ISO 20022, is that the level of detail required by the standard is the level of detail required by the market, so if your payment system can’t deal with it, you’ve got a bigger problem than the standard.

Your problem is that you’re not going to be able to service your customers the way that you need to.” ■

FintechFinancePresents

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BLOCKCHAIN R3: CBDCs

COVID-19 has prompted a fair amount of reassessment in the financial sector. But, in truth, digital disruption to the global monetary system was underway long before the pandemic emerged.

Cash usage has been steadily falling – albeit accelerated over the past few months by a huge swing towards online shopping, while ‘bricks and mortar’ merchants have been reluctant to handle coins and bills, and encouraged by governments raising contactless card payment limits to make the digital switch.

Meanwhile, digitally distributed stimulus payments to citizens and businesses, to protect them from the economic ravages of the pandemic, have, unsurprisingly, been seen as quicker and more efficient than simply sending out cheques. And alongside all this is the emergent parallel world of cryptocurrencies and stable coins.

The change in how we pay and what we choose to pay with has far-reaching consequences – not least for central banks who preside over the world’s monetary systems. Many of them are now questioning whether the token of value on which they’ve built centuries of thinking and systems – cash – is really up to the job or whether they should now commit to issuing central bank digital currencies (CBDCs). It’s a huge step.

Central banks are being forced to respond to changes that challenge the foundation of monetary systems. R3’s Daniel Eidan says blockchain-enabled CBDCs could be one solution Daniel Eidan, global solutions architect, payments and CBDC, for enterprise blockchain technology company R3, which has been working with at least two central banks on Corda blockchain-facilitated CBDC projects, says the emergence of Libra – Facebook’s proposed stable coin – was a watershed moment.

“Libra has awoken central banks to the fact that there are technology providers out there that have the network and technical capacity to challenge some of our assumptions around how we use money,” he says.

As the Institute and Faculty of Actuaries noted in March 2019 in its paper

Understanding Central Bank Digital Currencies: “A switch from public fiat towards private electronic money challenges the definition of money, the access to legal tender, the role of central banks, the financial intermediation model and the transmission of monetary policy.”

It added that central banks are now under pressure to respond. And one way they might do that is with CBDCs. As far back as 2015, Bank of England chief economist Andy Haldane floated the idea of using a blockchain-based central bank currency as a tool that would allow for negative interest rates to be sanctioned, if required. Fast forward five years and the bank’s March 2020 discussion paper, Central Bank Digital Currency: Opportunities, Challenges And Design, fleshes out a sterling-based CBDC in significantly greater detail.

Of the many paths the BoE could take, building a fast, highly secure and resilient technology platform to sit alongside its real time gross settlement service with the necessary functionality for retail CBDC payments, would, it suggests, be easiest. 

Disrupting the payments stack www.sibos.com

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VIRTUALSHOW5–8_OCTOBER2020  This would allow private sector payment interface providers (PIPs) to connect to the bank’s systems, in order to offer customer-facing CBDC payment services.

Even if all central banks recognise the same existential threats to the global financial ecosystem, their motivations for issuing CBDCs are much more nuanced, given payment systems vary globally, as do geopolitical considerations.

The People’s Bank of China has a long-stated aim of actively promoting the development of a state digital currency.

Even if no formal timetable for any roll-out is in place yet, the country’s major state-run commercial banks are presently conducting large-scale internal testing of a digital wallet application.

In Sweden, the Riksbank began testing its e-krone earlier this year, taking the country one step closer to creating world’s first CBDC. It followed news that the

The fall of cash?

Central banks are responding to fundamental changes

country had also joined forces with the UK, Japan, Switzerland and the Eurozone to assess the case for issuing CBDCs. Sweden’s e-Krone is driven mainly by a desire that no one should be left behind as the country heads towards total cashlessness in 2024/5. It’s an example of the inclusion agenda that Eidan has seen playing out.

“Central banks are coming in and saying ‘we want to provide central bank money to every citizen in society’, which in turn enables inclusivity by offering an alternative to cash payments that aren’t run by the private sector,” he says.

R3, meanwhile, is working with central banks, including in Canada and Thailand, to implement wholesale CBDCs.

NO CENTRAL POINT OF FAILURE On the assumption that CBDCs are eventually issued, portability is likely to be a major benefit, since such currencies won’t

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necessarily need to stay within the geographical confines of the country in which they’re issued.

“It’s actually a lot easier to export CBDC to other jurisdictions. So you see a competitive nature to the instrument itself that maybe doesn’t exist as much in cash,” says Eidan.

In its April 2020 White Paper Central Bank Digital Currency: An Innovation In Payments, R3 separates its analysis of CBDC projects into wholesale and retail categories, arguing that end users invariably have different requirements/preferences.

The R3 paper makes clear that central bank-run experiments so far have shown how core existing features of RTGS systems can be improved using blockchain. In one example, according to R3, decentralised liquidity savings mechanisms may be more effective in reducing gridlock than existing approaches. In addition, decentralised systems may enable banks to have more

the best technology rail to use for retail CBDC, although it is being courted by at least one blockchain provider, L3COS, to run its operating system. In the meantime R3’s enterprise blockchain platform Corda continues to evolve.

“What’s unique about this operating system is that it’s able to run applications – and synchronise between those applications – on many different systems,” says Eidan. “In effect, entire industries/ multiple countries can be optimised simultaneously, rather than simply optimising an individual firm.”

And that significantly expands the number of use cases being made available.

“What’s likely to happen is all of these different systems that were so used to being decoupled from one another, are going to be able to interact, because platforms like Corda and other distributed ledger technology (DLT) will become ubiquitous within the industry,” says Eidan.

Taking a five-year view, he sees a variety of CBDCs offering different use cases, depending on the country of issue. But convergence is likely over the longer term.

“As a retail user, I can see a future where I could potentially carry as many currencies as I want with me and pay automatically, based on how I live my life, and what types of goods and services I consume,” says Eidan.

As a retail user, I can see a future where I could potentially carry as many currencies as I want with me and pay automatically flexibility than they currently have using centralised liquidity savings mechanisms, meaning each bank could have more control and real-time visibility of how their payments are netting, network-wide, according to the paper. This would reduce reliance on the central operator for that netting calculation. And mean greater control and flexibility with liquidity that would benefit all market participants.

Looking at the potential benefits of CBDC, Eidan says: “CBDC enables a distributed system, so it would enable counterparties to interact, each running their own piece of software and ensuring there’s no centralised point of failure, which in turn would lead to a more secure and resilient environment.”

The Bank of England is still weighing up

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A FUNDAMENTAL CHANGE So far, innovation in the payments space has largely involved the building of a payments stack of services and products on top of fiat currencies that haven’t fundamentally changed their character.

Now, central banks are being forced to acknowledge the fundamental disruption to monetary systems posed by the seemingly inexorable move away from that historic token of value – cash – that underpins them.

As Eidan says: “What’s fundamentally different about CBDC is that we’re not talking about adding another layer of innovation (to the payments stack), but adding another element to the base that will substantially change what this kind of payment stack looks like.” ■ www.fintech.finance

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