External Forces Affecting Global Transaction Flows: Is the Payments World Becoming Flatter?

In his 2005 book titled The World Is Flat: A Brief History of the Twenty-First Century, New York Times reporter and author Thomas Friedman famously wrote about the impact of technology on globalization, the result of which is a truly global economy with unprecedented flows of investments, goods, and ideas. This trend has continued, despite the global recession that followed a few years after his book was published. 

In contrast, corporate treasurers have seen little “flattening” of cross-border payment processing since SWIFT was introduced in the 1970s, with the exception of intra-EC euro-denominated payments. The reality is that even in 2016, most cross-border payments have several critical elements of uncertainty about them. And it's not just about moving the money more efficiently:  increasingly the focus is on how to improve the transparency and speed of payment information.

But it is important to recognize that the global banking system (including SWIFT) is not the only influence on cross-border payments. As corporate treasury organizations make tactical and strategic decisions about how to effectively make and receive payments across borders, they must take into consideration a wide range of external forces.

External Forces

Economic instability and geo-political conditions are categories of external forces that corporate treasurers need to take into account when moving funds across borders, not only in the immediate term but when considering the longer term strategic impact on instability on trading corridors and growth markets. Yesterday's historic "Brexit" vote by the citizens of the United Kingdom to exit the European Union is the perfect example of how geo-political instability has both an immediate impact on cross border payments in terms of the impact on FX rates but also on the longer term prospects for trade, foreign investment and the movement of people across borders. It will be many months, perhaps years, before the impact is fully understood.

Industry initiatives leveraging technology advances to improve cross border payment processing are playing a larger role than ever before as global adoption of SEPA elements becomes a reality, new regional payment networks and real time cross border payment solutions are being developed and alternative payment providers are offering solutions to some of the longest standing corporate complaints about traditional cross border payment processing.

Finally, demographic trends such as uneven population growth, migration and the rise of the digital natives will all have long term implications for how corporate treasury moves money and information across borders.

Celent's recently published report on this topic Following the Money: External Forces Affecting Global Transaction Flows includes some of the key data trends related to these external forces that are critical for corporate treasurers to understand and to continue to evaluate as they develop a plan for future proofing their payment environments. The report also includes recommendations for how treasury organizations should collaborate with their transaction banking partners to ensure that cross border payment processing and the delivery of payment information is optimized as the global payments landscape changes.  This report and the webinar on the same topic was produced as part of a series sponsored by HSBC on topics relevant to corporate treasury.

following-the-money_Page_01

 

EBAday 2016: A Brave New World for Payments

EBAday 2016 LogoHosted by the European Banking Association and Finextra, EBAday attracts payments professionals from leading financial institutions and technology providers. This year’s event was held in Milan Italy with the theme, “A Brave New World for Payments.” Sessions focused on the dilemma facing the payments industry – enhancing existing payment models while preparing for alternative payments and technology.

I had the honor of moderating day two’s strategic roundtable discussing future challenges and opportunities for banks. The panelists were Paolo Cederle, CEO, UniCredit business integrated solutions; Christophe Chazot, group head of innovation, HSBC; and Damian Pettit, RBS head of payment operations.

EBAday 2016 Day Two Panel

The panelists felt that there is a disconnect between the limitations of legacy bank infrastructure and the promise of new technologies. With the majority of bank IT budgets spent on maintenance, the challenge is for banks to keep existing systems running while investing in the future. For customers, there is too much complexity, especially in cross-border payments, and customers want an easy experience at minimal cost.

Discussing Faster Payments in the UK, the panelists said the introduction eight years ago has revolutionized payments, completely changing customer behavior and paving the way for new mobile-based services such as Paym, the UK’s mobile payments service offered by seventeen banks and building societies. For countries having implemented immediate payments, real-time is the new norm and with that comes expectation and demand from customers.

With the EU PSD2 payment services provisions looming on the horizon, the discussion turned to the prospect of disintermediation of banks by third-party providers. The panelists were optimistic about the future, and feel that the regulation is helping to steer the banks toward new initiatives and innovation in services, and is a great opportunity to better service customers and push banks up the value chain.

Regarding the question of whether emerging payment models and technology represent an escalating threat, the response was that instant payments brings security challenges. But the panelists overwhelmingly agreed that convenience and speed cannot come at the cost of security–safety and security is absolutely paramount.

The discussion then moved onto the theme of disruption — are payments in a revolutionary or evolutionary phase? The panelists felt it was a bit of both. Revolutionary technologies such mobile and artificial intelligence are pushing payments along an evolutionary path. And banks have an advantage. The Fintech startups entering the market don't have the direct customer interaction and track record that banks have in safety and security. The banks are running hackathons and open to working with startups while improving legacy systems and simplifying the customer proposition.

All of the panelists’ banks are members of the R3 blockchain consortium. Blockchain is bringing a new way of working together for banks and technology providers. Each of the panelists is watching the technology closely and one area of opportunity cited was the last mile of the payments chain and in the trade finance arena.

My take-away from the roundtable was that the global payments industry is transforming. The “brave new world” is one with an imperative to be nimble, keeping your eye on all of the opportunities both for existing payment models as well as alternative technologies. Collaboration is key whether through acquisitions, consortiums, partnerships or open source projects.

Taking the ‘Madness’ out of Customer Onboarding

Earlier this year, I had the pleasure of moderating a panel discussion on the topic of omnichannel customer onboarding sponsored by Kofax. It was a heavyweight panel, including:

  • Jim Marous, Co-Publisher/Author, The Financial Brand
  • JP Nicols, Director, Next Bank
  • Brant Clark, Sr. Director, Mobile Solutions, Kofax, Inc.

March Madness

Kofax is making a recording of this informative panel here.

It’s worth a listen. Why?

Customer acquisition is obviously important because it is a prerequisite to top line sales growth. Offering a low-friction digital capability is increasingly important because customers are becoming increasingly digitally-driven. Omnichannel customer acquisition matters because multiple channels – digital channels in particular – are influencing consumer’s choice of banking relationship. Banks therefore need to close the deal whenever and wherever customers make the decision to onboard. To do otherwise is inconvenient for potentially profitable prospects, and disadvantageous for institutions wanting them as customers.

The problem is, omnichannel customer acquisition remains largely aspirational for most North American financial institutions.

I’m looking forward to sharing two forthcoming research reports devoted to this important topic in the coming weeks.

Are You Ready for Cardholder Transaction Alerts?

Quite a few issuers around the world already offer transaction alerts to their cardholders. They find them a helpful tool to reduce fraud, reduce false positives (i.e. unnecessary card declines), and strenghten their engagement with customers.

However, in a few months, this will no longer be optional for issuers in the US. Effective October 14, 2016, Visa is mandating all the US issuers to offer their cardholders an option to enroll into transaction alerts. In other words, customers still have the opportunity to decide whether to use the alerts or not, but the issuers must make the option available to them. The mandate applies to consumer Visa credit, debit and reloadable prepaid cards; currently, commercial cards and non-reloadable prepaid cards are exempt. MasterCard has similar requirements – dual brand issuers also must comply by October 2016; MasterCard-only issuers have until April 21, 2017. Importantlly, unlike EMV deadline, which was a liability shift, these are real mandates which the issuers must comply with.

Alerts via email or SMS are the easiest but also the most basic option. In our view, issuers should look beyond the "compliance" requirements and take the opportunity to deploy notification, alert and control platforms that are integrated into their channels of customer engagement, such as mobile banking or payment apps. Advanced solutions in this space offer a range of alert delivery options, as well as ability for consumers to control their cards (e.g. turn off their use for certain transactions, such as e-commerce) and deliver other types of notifications, such as various offers.

Issuers must decide how they will be delivering the service. They can develop it in-house, deploy a third party solution or rely on their processors to offer the service on their behalf. The networks also offer their own solutions. In fact, in order to pursue any of the above options, the issuers had to notify Visa by April 29 this year that they wish to opt out of Visa-branded alerts service.

Visa itself offers a few alternatives and has just announced this week a "Visa Digital Commerce App, an issuer-branded mobile commerce solution that enables financial institutions to offer their own mobile app to customers with valuable card management services." In addition to the card management features, including the alerts, the issuers can also build HCE-based contactless payments into their apps. While a number of large US issuers (e.g. Capital One, Wells Fargo) have either launched or announced their HCE-based wallets, Visa's offering should help increase adoption of cloud-based payments and issuer-branded apps with contactless payment functionality.

Of course, there are a number of other vendors offering card control platforms or tokenised cloud payments, as well as processors with their capabilities. As an issuer, you have to make sure your choice fits your broader payments strategy. Whatever the decision, you have to make sure you can offer your cardholders the option to receive alerts by October.

A Tale of Two Cities (Conference Season)

Spring is usually the season for conference travel, and this season has been no exception.  While my colleagues were spread out across the US covering conferences in Boston, New Orleans, and other locations, I spent four days in beautiful Barcelona covering the Temenos TCF 2016 Conference, followed by another three days in sunny Orlando covering the FIS Connect 2016 Conference.  The fine warm weather was not the only thing that these two conferences had in common, as Temenos and FIS each took the opportunity to showcase their recent investments in new enabling technologies.

Barcelona

In Barcelona, CEO David Arnott kicked off TCF 2016 — themed Solutions For a Connected World — by examining the Company's strategic expansion from what has traditionally been a narrow focus on banking software.  Temenos's transition to its broader focus on financial services was signaled by its acquisition in March, 2015 of Multifonds, a provider of software and services to the third-party fund administration business that supplies many of the large players in the fund administration market, including large global FIs like JP Morgan, Citigroup, BNP Paribas and Credit Suisse.

David Arnett TCF2016

Temenos's strategic expansion makes sense in that its flagship core banking platform T24 has traditionally been aimed at the universal banking market, so fund administration represents somewhat of a contiguous market for them.  Speaking of T24, I was a bit surprised at how far T24's re-architecture has come, with John Schlesinger (Chief Enterprise Architect) sharing that an architectural overhaul of T24 will be complete by Release 17 (the solution is currently on R15).

By the time R17 is complete next year, T24 will have been refactored to create a series of frameworks that will facilitate customization of the platform by client banks, allow easier integration with third-party services, and make the transactional data held by T24 more accessible for data analytics.  While most of the work here was under the hood and did not impact T24's existing features and functionality, the overhaul was much needed to expand the solution's reach into larger banks, where architectural flexibility is very important.

The T24 overhaul appears to have already borne fruit, with the Swedish retail bank Nordea Bank signing up last September to implement T24 across its regional base of 10.8 million retail and 500,000 corporate customers in several Nordic countries.  Clearly one of the benefits of the architectural upgrade is to improve T24's run-time performance, and John shared that T24 has been benchmarked to support 40 million accounts within an end-of-month processing window of only 2 hours and 56 minutes — an impressive result given that T24 operates on IBM's pSeries server running Windows or Linux, not on the mainframe systems that continues to dominate within large banks.

Orlando

In Orlando, the theme of FIS Connect 2016 was Empowering the [Financial] World, and it was clear that FIS hopes to leverage some of the new products and technologies from SunGard last November in enhancing the traditional banking and payments offerings aimed into the larger banks that were in attendance.  (FIS's community banks had their own conference called InfoShare back in April.)

Gary Norcross FIS Connect 2016

While traditional cash management products like CashExpress (data exchange in support of cash concentration activities) had their familiar place on the Connect 2016 exhibit hall, new services like Ambit Treasury Management for bank treasury departments and FIS's new SWIFT Service bureau offering rounded out the already comprehensive set of solutions FIS has assembled for the corporate banking needs of its clients.

Fiserv drove consolidation in the bank technology outsourcing market in the 1980s and 1990s before handing the baton to FIS in the new millennium, starting with the acquisition of Alltel Information Services in 2003 and continuing with the addition of Metavante Corporation in 2009 and SunGard in 2015.  With each acquisition, FIS has generated financial and operational synergies aimed at creating shareholder value, so it was interesting to see how FIS's now multi-year enterprise technology initiative is now beginning to create technological synergies for the benefit of its bank clients.

The exhibit hall showcased some of the first fruits of FIS's program to create new technologies that can support its bank clients across the range of core banking platforms, from the community banking oriented platforms like Horizon and BancPac to larger bank systems like IBS and Systematics.  FIS's Enterprise Customer Experience suite and the new version of its TouchPoint sales and service platform (supporting the branch and call center) were both built to be core platform agnostic and both represent a functional upgrade from the "native" CIF/CIM and sales/service modules associated with FIS's individual core platforms.

By creating new functional upgrades on an enterprise basis rather than through individual core platform enhancements, FIS is hoping to get more bang for its R&D buck, push out new product enhancements to its bank clients more quickly,  and redeploy precious IT funding into long-term banking service innovation.  Even ten years ago, FIS's strategy would have been inhibited by the relatively inflexible programming tools available to bank IT developers.  Today, with the advent of micro-services and standardized banking APIs, FIS has learned that product and services differentiation can finally be made compatible with a single code base.

That looks to be a win-win for FIS and its clients, but as with all things in life execution is key as the enterprise technology initiative grows in scope to cover other important parts of the banking IT system.  Stay tuned!

 

Blockchain: Beware the Hype

At Celent, we just published a new research report with the same title as this blog – Blockchain: Beware the Hype. Why such a title? Isn't blockchain the coolest technology out there at the moment? It is. At Celent, we firmly believe that blockchains and other shared ledger platforms will be a powerful catalyst for […]
Continue reading...

Security, fraud, and risk Model Bank profiles: Alfa Bank and USAA

(Left to right, Martin Pilecky, CIO Alfa-Bank; Gary McAlum, SVP Enterprise Security Group USAA; Joan McGowan, Senior Analyst Celent)Banks have worked hard to manage the different risks across their institutions. It has been and will remain costly, time consuming and a top priority. Celent profiles two award-winning banks who have modelled excellence in their use of risk management technologies across their banks. They demonstrated: Degree of innovation Degree of difficulty Measurable, quantitative business […]
Continue reading...

The diversity of payments in the US

cash onlyAs a payments geek, I am always curious about payment experiences in various parts of the world. In the last month I had a couple of trips to the US – to New York and to New Orleans – and they just reminded me how diverse the US payments environment is. And I am only […]
Continue reading...

Citi’s geolocation move

Branch Tech UsageAmerican Banker just ran an interesting article about Citi’s foray into the use of geolocation (beacons) as it pilots several use cases in its “smart branches.” Several thoughts immediately came to mind as I read Tanaya Macheel’s well-written article: The use of beacons for cardless access to branch ATMs after business hours was the lead […]
Continue reading...