P is for payments

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 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 banking 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.

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.

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 without having an immediate confirmation,” she says.

She cites SEB’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.

“Most of your life – is it 90 per cent banking’s DNA; or more – you do the same things over we have credit people, front office staff and over again,” says Da Silva. “We don’t and so forth,” she says. need to alert you every time you pay Citing the example of payments data, rent, for example, but what if we see a Da Silva explains: “If you’re using that in really high bill from a restaurant that the markets area, or in the financing area, you’ve never been to before? you cannot go and alter it. It needs to be

“We don’t need to inform you every static, so that it’s predictable; so, field 12 time you make a payment because, most needs to include exactly the same thing. of the time, you have chosen to do so To make sure that happens, you have yourself. That’s where data comes in. to have people that are responsible for We can use it to predict your behaviours, driving that data across the bank. and when those behaviours are out of “It’s a big undertaking but very the ordinary, whether you are a company important – for the industry, the bank or a private individual, and we inform and the customer – so that we have a you about it, as a customer you take trust predictability in what they use from us and from that. You know we are watching over know how we can best serve them.” you. That’s what we are trying to achieve.” Streamlining back-end data processes

To get to that point, however, requires comes with other benefits – notably in data handling in the back office to be compliance. While the changes may be radically different from how it used to painful during the transition, the uniform be segregated between departments for presentation of data that systems such as their own discrete use. One of the biggest P27’s platform will require, for example, lessons Da Silva has learned over the matches up with what many regulators years is the importance of ‘getting your are looking for and makes the whole job house in order in the back to be really of reporting easier. good at what you do at the front’. “The good thing about what is required

“When you look at the end-to-end from regulators right now is that we customer process, you understand that need to do the same exact work for our the back office is really the cumbersome customer offering. So, when we have part, but also the one that will make a the structured data with which to report bigger impact,” she says. to the authorities, we have

There have, of course, You can the same structured data already been many significant changes in back office processes. Da Silva create mechanisms to be able to predict our customers’ needs.” P27, when it arrives will be harks back to her early that ensure a triumph of co-operation days with the bank, taking payment orders and sending them by post. whoever is in that closed between big banks that have done things their own way for a long, long time. The utility

“When a customer asked circuit is a of the idea is clear: “Instead ‘where is my payment?’, it was difficult to answer. But often they accepted that trustworthy party of having domestic clearing systems, we will have Nordic ones across the countries and it took two weeks for it to currencies up here. And that, reach whatever country and enter their of course, means we won’t have to invest account. That was OK but now they want – all of us, in four different countries – in it like this,” Da Silva adds, snapping her goodness knows how many systems,” says fingers. “It’s pretty different.” Da Silva. “It’s a way of getting together and

The impact that is having on the back using our combined investment strength office is seismic. And the most important to make sure we have something that is thing banks can do in response – in fact good for the community.” the thing they have to do if advances such It’s an historic change she’s helping as P27 are to be successful – is remove to steer. “Yes, something to tell the departmental ringfencing of information. grandchildren,” says Da Silva. And then Da Silva believes banks now need to she pauses. “Only, of course, they won’t create a new role to manage this. know what a payment is, because by

“We don’t have this kind of role in then it’s all going to be embedded!” ■

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