The UK is poised to introduce a New Payments Architecture (NPA) for its retail interbank payment systems, beginning with Faster Payments, the pioneering real-time rail that has powered account-to-account (A2A) transactions for the past 14 years.An increasingly important part of the country’s payments landscape, they’ve been encouraged by open banking and saw a rapid increase in adoption by consumers and businesses alike after the pandemic. So much so, that some predict 40 per cent of e-commerce payments alone will be made that way by the end of this year. With 40 direct participants, including banks and other payments services providers (PSPs), along with many others who access the scheme indirectly, Faster Payments handled in excess of 3.4 billion single immediate payments, forward-dated payments, standing orders as well as direct corporate access payments in 2021.

Growth in A2A payments is not unique to the UK; it’s a global trend, so much so that all the major card schemes have launched initiatives to facilitate them. The NPA, which will eventually also extend to Bacs – direct credits, widely used to pay salaries, benefits, dividends and suppliers, and direct debits, which automate the collection of regular payments, such as domestic bills – is therefore seen as a way to future-proof a critical part of the country’s clearing and settlement system.

Indeed, it’s purposefully designed to stimulate innovation by simplifying integration for new market participants, such as challenger banks, fintechs and regtechs, and to support emerging payment types. Overlaid services should reduce the number of connections that payment providers are obliged to maintain, while richer payments messaging data, using ISO 20022, could be used to deliver more value-added benefits for both service providers and their customers, from smoother reconciliations to personalised journeys. Ultimately, it should result in a lot more payment choice for consumers and businesses at lower cost.

“The key thing about the NPA, is the harmonisation… rails aren’t the issue; what’s important is interoperability”

Andrew Moseley, ACI Worldwide

At the same time, risk is reduced by using prefunded settlement capability. Faster Payments participants have already had to demonstrate how they will comply with the NPA, and provide a timetabled plan for, and an impact assessment of, their required system changes. In April 2023, the NPA will begin certification testing with a view to the architecture going live in mid-2024. Coming on top of other ongoing infrastructure changes to international and domestic payments systems, it’s a lot for financial institutions to juggle. Will the results be worth it? Unquestionably, says our panel…

FINTECH FINANCE: For any legacy provider, infrastructure changes have the potential to tie up a huge amount of resource for years on end. On the other hand, digitally-led providers have been champing at the bit for an alternative A2A infrastructure. Is it possible to keep everybody happy?

MARK NALDER (NATIONWIDE): One of the biggest challenges for the Pay.UK team has been getting a timeline to suit everyone. A top-tier bank is having to do a lot of things, while a fintech wants to go quicker because it’s got limited infrastructure in place, so it can. The industry doesn’t do scheme migrations very often, though, and you’ve got to get it right. We’ve seen major scheme outages in the cards rail in the last few years and we can’t have that happening. So, while it’s taken longer than I’d personally like, this is the foundation of the next 20, 30 years of payments. If we get it wrong, we lose consumer confidence straight away.

SHANE WARMAN (PAY.UK): You’re right that we need to be cognisant of the amount of change that’s going on in the UK industry. RTGS CHAPS Renewal Programme (RTGS2), SWIFT, and NPA – there is a concern that we’re all fishing in the same pool for resources. So, in order to keep the pace of change and make sure that change is successful, as a core infrastructure provider, Pay.UK is trying to align the work that we’re doing with the work that’s happening at the Bank of England, and the work that’s happening at SWIFT.

ANDREW MOSELEY (ACI WORLDWIDE): We have two of the largest customers here in the UK for Faster Payments – the introduction of the NPA has a huge impact alongside what else is happening, so, working collaboratively across the industry will ensure that what we end up with is the right payments ecosystem; one that’s secure, resilient, robust, promotes competition and innovation, and is successful. It’s a mission-critical system, though, so we have to tread carefully.

FF: How important is ISO 20022 to domestic schemes like the NPA?

“Most end users don’t care about the rails. In fact, they don’t even know about them. What they do expect, though, is that when they make a payment, it’s safe, it’s secure, and it’s robust “

Shane Warman, Pay.UK

AM: As a global company, we believe that localised payments culture and preference is to be expected, and that will always be the case because, for a consumer, it’s all about the experience. But the key thing about the NPA is the harmonisation. Other markets have already moved to ISO 20022, some many years ago, while the US has its ongoing FedNow pilot, which we’re also involved in. What I’m saying is, rails aren’t the issue; what’s important is interoperability – the messaging standard being the same wherever you go, so the experience, while a little bit different, depending on where you are, is still going to be supported.It doesn’t matter if it’s a high-value payment, a low-value payment, a card payment, an A2A payment, whether it’s real time or near real time, eventually, I believe they will all come together, and having standards such as ISO 20022 will facilitate and accelerate that.

Whether we ever reach the nirvana of a single rail for all payment types – it’ll probably be another 30 years before we get there. With what’s happening in the next two or three years with the NPA, and what SWIFT’s doing in cross-border payments, it’s all coming together, though. com20MN: I agree that ISO is the key: a single message format for all types of payments. But will we get to a single rail? I don’t think we will. And I don’t think we need to. If you went down to a single rail, you’d limit competition and you’d get a concentration that I don’t think we want to see in the industry. But a single message format gives you so much opportunity around interoperability. It drives resilience and it gives consumers confidence. So, yes, ISO is the key to taking us in the right direction..

FF: What benefits will consumers and business users see from the NPA?

MN: Honestly, the opportunities created by the enriched data that ISO 20022 brings could mean so much for the consumer. We can start to develop consumer profiles, understand how they spend, and identify where they could maybe save money, and customise offers for them. So, there is a real opportunity for the industry to understand consumers better. But it also creates an opportunity to improve security around fraud, giving consumers confidence that they can pay someone immediately because the extra data we have means we’ll be able to conduct additional fraud checks. It means we can change the prioritisation of payments, too – because we can build up a consumer profile of the types of payments he/she does and introduce additional levels of security for certain other types of transaction. When it comes to the SME market, the NPA is all about improving the end-to-end customer journey.

Invoicing is a great example of that. For instance, I get my windows cleaned and I receive an email or a text from the window cleaner with an invoice attached. I pay it and get a message back, saying ‘here’s your next booking.’ Within that exchange, there’s a payment, but, for the consumer, it isn’t purely a financial transaction. The payment is an organic part of the conversation they’re having with that business.Ultimately, NPA also creates potential competition in the future between payment types – could the NPA be a real competitive alternative to cards for consumers and merchants, for example?

SW: I agree that one of the strongest use cases is in the SME market, around providing an efficient way of sending people invoices and getting them paid. Here, as elsewhere, most of these kinds of opportunity will come from what sits on top of the rails. In Asia, for example, where you often pay by QR code, people see that as a different service, but it actually sits on top of – usually – a real-time payments rail. In fact, you could do all these things via either the real-time rails we have here, or via card rails, because the solutions are rail agnostic and developers will be looking for different things when they make that choice.

“Innovation doesn’t mean everything has to be real time. There’s no harm in taking a risk-based approach around certain types of payments “

Mark Nalder, Nationwide

Their decision could be based on cost, efficiency, security… so we have to connect to those people who are building the solutions that will sit on top of the NPA, the solutions that consumers use. As for end users, though, most don’t care about the rails. In fact, they don’t even know about them. What they do expect is that when they make a payment, it’s safe, it’s secure, and it’s robust. We need to make sure that we continue to maintain the robustness of the UK payment rails. Doing things in a safe and secure way, is the most important thing for us as a core infrastructure provider.

AM: Here in the UK, we’ve a fantastic A2A scheme that’s been 14 years in production. The experience is good – but I think consumers will be blown away by the experience once the NPA ecosystem is in place – what participants to the scheme will be able to add on top of those rails by way of overlays and what they enable consumers to do.

FF: You’ve all referenced the need for trust in the system as being fundamental. How will a new payments infrastructure encourage that?

MN: Unfortunately, fraud is now moving into the Faster Payments space. Confirmation of payee has done a great job reducing that fraud, but we are now seeing a lot of authorised push payment (APP) scams – romance scams being a typical example of that – instead. I’m all for moving forward, and for payments being immediate, but if you take a step back and say for a very, very small percentage of transactions, we’re going to take a bit more time – if I’m buying something for £10 online, that’s low risk, but if I’m paying someone I’ve never paid before £20,000 that’s high risk – then, as a consumer, I’d be OK with that.Innovation doesn’t mean everything has to be real time.

There’s no harm in taking a risk-based approach around certain types of payments. For us at Nationwide, it’s just a matter of keeping our members informed about that. That said, it’s not always easy. We’ve had plenty of examples where a customer has come into the branch and begged for a particular transaction to go through, and, despite us saying ‘no, we’re convinced this is fraud’, they’ve insisted. It’s gone through and, unfortunately, it did turn out to be fraud. So, you can only do so much, but I think the enriched data that ISO 20002 will bring, will absolutely help with that. Along with confirmation of payee, these things will add an extra level of security to a payment.

SW: Giving people confidence will absolutely allow us to innovate, depending on what the market needs. All around the world, the faster payments system is trying to solve different problems in different markets. In the UK, we don’t necessarily have the same numbers of people that are excluded from the financial system that they did in Asia, for example. When they rolled out real-time payments there, it really allowed people to begin to collect money and open bank accounts. The biggest problem we’ve got at the moment in the UK is around fraud prevention. So, that’s the thing that we need to crack first.

This article was published in The Paytech Magazine #13, Page 46-47

The post EXCLUSIVE: “The Rail Thing” – Mark Nalder, Nationwide; Shane Warman, Pay.UK and Andrew Moseley, ACI Worldwide in ‘The Paytech Magazine’ appeared first on FF News | Fintech Finance.

Florence was the birthplace of the Renaissance and Italy is where the ‘old’ modern bank began – the world’s longest-surviving bank, Banca Monte dei Paschi di Siena, can trace its roots to 1472. Now, the country is very much part of the new banking renaissance with banks embracing digital to replace or at least compliment their bricks and mortar branches. Credem is one such incumbent that is undergoing a technological and cultural transformation, its recent journey shaped by the seismic event that dominated our lives for two years – COVID-19.Lombardy was the first place outside China to be hit hard by coronavirus, leading to Italy imposing the world’s first national lockdown on March 9, 2020.

It was at this moment that the bank’s teams began collaboration with Swiss software provider Temenos on the mobile app that is now the centrepiece of its omnichannel offer. By January 2021 – nine months later – it was finished and ready to replace Credem’s existing app, which had proved difficult to update with new features. For the bank’s head of digital channels and business unit Fabio Caliceti, the new Touchpoint app became like the customer’s TV ‘remote control’, allowing them to tune into Credem’s accounts and services at the touch of a button.

“It’s an app that takes us towards a new service model, an evolving ecosystem service model that really enables new ways of customer engagement,” he says. “At Credem, our business model continues to be based on strong human relationships, but the mix between digital and human is key. This app is now the remote control of our business.”

Talking to Caliceti, alongside colleague Lorenzo Villa, Credem’s IT leader of digital channels, it’s obvious the bank has undergone a cultural transformation alongside the switch to digital technology. The customer-centric approach to modernisation is obvious. But so, too, is the realisation that it’s not just financial products that win customers for banks, but also a slick front end that makes time spent on banking tasks satisfying – even enjoyable – for the user.

Credem was founded in 1910 in the city of Reggio Emilia where its HQ remains today, and as one of Italy’s 10 biggest banks, it offers a traditional comprehensive mix of retail, business and corporate banking, plus wealth management services. Its IT team has faced the legacy issues common to all big banking incumbents and the partnership with Temenos was its solution to break free of them by deploying into the Cloud and fully embracing the possibilities presented by open banking.

“If banks treat people as individuals, that will translate into the loyalty and trust that everyone craves”

Adelina Rusu, Temenos

Caliceti says: “If you look at banking business models today, often the products being offered are similar, or even the same. So, we need to ensure our digital channels are as effective and efficient as possible so customers engage with them.”Villa, with his closer focus on IT delivery, points out that the bank’s new rivals, such as fintechs and spin-off speedboat banks, have posed the ‘biggest challenges due to their different nature and histories’.

He says: “We are a bank with more than 100 years of history and our competitors have changed in the last 10 years. A young company doesn’t have legacy systems so there’s usually less technology limitation, and there can be a difference in regulatory constraints, too, since some of these competitors are not financial institutions.“It’s possible that they have less banking experience and competencies than incumbents, but, on the flip side, they typically have strength with regards to the digital experience. Another important aspect is these new 9competitors are typically leaner. That means they can be faster at making decisions, and faster at producing an outcome.”

Recognising that Credem’s technology systems needed to change, using an external digital platform provider was an efficient way to level the playing field with these new rivals. Credem was impressed with the Temenos platform’s ‘low code’ nature which meant the bank’s teams could use the same JavaScript code for both iOS and Android versions of its app. Front-end features can be created relatively quickly, and since Temenos uses AWS Cloud infrastructure, the bank’s digital bandwidth can be scaled up and down as necessary.

“We have to be conscious of the gaps that exist between the incumbents and new companies and fill those gaps. This means moving to Cloud and container technology as much as possible “

Lorenzo Villa, Credem

“We had to improve technical capabilities to guarantee a higher speed in software development and deployment,” says Villa.“We have to be conscious of the gaps that exist between the incumbents and new companies and fill those gaps. This means moving to Cloud and container technology because when it’s possible, it’s better. Infrastructure is crucial because we have to guarantee an elevated level of service – every day people use non-financial services that are always up and running. Sometimes I ask my colleagues to tell me the last time the Google home page wasn’t up, or had a problem, and no one is aware of such a day.”

Villa says one of the key goals when the new project began was the ability to integrate with third parties. Another was to retain control of the technology ‘so we understand exactly what has been developed in our app – we have to be able to manage directly the lines of code’.

The experience of COVID-19 lockdowns also underlined the need for increased delivery capacity, so services could be launched and evolved as necessary.He adds: “Increasing capacity is crucial, it’s not just the ability to have more people using an application, but it also allows you to trial services with a subset of customers.”Alongside the technical transformation Credem has undertaken, the bank has recognised that psychology is at play when winning hearts and minds.

Adelina Rusu, Temenos head of solutions in marketing for digital banking, says harnessing customer data allows a bank to treat them as an individual. An example of it delivering on that vision is a partnership with Italian insurtech Neosurance, announced in September. It uses analysis of purchasing data to identify pet owners among the banks’ customers and introduces them to Neosurance’s pet policies.

“The mix between digital and human is key. This app is now the remote control of our business “

Fabio Caliceti, Credem

Rusu says: “Beyond the numbers, banking and financial decisions are eminently emotional decisions, and money is essentially a means to achieve a personal or professional goal. Emotion plays a huge role in deciding where we bank and how we bank. If banks recognise this, and treat people as individuals, that will translate into the loyalty and trust that everyone craves.

“To achieve this, a bank first needs to meet customers where they are, and that’s why an omnichannel approach is crucial these days. Second, use analytics and artificial intelligence to make services personal and insightful. And third, look at adjacent services from third parties that can be offered on your platform.“Data in particular is a way to strengthen customer relationships. There is a now a plethora of data available on the end user. But we must not stop at providing the bank with deeper insights. We should share insights with the customer to help them with their financial goals.”

Caliceti adds that people aren’t just seeking banking products, but a financial partner, or ‘life coach’.

“That’s definitely a key driver when people are choosing a bank. So, offering a great customer experience is one of the most important goals, if you want to succeed in banking now. If we as a bank can follow a customer-centric culture and provide excellence in service, customers will become the first ambassadors of the brand.

“For a business, that is the most fantastic achievement, where your customers perform that role.”

This article was published in The Paytech Magazine 13, Page 42-43

The post EXCLUSIVE: ‘Touch & Go!” – Fabio Caliceti and Lorenzo Villa, Credem Bank and Adelina Rusu, Temenos in ‘The Paytech Magazine’ appeared first on FF News | Fintech Finance.

“The cheque has been with us 400 years and it’s going to be around for some time yet, so don’t exclude it from your payments strategy.”

That’s the key takeaway from a paper published in 2021 by staff from the US Federal Reserve and ECCHO, The Clearing House’s cheque imaging and clearing service. It probably wasn’t what most banks – deep into an industry-wide digitisation strategy – expected or wanted to hear.

But, despite their best efforts, the US remains more reliant on paper cheques than most other nations. And, although digitisation has seen their usage steadily decline over recent decades, there’s compelling evidence that reports of their pending death have been much exaggerated.

The 2021 Federal Reserve Payments Study shows that, while cheque volumes declined by 51 per cent between 2010 and 2020, total value fell by only 10 per cent – the average amount for a cheque written rising to $2,091.This meant that, in 2020, cheques accounted for 6.51 per cent of the number of payments but 22.91 per cent of their value.

Their persistence is abetted by greater availability and takeup of remote cheque deposit services since the pandemic; and their usefulness is sustained by some unique characteristics, according to the Fed’s study – like the ability for anyone with a bank account to make a payment without knowing the recipient’s details, universal acceptance and convenience, cost effectiveness for existing users, and their capacity to carry unstructured or complex data alongside the payment.

But they also have drawbacks, not least environmental – the paper industry being the fourth largest polluter on the planet. There is also diminishing cheque-handling expertise among financial institutions as they move to digital channels.

“It’s getting more costly and more onerous [to process them],” confirms Carl Slabicki, co-head of global payments for BNY Mellon bank’s treasury services. “Cheques are still extremely prevalent across the US. Whether you’re talking business-to-business payments, consumers paying each other or their bills, there are still billions of cheques written annually here. But think about everything that’s involved in that – a paper bill going in an envelope, getting in a truck, going to an individual, someone manually opening it, writing a cheque, ripping off a slip, putting it back in an envelope, putting it back in a truck to send it back, billions of times every year.

“BNY Mellon alone processes around 300 million cheques annually, so a lot of our focus is on digital innovations and how we can educate our clients to accelerate the move away from paper.”

Across the country, that move is clearly well under way. McKinsey statistics show that, in 2020, three-quarters of people in America used some form of electronic payment, and usage increased even among the over-55s, with a Mastercard survey also demonstrating a similar trend among small businesses – a quarter of which had reduced their reliance on cheques.

“The expectations and needs of clients have changed with digitisation. Those needs are very obvious and understandable to everyone in the consumer and small business spaces”

Isabel Schmidt, BNY Mellon

BNY Mellon is doing its best to capitalise on the stars finally aligning around enabling schemes like the ISO 20022 messaging standard, the SWIFT GO service which applies the same speed and data capture to low-value transactions as its gpi does to high-value corporate ones, and a pilot immediate cross-border (IXB) payments scheme collaboration between EBA Clearing, SWIFT and The Clearing House.

Many of these erode cheques’ points of difference, but, as with all change, the US needs to reach a tipping point before nailing the coffin lid on four centuries of history. And that seems some way off, particularly in commercial payments, despite estimates suggesting businesses lose between $4 and $20 processing and mailing every single cheque.

“Some stats show that, in the US business-to-business space, over 40 per cent of transactions are sent via cheque, including large businesses paying each other multi-millions of dollars of invoices. There is a huge opportunity to digitise such payments,” continues Slabicki. “In the billing pay space, we’re involved in real-time payments innovations that are helping our corporate clients send e-bills to their customers using their phones. Customers view them through their secure banking app, schedule the payment and then pay electronically.

“In the retail space, there’s innovation in person-to-person payments, through digital wallets. One by one, we’re trying to help corporates and aggregators adopt those methods. Because, if you look at where a lot of the big cheque processing comes from, a lot of the banks and large businesses are the ones driving it.

“We’re trying to not only help businesses adopt the new digital capabilities, but also take a consultative approach to help them engage with their customers, to incentivise different behaviour and make it convenient for consumers and business partners to get something on their phone in two clicks, rather than sitting down at their desk and writing out a piece of paper.”

According to a recent report by PYMNTS and payment provider Plastiq, half of small- to medium-sized businesses (SMBs) would prefer to receive B2B payments either via real-time payment rails or same-day automated clearing house (ACH), but payers’ most preferred methods are cheques, credit cards or automated ACH. So long as there’s a mismatch, banks will have their work cut out keeping everyone satisfied.

As winner of this year’s Global Finance 2022 Treasury and Cash Management Awards for Best White Label System Provider among banks, and recognised this year by The Banker as the Best Transaction Bank globally and Best Transaction Bank for Payments, BNY Mellon has invested heavily in creating both a platform and APIs to leverage its direct integration into The Clearing House’s real-time payments (RTP).

The aim is to help its customers’ customers’ payments move faster and with more transparency in their journey, which, in turn, improves liquidity and leads to better, more timely decision-making for businesses.

But, in the bank’s own words: “There are still many corporate and banking leaders who, though aware of real-time payments, don’t fully understand or appreciate what it is or the benefits it can provide. Some think it will not be of importance to their particular user base and, therefore, is not worth the investment. So, for all its obvious value, selling the solution is often painstaking.”

Isabel Schmidt, the bank’s co-head of the payment product function for treasury services, explains: “Through our white-label business, we provide payment capabilities to a lot of the largest banks across the US; we’re doing their legacy cheque processing but also helping them with some of the new digital payment capabilities, like The Clearing House real-time payments scheme, FedNow [the new instant payment service due to launch in 2023] and Zelle [an account-to-account money transfer network].

“We try to maintain a dual vision, in terms of serving the corporate communities ourselves while also helping our clients serve their own corporates, and down-market, mid-market and consumer base.”Most recently, BNY Mellon has been involved in the pilot stage of IXB, which also involves 23 other worldwide banks. The service is being designed by the organisations involved and is due to begin by the end of this year, with participants joining in a phased manner. It will utilise the fastest domestic payment options to enable the seamless movement of money across jurisdictions.

A proof-of-concept initiative in October 2021 involved seven financial institutions and proved settlement can be synchronised from two different systems into one, instant one, converting real-time messages between them using the capabilities of ISO 20022, SWIFT Go and the instant payment systems offered by EBA Clearing and The Clearing House. Initially, IBX will support transactions within US dollars/euro channels, in the hope that it will be extended to other currencies and payment systems in the future.

Schmidt adds: “Twenty years ago, I don’t think any one of us would have thought that we could go online, buy something from a person at the other side of the world and maybe not even know that this person is at the other side of the world.

“It’s been exciting to see how, in the last few years, the payment industry has started to adjust and catch up with the digital economy. We’re delighted to see instant payments take the next step into cross-border payments, and the work we’ve done with The Clearing House and EBA Clearing on IXB so far is already very exciting. “In combination with other cross-border developments, such as SWIFT Go, we are helping the industry meet the changing needs of an increasingly digital world.”

SWIFT Go, launched in July 2021, allowed small businesses and consumers to send tens of millions of fast, predictable, highly secure and competitively priced, low-value, cross-border payments anywhere in the world, direct from their bank accounts. This enables them to pay suppliers or send cash to friends and family using tighter service level agreements between institutions and pre-validation of data using solutions established for SWIFT’s gpi service, which is aimed at higher-value, mainly corporate, transactions.

“BNY Mellon alone processes around 300 million cheques annually, so a lot of our focus is on how we can educate our clients to accelerate the move away from paper”

Carl Slabicki, BNY Mellon

“The expectations and needs of clients have changed with digitisation,” adds Schmidt. “Those needs are very obvious and understandable to everyone in the consumer and small-business spaces and SWIFT Go is one answer to that. “IXB is another, and I think we will see more coming, over the next few years, as we continue to innovate.”While perhaps not top of the agenda for banks and businesses in the current, operating environment, BNY is also adding the potential environmental, social and governance (ESG) benefits to its list of reasons for businesses to embrace increased digitisation.

“As well as gleaning insights into business benefits like speed, cost, efficiency and risk reduction, we’ve started tracking the carbon output of cheque processing across the industry,” says Slabicki. “Through the payments we process for banks and corporates, we have insights into what those cheques mean in terms of tree count, carbon output and the fuel impact of mail delivery, and we’re trying to quantify that for clients.“

A lot of other companies are coming out with ESG targets and goals as part of their corporate strategies. Therefore, if we can give our clients data to manage and track that, tie it back to their payment strategies and demonstrate how they are living up to those goals, publicly and internally, this complements the traditional inherent business benefits – as well as showcasing some best-in-class examples.” Slabicki knows, in his heart of hearts, that comcheques will be a feature of the US payment system for years to come.

“It’s going to be a lot longer than everyone would like before cheques become obsolete,” he says. “You have regional implications, with digital adoption more prevalent in certain areas; segments are different, whether you’re talking about consumer business or large business.”

“So, how does it convince them to change? With patience, information and transparency, says Slabicki.“Some of the first questions we typically ask of corporate treasurers are ‘where do you send and receive the most cheques?’, ‘how many people do you have doing that process?’, ‘what is the cost?’, ‘how much risk and fraud do you see?’, ‘how long does it take to send and receive a payment?’ and ‘how many times does that cheque bounce?’.

“We can really unwrap that and then use it as a basis to say ‘here are all the other things you can do and the benefits you can derive from them, and other ways in which your peers have rolled this out in the industry.

Let’s set some assumptions around the benefits you can see as those cheques run off and you migrate to digital payments’.”Meanwhile, BNY Mellon is working behind the scenes with industry partners like The Clearing House, SWIFT, Early Warning, Zelle, Nacha, and the Federal Reserve.

“We’re trying to take a strong leadership position, working with those industry partners and peer banks to make sure the networks and that common infrastructure are moving into the future in the way we need them to,” says Slabicki. “And, as we work with the industry, our strategy, especially over the last five-to-10 years, has been very transparent for our clients. We’re telling them what’s coming, we’re discussing, in industry forums, where we think the market is moving to, and what we’re building, or sometimes what we’re just exploring, and asking for their input.

“We’re trying to ensure we are all moving in tandem, investing in digital innovations that will be the foundation for the next 10, 20 or even 30 years.”

This article was published in The Fintech Magazine Issue 25, Page 50-51

The post EXCLUSIVE: “Chequeing Out?” – Carl Slabicki and Isabel Schmidt, BNY Mellon in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

When Sanne Ketelaar indulged her five-year-old son in a game of ‘grocery store’ – that age-old role-play where parents act as the bumbling customer and children play the earnest cashier – she didn’t expect it to be quite so relevant to her grown-up life.

“When I got to the payment, my son held up one of those big, base Lego bricks and said, ‘OK, you can now tap to pay’. I was completely flabbergasted!” she laughs .But in this game of pretend, it was what happened next that spoke so directly to Ketelaar’s career.

“I’d bought a bottle of wine in his shop, so I said ‘hey, don’t you have to check mummy is old enough to buy this?’ That’s when I had to go and grab my physical wallet and show him my driver’s licence.”

A physical ID that unlocks a citizen’s rights – to consume alcohol, drive a car, draw down benefits or any number of other entitlements – might well be redundant by the time Ketelaar’s son reaches adulthood. And, in her role at the global safety certification company UL Solutions, she will be instrumental in driving that shift. “Over the past decade, we’ve really seen a rise of convenient digital ways to pay.

“There’s mobile pay, peer-to-peer apps, and digital banks with no physical offices,” says Ketelaar. “But we still can’t leave our physical wallet at home. For most credentials, we still need to bring our ID card to identify who we are.”

Working in the US-based global testing and certification firm’s identity management and security division, Ketelaar helps oversee certification programmes that are key to the widespread adoption of mobile digital IDs.

They promise to do away with those fumble-in-the-wallet moments for many of us, but there’s a much bigger vision driving their adoption. Mobile IDs could be instrumental in helping the United Nations hit its target of providing the entire world with a legal identity by 2030; in giving citizens access to the full panoply of public and private services from their phone; and in liberating us from the username/password tyranny that is proving so vulnerable to cybercrime.

That’s not to say there are not deeply held concerns over how, and how safely, mobile digital IDs will be delivered, but, given that more than 80 per cent of the world’s population owns a smartphone and it’s the default for managing most of our daily lives, there’s little doubt that these forms of identity will play a big part in our future.

Indeed, ABI Research forecasts that more than 850 million citizens will be equipped with a form of mobile identity by 2026, and the EU Commission is aiming for 80 per cent penetration across the EU for its cross-border digital ID scheme by 2030.Among mobile digital IDs already available, some hold social security numbers and citizenship data; others contain biometric information or your COVID vaccination code. Few have developed beyond the national level, and most aren’t yet available in a mobile wallet – as with your flight or concert tickets, for instance.

In Estonia, citizens have been receiving a digital ID at birth for the past 20 years, and it’s being used as the bedrock of the country’s drive towards full digital citizenship. In India, a staggering 99 per cent of adults (that’s 1.3 billion people) have now been issued with Aadhaar electronic IDs, used primarily to access benefits and other state services. In Germany, since 2020, people have been able to store the digital version of their national ID card on their phone.New domestic projects seem to be emerging every week.

But if digital IDs are to be as universally recognised and trusted as paper records, they need an agreed international approach, not least to make sure the technology is interoperable – and with robust testing and certification to ensure, for example, that there is no risk of a record of what you do in one area of your life being made visible to another organisation, or, indeed all of your activities revealed to one body, be it a big tech or a government.

“We’ve seen a rise of mobile pay, peer-to-peer apps, and digital banks with no physical offices. But for most credentials, we still need to bring our ID card to identify who we are”

The Verifiable Credential Data Model specification, published by the World Wide Web Consortium (W3C), already provides a standard way to express credentials on the web in a way that is ‘cryptographically secure, privacy-respecting, and machine-verifiable’. But the International Standards Organisation (ISO)’s recent ISO/IEC 18013-5:2021 protocol specifically sets a standard for mobile driver’s licences (mDLs) where much of the current activity around mobile ID is focussed. As one of the third parties used to certify that a vendor’s technology is compliant with ISO specifications, UL Solutions has already published its recommendations on how the two can be made to work together.

But the standard around mDLs is important progress, believes Ketelaar, especially in the States.

“When you purchase an age-restricted item in a store, you hand over your entire driver’s licence – which, in the US, has lots of irrelevant information for a cashier to look at, like your height, your address, your weight, your eye colour, and whether you’re an organ donor.

“The ISO standard for mDLs stipulates a data collection limitation. Only your date of birth and a facial image will be requested and shared, and the app will ask you to provide approval to share that data. Plus, you can decide whether or not you let that information be stored – by a store, for instance, for future purchases there.”

As Ketelaar points out, in theory mDLs would mean you share less data with fewer people. The ISO standard also specifies that, when using an mDL, phones should not have to be handed over – itself a privacy violation in today’s world. Instead, whoever needs to check ID, be they a cashier or a cop, has their own app to scan it with. A final useful specification is that mDLs should work when devices have no internet connection. Google, which launched an API that supports mDLs in an identity wallet with Android 11 two years ago, has hinted that a mode could one day be built into phones that allows mDLs to be scanned, even when a phone is out of battery.

Apple, meanwhile, has already integrated mDLs into its wallet app, which supports the ISO standard in multiple US states. While, in the US, big techs have focussed on working with federal and the state governments to bring mobile drivers’ licences to market, in the UK, the government has just certified two providers to generate digital ID for use in two specific use cases – applying for a job and renting a house – but it verifies against either a driving licence or a passport. As we’ve seen with past innovations, big tech integrations are crucial for building trust with consumers.

For proof of that, you only need look at biometric technology – the subject of dystopian nightmares half a decade ago, but now a technology that the majority of people use to unlock their phones and approve payments. According to Dentsu Data Lab, 74 per cent of global consumers now have a positive view of the technology.

“I think biometrics will play a key role in future digital identity solutions, helping to combat money laundering and identity fraud,” says Ketelaar. “It’s already happening in US airports, where facial recognition becomes your entry ticket into an airplane. And we’re seeing some use in financial services, with Mastercard’s new Biometric Checkout programme, for instance, where all you really need is yourself to check out.”

Mastercard has called its initiative ‘smile to pay’, which is redolent of Amazon’s ‘wave to pay’ authentication option, introduced in 2020. The Mastercard pilot scheme is currently taking place across five St Marche supermarkets in São Paulo, in partnership with the Brazilian biometric authentication firm Payface. You are the payment.

With digital ID technology racing down the tracks towards us, the next obvious step is to combine those two separate tasks that Ketelaar experience in her son’s grocery store – ID verification and payment – into one. In the analogue world, a handful of US city governments have already taken steps in that direction by offering prepaid debit cards as part of a municipal ID card (for people such as immigrants without citizenship who are unable to obtain a state driver’s licence) or as part of a driver’s licence card.

Today, virtually every transaction can be handled by a smartphone. Tomorrow, it may just be our fingers and faces that we have to remember to take with us when we pop to the shops. Ketelaar reckons it’s only a matter of time before the technology, regulation and compliance barriers to that are overcome.

“[But] it is key these systems are tested by independent third parties – from a performance, functional, and security perspective – to really make sure they’re working as they should and there is no misuse of the systems or the data that has been collected,” she says.“In the future, though, I really believe that we’ll be paying with our identity – because why would I need a separate bank account credential to do that?”

It’s a vision of a future that will please those with wallets bulging with plastic, as well as those accustomed to reordering their driver’s licence after a night out. But it might just be the death of the grocery store game.

Which toddler, after all, will derive enjoyment from watching their parents pick up a plastic banana, smile, and walk straight out of their store?

This article was published in The Fintech Magazine Issue 25, Page 24-25

The post EXCLUSIVE: “The Digital Me” – Sanne Ketelaar, UL Solutions in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

A survey published this year by open banking platform Plaid found that more US consumers now use fintech services than they do video streaming and social media. Let’s take a moment to digest that fact. In 2021, 88 per cent of American people accessed an app to manage their financial lives, up from 58 per cent in 2020. Fintech is now so much a part of US society that 71 per cent of consumers say that they talk about digital finance in their everyday conversations.

Comparing features on Zelle or Venmo is as common as discussing last night’s Netflix mini-series or your favourite new meme. That’s an extraordinary position of power, influence and responsibility for the industry to be in. How are providers responding?

Many by mutualising and embedding services like never before; assembling a curated menu of options that are adjacent to their core offering and chosen to meet their users’ specific needs. That’s happening in the B2B environment as much as it is in B2C.

It’s a big swing of the pendulum, away from the ruthless ‘unbundling’ of financial services by a new wave of specialist digital providers who mined deep veins of financial exclusion and disillusion with banking services that followed the Great Financial Crash 15 years ago.

Now they are busy ‘rebundling’ those services and adding more to offer a one-stop-shop, stocked with options that at least equal and often exceed those previously available through the mainstream banks, whether that’s payment services providers moving into lending or investment platforms offering debit cards. In the last few years we’ve seen plenty of examples of that in the US market, but these models differ from legacy institutions’ in many respects. While bundling is a tried and tested strategy for improving customer loyalty and increasing lifetime value, the customer experience these new players deliver is unrecognisable from what went before. As is the technical challenge in achieving it.

“Clients have the ability to link payment services to their own infrastructure, which is unviable when using slower legacy systems”

Laust Bertelsen, CEO, Banking Circle

The integrations necessary for this ‘platformification’ of financial services, often embedded in another (not necessarily financial services) channel, have not kept pace with the aspiration at the slick front end, where much of the investment in startups focussed – rightly, in the first instance – on UX.

“Rebundling products is great for improving customer stickiness, as it allows businesses to offer a complete lifecycle of financial services to their customers,” says Anders la Cour, co-founder and CEO of Banking Circle Group. “But in the race to rebundle, the strongest multi-solution platforms will be those built on modern tech stacks.”

The key challenge is interoperability.

“It’s increasingly an issue as the world becomes more globalised,” says la Cour. “Many industries have been radically transformed at the front end, but often far less so when it comes to the back-end systems – it’s no different in payments.”

The trend hasn’t escaped the notice of investors. As seasoned fintech VC Mark Goldberg, a partner at Index Ventures, which has dual headquarters in San Francisco and London, commented recently:

“The next wave of infrastructure will be towards one superstore that happens to sell 10 products, not 10 companies that sell one.”

With capital flowing most freely into later-stage fintechs over the past five years in the US, and mega raises in 2021 giving many a decent runway to aggregate services and grow into last year’s eye-watering valuations, the back-end infrastructure’s ability to support expansion is likely to come under increasing scrutiny. Banking Circle Group’s move into the US will help address those shortcomings, promises la Cour. He explains that, as companies accelerate the digitisation of their customer and supply-chain interactions, the Group acts as a bridge, creating the interoperability that is still lacking in banking and payments.

“We facilitate easy movement between financial systems and services, regardless of the markets that our clients and their own customers are in. As a back-end provider for other financial services businesses, our focus is on taking away the complexity and handling the infrastructure, leaving our clients to focus on what they do best.”

At the heart of the Group, is the Luxembourg-based Banking Circle bank, headed by the Group’s co-founder Laust Bertelsen, which has been providing banking, payments and embedded finance services across Europe since 2016, building a ‘super-correspondent banking network’ at the centre of which sits its own ‘bank for the digital economy’.

Last year, it was granted a full banking licence in the state of Connecticut, in preparation for the Group’s move into the North American market. The bank’s track record in Europe is impressive. At the time of writing, it had processed more than $250billion in transaction volumes since its launch on behalf of payment companies, other banks and marketplaces. And it processes six per cent of Europe’s B2C e-commerce flow. It’s built a client base of more than 250 financial institutions and larger marketplaces, including payments giant Stripe’s operation in Europe.

It delivers access to 12 local clearing schemes through a combination of direct clearing and partner banks, enabling cross-border payments in 25 currencies. The bank aims to become one of the few in the US that are able to deliver real-time payments at the lowest possible closing cost between major clearings globally. It will do that by leveraging its already well-established network and direct access to US clearing. That will be welcome news particularly for export-focussed businesses in the States, which may have been frustrated by the lack of fast, frictionless and transparent cross-border services that are only now being seriously explored by the two existing federal payments operators.

“Banking Circle’s goal is to reduce the cost of cross-border payments to just five cents and the time a transaction takes to under five minutes,” says Bertelsen.

While that might sound ambitious, similar targets at very high volumes have already been realised in Europe by moving fully to the Cloud in 2021.

“With an entirely Cloud-based infrastructure, we’re able to evolve architecture at rapid speed,” says Bertelsen. “The Cloud increases control, capacity and efficiency, and means our developer teams can take an agile approach to make specific upgrades in a decoupled way, which also has a customer experience advantage, whereby systems can be improved without impacting other critical workloads.

“APIs also enhance the customer experience, facilitating effective integrationbetween platform functionality and customer workflows. The advantage is clients have the ability to link payment services to their own infrastructure, which is unviable when using slower legacy systems. Banking Circle’s APIs enable clients to instantly access data to accelerate the process, in turn promoting a seamless user experience.”

The bank’s move into the US will not only open faster, cheaper export corridors to State-side businesses, but, of course, give US market access for European clients.

“Interoperability is increasingly an issue as the world becomes more globalised”

Anders la Cour, Co-founder & CEO, Banking Circle Group

“We partner with banks, financial institutions and fintechs all across the globe, enabling them to gain geographical reach and access markets their customers want to trade in,” says Bertelsen. “US organisations are no different. For payments companies and fintechs looking to offer their customers payments services beyond North America, partnering with Banking Circle means they have the potential to handle transactions in up to 25 currencies without facing prohibitive costs, all with full regulatory compliance for each jurisdiction

“Working with US companies is important to our mission because we want all payments businesses to be able to unlock access to the global markets through fast, low-cost payments and multi-currency account solutions.” Banking Circle recently announced the addition of USDC stablecoins to its payment rails for conversion from fiat currencies.

“This latest addition is an important step as we grow our super-correspondent banking network, giving banks and payments businesses the ability to step outside the traditional correspondent banking model and extend their offerings,” says Bertelsen. “Web 3.0 is already completely transforming the payments landscape and we encourage US banks and financial institutions to get onboard now.”

Banking Circle is taking on a job that very few other banks or fintechs want to tackle – investing in integrating a vast network of local clearing and payments schemes, which, points out Bertelsen, addresses another key issue.

“Many sellers and merchants still face financial exclusion as they are unable to access payment solutions that make it easy for them to serve different geographies and accept different currencies. The root cause is that the financial institutions that underpin e-commerce businesses continue to struggle to tackle some of the inherent issues around international payments, from the cost and speed to the threat of de-risking. In creating this super-correspondent banking network, direct access to local payment rails cuts the cost and time of payments for specific currencies, opening up significant revenue opportunities in some geographies.”

Although it is expanding into the US, the bank won’t be going up against existing local banks, stresses la Cour.

“Rather, through us, banks and financial institutions in the US can enable their own customers to operate in Europe and receive domestic payments from the region.” Cross-border payments are fundamental for businesses if they are to grow beyond their borders. And it’s likely to feature among additional services that, according to one survey last year, 53 per cent of US financial companies are looking to include for clients. The great rebundling is happening. It’s just a matter of making sure the payments infrastructure keeps up.

YouLend: A GLOBAL OPPORTUNITY FOR SMEs

Embedded finance is said to have accounted for nearly five per cent of US financial transactions in 2021. While that makes it the world’s largest market, there’s plenty of room for growth, says Mikkel Velin, CEO of YouLend, an embedded SME financing solution and part of the Banking Circle Group.

Already partnering with a number of enterprise platforms, such as eBay and Shopify, YouLend uses alternative data points to carry out credit risk assessments for small businesses, incorporating data points such as website analytics, social media trends and online reviews to predict the growth of a company and reduce reliance on outdated financial information to inform credit decisions.Its launch in the US as part of the Group’s expansion into the region comes at a time of increased optimism among small business owners, despite the economic headwinds. The latest Small Business Recovery Report to be produced by Kabbage (part of American Express), revealed in September that many SMEs are looking to invest, particularly in digitisation and making more of customer data. We asked Velin what YouLend could bring to that SME growth market.

FINTECH FINANCE: YouLend offers financing solutions to SMEs via payment service providers, banks, e-commerce platforms, marketplaces and techcos. Does that give you a particular perspective on the embedded economy?

MIKKEL VELIN: We think the embedded financing market in the US is still significantly underserved. Only a small proportion of enterprises are offering such products to their merchants and businesses and many of those are still working with clunky platforms or complicated and slow user experiences. YouLend has already refined its offering across Europe, with one-click applications and instant offers. Being part of the Banking Circle Group gives us a significant advantage, too, in being able to quickly and cheaply implement a suite of complementary financing and payments products to enhance a merchant’s experience, so our partners can create an ideal roadmap for them FF: How do rebundled services and embedded solutions benefit businesses?

There are clear signs in the payments space that finding opportunities for partnership between providers is delivering value to both those providers and their end customers. That applies to embedded financing as well. Enabling customers to quickly access multiple financial products is what most want – to build trust and familiarity with their main provider and go to one place to manage all their business activities, from making sales, to taking payments, to applying for funding for future growth.

FF: Can YouLend expose SMEs in the US to global lending opportunities, too?

MV: A key aspect of what we offer our partners is product parity, globally. We understand the challenges of running an enterprise platform across different geographies. So, we make it possible for these platforms to offer the same products everywhere, whenever they wish. We also offer clear improvements on key aspects of our partners’ growth – our solution spurs merchants’ growth by 15 to 35 per cent on average, for instance, and reduces their churn by half.

This article was published in The Paytech Magazine Issue 13, Page 50-51

The post EXCLUSIVE: “Squaring the Circle” – Anders la Cour, Banking Circle Group and Laust Bertelsen, Banking Circle in ‘The Paytech Magazine’ appeared first on FF News | Fintech Finance.

TCH (The Clearing House) is one of the two principle automated clearing houses for payments in the US – the only private operator to run a country-wide infrastructure alongside the Federal Reserve Bank’s automated clearing house (ACH) for electronic funds transfers, processing financial transactions for consumers, businesses, as well as federal, state, and local governments.

Owned by the country’s major financial institutions, TCH’s Electronic Payments Network (EPN), handles batch-processed domestic electronic debits and credits (mainly comparatively low-value, high-volume bulk payments like payroll or recurring debits such as for utility bills), while CHIPS (The Clearing House Interbank Payments System) is an alternative to the Fed-operated FedWire for international transfers.

Neither EPN nor CHIPS was designed to be instant – payments typically take one to three days to complete – nor particularly transparent for the customer. But, in 2017, TCH rolled-out the RTP network, offering real-time gross settlement on a 24/7/365 basis for US domestic payments for the first time.

While the initial uptake by businesses might not have been as enthusiastic as anticipated, the pandemic in 2020 marked a major shift.

“Many B2B payments that moved to digital have stayed digital,“ says Elena Whisler, SVP, Sales and Relationship Management at TCH – and this despite a surprising resumption of cheque volume in 2022. “With B2B payments, what businesses want is the same thing individuals want, namely access to their cash. They [also] want predictability of their cash and real-time data/analytics of that information.”

“We basically looked at what would happen, and what would need to change, if we connected the RTP network here in the US to the RT1 in EuropeGoing”

Being responsible for roughly half of clearing volumes in the States gives TCH a huge amount of insight into payment trends. And, what it’s seen is alternative payment providers are driving demand for faster, cheaper more transparent services from legacy institutions.

“We’re seeing more and more smaller shops/smaller businesses, such as landscapers or drycleaners, for example, starting to accept wallet transactions; which is interesting because those wallets are a closed-loop network, so you have to belong to that network and wallet, in order to move money,” says Whisler. “That gets businesses involved in digital, which then allows them to ask their financial institution for more services.

“Our RTP network now has a good cross-section, between the largest financial institutions in the country, as well as the smallest, meeting the needs of all businesses and individuals here in the US.

“We’ve seen that grow not only in terms of the number of financial institutions using RTP, but also in terms of technology providers offering services to the financial institutions. Over the last five years, we’ve seen more than 250 financial institutions go live in our network, in addition to third-party service providers. We’ve pretty much achieved critical mass now.”

With the volume of transactions passing through the RTP network growing at more than 10 per cent each quarter, TCH has identified some interesting trends.

“We began to see people using it for things that they are not using other payment types for,” she says. A stand-out use case was paying workers outside of the standard two-week payroll cycle.

”For the Uber drivers who drive around all day, they may need to pull the wages they’ve earned [that day] and can do so through the RTP network, because of companies offering such services,” says Whistler. And that’s an example of the technology having a real-life impact.

As Whisler points out, having instant access to your cash, is empowering.

“Half of the US population work pay cheque to pay cheque. The RTP network is 24/7/365; so you don’t have to wait or plan in advance.”

In the B2B environment, meanwhile, escrow payments – commonly used in contract negotiations – offer volume growth potential, now that the RTP system can be used if the title company has access through its financial institution. There’s still a way to go, though, in persuading businesses to see the benefit in using real-time rails. A recent Mastercard/PYMNTS report, Accelerating The Time To Realized Revenue: The Real-Time Payments Edition, based on a survey of 400 businesses across three key industries in the US and Canada, found just 37 per cent are currently using them to settle or receive invoice payments, for example. Thirty per cent of Canadian respondents said they weren’t interested in using them, either – citing fear of fraud as a major reason.

North America doesn’t operate in payments isolation, of course, and neither does TCH.

Having beaten the Fed to introducing the country’s domestic real time rail, in April this year, it launched a pilot programme with SWIFT and pan-European payments infrastructure provider EBA Clearing to process immediate cross-border (IXB) payments, too. With the support of various US, UK and Western European banks, the aim of the IXB initiative is to enable faster, smoother global money transfers by connecting directly into domestic payments networks.

Initial proof of concept was completed in October 2021, and the expectations is for it go live by the end of 2022.

“We basically looked at what would happen, and what would need to change, if we connected the RTP network here in the US to the RT1 in Europe,“ explains Whisler. “For example, a rule we have here with the RTP is that you have to post the transaction within five seconds. You go to Europe and they  have a similar service level agreement related to payments. When we bring them together, we still want our businesses and individuals to have the same experience, whether the payment is domestic, going state to state, whether it’s going US to Europe, or Europe to the US.

“We believe we will change the cross-border payment landscape by linking these two networks together.”

The backdrop to the IBX pilot is an increasing focus by global organisations on cross-border payments, as Whisler explains: “Over the last few years, the G20, in particular, has a roadmap that is really looking to global organisations, or systemically important organisations, here in the US and abroad, to see what we can do and, if we link our current domestic networks, and the networks in other countries, does that push people in organisations to maybe do something differently?”

She believes that it could certainly transform enterprises’ back office functions: “If businesses can send and receive money 24/7, 365, they don’t need to think of cashflow forecasting in some areas. They can send and receive their instructions, and the money related to that at the time they need to.

“The consequences for reconciliation and invoices are profound. Your accounts payable, your accounts receivable systems, today, they’re all after the fact. If you can shorten those cycles, and close that invoice in the moment that an invoice needs to get paid that solves a lot of problems that businesses.”

Combined with more data being transmitted along with the payment message than ever before, courtesy of ISO 20022 protocols, Whisler believes it can help eliminate many more headaches, too – particularly when things get messy.

“When you’re dealing with a whole payment, that’s pretty simple. That gets reconciled and moved. It’s with partial payments, when things don’t work that reconciliation becomes a nightmare.

“If you think of goods being shipped, and half of them being spoiled, or half of them falling off of a boat. If you have data along with that payment, you can clearly say, ‘well, the people that accepted it agreed to 50 per cent’, and so that 50 per cent is covered off, and they can create another process, in order to manage the remaining percentage that they weren’t able to receive.

“This requires a behaviour change in the businesses, related to accounts receivable, in that they will then be able to create a process for the exceptions in their business, and not the payment part.” She adds: ”At the end of the day businesses need choice, they need to know what the networks provide for them in terms of accountability, as well as confirmation of payment, transparency of payment and the foreign exchange related to that.“

This article was published in Discover Money20/20 USA, Page 10-11

The post EXCLUSIVE: “Going With The Flow” – Elena Whisler, The Clearing House in ‘Discover Money20/20 USA 2022’ appeared first on FF News | Fintech Finance.

‘I’m playing all the right notes… but not necessarily in the right order’ was British comedian Eric Morecambe’s memorable punchline, delivered during a sketch with the late, great conductor and composer André Previn.

It’s a phrase that might resonate with anyone trying to harmonise their payments business. Here, the ‘notes’ are the myriad ways to pay; the straight lines of the ‘stave’, the payment rails on which they are arranged; and the ‘accidentals’ that moderate the notes, all the other products and services that wrap around a transaction process, from FX to fraud prevention.

Orchestrating all these for the benefit of banks, fintechs and payment service providers that would rather not have to conduct all the sections of this orchestra themselves, is what Alpha Fintech was born to do – specifically, in Asia Pacific (APAC) where the clamour of payment alternatives has reached a crescendo.

It’s not hard to see why. Home to 4.5 billion people (60 per cent of the earth’s population), it’s where payment businesses see one of the biggest opportunities to expand in the near-term. None more so than PPRO, the global digital payments infrastructure provider that acquired Alpha Fintech earlier this year.

Underscoring APAC’s importance, PPRO added Gojek’s GoPay e-wallet (which has had 190 million downloads since 2020) to its platform in June, taking it one step closer to offering complete coverage in Indonesia, where close to 76 million people are expected to join the consumer class by 2030, according to the World Economic Forum. And in September, it integrated Malaysia’s e-wallets GrabPay, Touch ’n Go and Boost.

Alpha Fintech’s Cloud-based payments platform-as-a-service (PaaS) integrates digital payment products and services, ranging from payment processing and merchant management through to risk management, fraud prevention and data analytics. It’s been music to the ears of New Zealand’s BNZ and Southeast Asia’s super-app Grab, among many others.

Grab, for example, tasked Alpha Fintech with providing its solutions to increase authorisation rates and lower cart abandonment, as well as simplifying merchant onboarding risk and financial risk management. As a major regional player, with different conditions prevailing in different markets, this third-party approach makes commercial sense for Grab, which retains control over, and continues to build, its customer interface.

“Whether I’m a payment organisation, a large merchant or a payment processor, ultimately, the combination and permutations of solutions I need will depend on the customer verticals I’m servicing, and that’s why collaboration is more relevant than ever,” says Alpha Fintech’s co-founder Oliver Rajic. “And to be able to collaborate, you need two things: to be able to access and integrate solution providers; and to make them work together, which is service orchestration.”

Its Alpha Fintech’s responsibility, as the PaaS, to make sure all the players perform as one. That’s where service orchestration differs substantially from payment orchestration, where retailers and merchants simply want to be less dependent on a merchant service provider by routing the transaction to multiple providers, thereby increasing authorisation rates and lowering costs.

“The traditional process is that I send out a request for payment to five providers, I pick one, I integrate them and now I’m stuck with them for five years, whether they’re good or bad,” says Rajic. “Given the rate of innovation presently occurring, five years is an unacceptably long time. A year or two from now, you might need something completely different, but what can you do?”

This is where, he believes, service orchestration is going to drive innovation.

“First, by being able to swap solution providers at the click of a button, you can iterate and you can innovate,” says Rajic. “Don’t have one fraud provider, have five of them and customise between them. If it’s a young, innovative solution, access it and switch it on. If they go bankrupt, are not as good as you hoped or something better comes along, swap them out.”

That way, the client’s technology resources aren’t drained by worrying about the operational layer. It also reducesany friction involved in the process, according to Rajic.

“What the app store did to the consumerspace is what service orchestration is going to do to the fintech space,” he says. “It will eliminate friction, drive innovation and drive a completely new way of designing products and solutions.”

Now, doesn’t that sound sublime?

This article was published in The Fintech Magazine Issue 25, Page 33

The post EXCLUSIVE: “Picking up the Baton” – Oliver Rajic, Alpha Fintech by PPRO in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

For David Howes, global head of financial crime compliance (FCC), conduct and compliance framework at Standard Chartered, ticking increasingly complex regulatory boxes in a purely rules-based system isn’t sufficient – not for the bank, the wider financial services industry, and especially not for those who suffer the very real consequences of a collective failure to stop the flow of dirty money.

It’s why Standard Chartered is taking a lead role in shaping a new global, cross-sector approach to anti-money laundering (AML). And, given the acceleration in the number of fintech partnerships, which present a whole new threat vector for regulated institutions, why Howes is keen it should influence those fintechs’ approach to risk, too. 

“We have to comply with law and regulations – we do not get to choose these.”

David Howes, Standard Chartered

“We have to comply with laws and regulations – we do not get to choose these. But you’d struggle to find anyone who will argue that the public and private sectors are applying resources to optimum effect and getting the results from FCC that we hoped for,” he says. 

While banks are legitimately concerned about being hit with a big stick by national and international authorities, he believes too much of their focus up to now has been on process and not on results.

That countries intercept and recover less than one per cent of global illicit financial flows, according to the United Nations Office on Drugs and Crime, indicates that AML is broken. Huge investments by banks in technology and people to identify potential suspicious activity in line with anti-money laundering directives and, more recently, stringent international sanctions designed to identify the true beneficial owners of assets, means they diligently generate millions of reports, but that merely demonstrates they’re watching.

Standard Chartered is keen for banks and others to adopt a threat-based approach to compliance, meaning resource could be better deployed in identifying criminals and providing the relevant authorities with the means of pursuing them. Additional vulnerabilities created by an increasing number of players in the financial ecosystem, not all of whom are required to operate to the same compliance standards as regulated FIs, only makes the argument for such a threat-based approach – one that can be mutualised across the industry – more compelling. 

Mox, Standard Chartered’s digital bank, launched in Hong Kong in 2021, has already provided such a model. 

Mox started by identifying the unique threats it faced and risk-rating them. The higher and medium-ranked threats were subject to detailed mapping to identify, for example, specific threat corridors, customer segments, geography links and other important attributes. A joint team from Oliver Wyman, Financial Crime News and Mox then worked together to establish the threat relevance and exposure – for example, to the customer base, products and services offered – and the threat impact, such as the financial impact, reputational damage, and customer and investor attrition. The threat classifications went way beyond generic money laundering to rank Mox’s exposure to the specific crimes that it could facilitate, such as people trafficking and drug smuggling.

The bank then applied general, institution-wide controls as well as controls by customer lifecycle – for example, at the intersection of customer onboarding (the stage in the lifecycle) and human trafficking (the identified threat). The findings of the pilot FCC programme were outlined in a joint report, The Threat Lens – Putting The Financial Crime Threat Back Into The AML/CTF Risk Assessment. 

Commenting on the pilot, Howes said: “What Mox has done is innovative in that it tried to rethink the risk analysis and say ‘what are the actual threats that we are exposed to and can we move more of our resources towards them?’. It is in line with what the Wolfsberg Group [13 global banks, including Standard Chartered, which are developing industry standards for AML] is saying on making FCC more effective, by focussing on what we can provide – useful information to relevant authorities.

“Being more threat-based in how we think about financial crime risk is absolutely something we at Standard Chartered are seeking to incorporate. We have built risk models for client risk assessment using similar tech to building a credit model, recognising that the data has to be just as clean for financial crime.

“We take variables at onboarding which give a view on where to risk rank that client, which directly influences the due diligence we take.”

David Howes, Standard Chartered

“We take variables at onboarding which give a view on where to risk-rank that client, which directly influences the due diligence we take. 

 “In transaction monitoring, we are focussed on collecting data on investigations that we have done by thousands of analysts on millions of cases to identify the various indicators that caused them, in the end, to be suspicious. That leads to you producing cases that are more relevant to authorities.”

Based on the result of the Mox pilot, The Threat Lens report issued the following rallying cry to financial service providers: “While this approach was considered for new and emerging banks, e.g. Mox, the pilot could be considered by other FIs as enhancement opportunities for their existing programmes,” it said. 

“The current industry standard for risk assessments is complex and taxing on smaller FIs who may lack the sophistication of systems, management information and workforce to conform to the arduous traditional exercise. A threat-based risk assessment may be a unique and incredibly insightful alternative to the current approach.” 

Wherever they are in the banks’ value chain – a neo that needs banking as a service or a fintech partner providing specific services to a bank, such as KYC and onboarding – Howes says some of the risks these newcomers present are not materially different to those that exist in the correspondent banking network. Exposure in the latter, of course, has led to widespread de-banking as FIs judged the risk that lower-tier organisations presented as being too difficult to monitor. Although in Howes’ view that was a retrograde step, simply serving to make it harder to identify crime and improve compliance, he says: “As such, financial institutions are naturally reluctant to bring the same risk into the business that they have spent all this time refining out of it.”

Weaknesses among fintechs, especially in the startup phase, go beyond a lack of internal compliance expertise to specific weaknesses in aspects of their operation. That’s a particular threat in cross-border payments, including missing identity information in the payments chain, making it hard for a FI to understand their exposure to, for example, sanctioned individuals. Indeed, in the UK, the Financial Conduct Authority fired a warning shot across the bows of challengers earlier this year, highlighting inefficient transaction monitoring, lack of due diligence and poor alert management, which would all raise red flags for a banking partner.

“But there are a number of things a fintech can do to be a more credible partner to a bank or to secure banking services,” says Howes.

“Take responsibility for things is the first – if you tell me the regulations under which you operate do not specifically require something relevant to managing risk, that’s not the answer I’d be looking for. 

“You can get a culture clash between techs and banks, but remember you are dealing with a regulated party so railing against it is unlikely to be useful to you.

“Be honest, thoughtful and curious about what business risks you might be introducing and change your business model and products if necessary.  

“Transparency is important. Any successful relationship is going to be based on trust and if you lose that, you will be debanked very quickly.

“Lastly, pay attention to clean data and technology stacks – capture the right data accurately right from the outset.”

Mutual trust between organisations – big, small, new and established – will be essential when it comes to figuring out the best way forward, as will a united front against financial crime. Banks, in their work with fintechs, regulators and law enforcers, must take much of the responsibility for that, says Howes, if they want to preserve the trust clients have invested in them for so long.

“The compliance mission of the banks in the past has primarily been protecting the bank from regulatory action; that’s important but it should not be the purpose.  We should recognise the bigger contribution financial institutions can make to society by leading the fight against financial crime,” he says.

That clearly requires a change of attitude both inside and outside of the organisation. And the dial, he hopes, is moving in that direction.   

This article was published in The Paytech Magazine Issue 13, Page 62-63

The post EXCLUSIVE: “Moving the Dial on Financial Crime” – David Howes, Standard Chartered in ‘The Paytech Magazine’ appeared first on FF News | Fintech Finance.

To be capable of eating well in every country across the Asia-Pacific (APAC) region requires a high degree of adaptability. From chewing through jet-black fermented century eggs in China, to devouring an actively angry live octopus in Korea, it’s an area of rich culinary traditions that have differentiated countries over centuries of development.

Banking options in the region have followed a similar pattern. Try settling by card at a small food stall in Taiwan or Japan and you may be asked to install the popular local telecom operator’s mobile wallet LINE Pay. Alipay and WeChat Pay are dominant in China, boasting as many as two billion combined users, while digital wallet PayTM is India’s chosen payment method. People in the Philippines and Indonesia have no appetite for cards, with penetration at just two per cent, while in Hong Kong and Japan, they gorge on them.

Accounting for financial taste here is hard and can be expensive, which is why banking-as-a-service (BAAS) offered by larger, regulated and often pan-regional institutions, is seen as a huge area for growth in APAC, especially when it comes to cross-border payment solutions. Trade among APAC economies last year rose to the highest level in three decades, exceeding that of trade with the rest of the world, according to a 2022 report from the Asian Development Bank. It noted that integration among regional economies has continued to deepen, encouraged by regional trade agreements like the Regional Comprehensive Economic Partnership (RCEP), potentially covering 30 per cent of the world’s GDP, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

“We aren’t competing with the banks, but supporting and complimenting them to provide a better service “

Eli Shoshani, Bottomline Technologies

Global payments technology company Bottomline’s view is that banks need to keep an open mind as to what technology they build and what services they buy in, to remain adaptable in this changing market. Its mission is to make business payments smart, sharp and secure with a software-as-a-service (SAAS) offering for all aspects of payments and cash management, including fraud and financial crime management, and sanctions screening.

Eli Shoshani heads up the APAC region for Bottomline, and says adoption of Cloud-based technology has been key to its and banks’ strategy there. “We see banks moving away from traditional areas of focus to offer Cloud services. This, in turn, is helping us provide more services to them.

“It is precisely because banks are so highly regulated that they need to go through so many processes to build changes. Whereas, Bottomline, as an established and seasoned service provider, can handle the changes that need to be applied across the whole region at pace,” he adds.

Bottomline’s Universal Aggregator IQ solution delivers a single API-enabled SaaS platform for payments, securities and messaging that helps financial institutions achieve lower costs, wider reach, speed-to-market, industry compliance, greater security and improved risk and treasury management. Payments handling has become more complex for banks as the industry diversifies away from existing infrastructure, particularly in APAC.

Shoshani points to schemes like Visa B2B Connect, enabling bank-to-bank transactions with tokenise credentials for business buyers and. suppliers, as examples of the proliferating number of alternative payment rails it can offer over a single platform, making it easier and cheaper for banks to access.

“Banks and fintech companies are being driven to build a service to accommodate today’s needs,” he says. “Even large corporates want to make payments immediately – the industry no longer has the luxury of T+1 in local or cross-border payments. In a region rich with exotic currencies and plagued by trapped liquidity is the opportunity for multi-lateral platforms and intelligent routing to come to the fore – where you choose the best channel for a payment, based on specific requirements, such as speed, cost, location, or FX rates.

“No payment is ever the same and so the flexibility to choose what matters most and then decide the payment rail is key to operational efficiency – a path recommended by the Bank of International Settlement in multiple cross-border best practice guides.”

The Singapore-based bank DBS is a case in point. It has been diversifying its payment channels for a while, most recently by starting to build its own 24/7 multi-currency payment settlement solution on Partior, the first live permissioned, blockchain-based clearing and settlement platform for commercial bank money – in effect providing immediate cross-border payments to its clients, bank books-to-books.

DBS currently holds the World’s Best Bank and World’s Best Digital Bank titles from Euromoney. More than half its services are now hosted in the Cloud, a technology that has become central to achieving its mission of ‘Making Banking Joyful’. In recent years, that has seen it moving more of DBS’ services to its QR code-based payments app PayLah!, a solution that’s becoming available in 45 countries within APAC, thanks to a tie-up with Union Bank and Singapore’s electronic payments provider, Nets.

For Sandeep Lai, head of digital payments at DBS, embracing the Cloud doesn’t just enable DBS’ customers to enjoy a better banking experience, it also allows it to more easily reach out to customers of other financial institutions via BaaS options and, since November 2021, its API marketplace.

“Where we have a really good product that is better than people can build it, we’ve looked at scaling up and commercialising that software,” he says. “Cross-border payments is one area we started to look at some years back, creating it internally and then commercialising it.

“But it isn’t all one-way traffic. This nimble approach to infrastructure development can make it easier for banks like DBS to utilise the hard work done by others as part of their own product portfolio, too. Because customers sometimes want something that is not our strength, like accounting software, we have partners that offer our payment services with accounting software to SMEs, for example.”

This means smaller banks interested in leveraging secure, regulated solutions, have an increasing variety to choose from that can run parallel to their own tech stack, without tinkering too much.

For Lai, the industry has the potential to pull towards a common goal, best achieved with a nimble and adaptable approach.

“The needs of bank customers – including corporate ones – will be diverse. They will be looking for efficientcross-border payments, efficient acquiring, good FX rates, reconciliation, cash management and treasury. Ideally, they don’t want to go to hundreds of providers that make it complex, but one that can deliver them all – not necessarily alone, but by orchestrating services efficiently,” he says. “The technical side of that can’t be understated: APIs should be easy to integrate into. So, the discussion won’t be with the CFO, but with the product engineers. As a bank, we’ll have to morph ourselves, that’s what our customers will be looking for.”

Shoshani agrees that the need for change comes from market drivers, and from a bank’s clients: “They are demanding immediate solutions, and there are a lot of competitors in the market coming up with them – fintechs, Visa B2B and other cross-border providers. Banks need to adopt these types of solutions, otherwise they will be left behind.”

Just as consumers can choose which service to take from a bank and which from a fintech, Bottomline offers banks a choice of wraparound services to support their payment systems.

“Customers’ needs are going to be diverse. They do not want to go to hundreds of providers that make it complex “

Sandeep Lai, DBS Bank

“If they don’t want to use our anti-money laundering (AML) or sanctions screening, that’s fine, but it’s available to just turn on,” he says. ”We aren’t competing with the banks, but supporting and complimenting them to enable them to provide a better service to their clients.”

Once in a while, something really big comes along that demonstrates the wisdom of adopting such an approach. The ongoing global transition to enriched financial messaging standard ISO 20022 is one such. It’s already been implemented by in-country clearing, real-time gross settlement (RTGS) and low-value, real-time payment systems across APAC, in all the large economies as well as the Philippines, Vietnam, Malaysia and Thailand.

Globally, institutions running on SWIFT must all have transitioned to ISO 20022’s XML-based messaging format by 2025. Importantly for APAC operators, the new format allows for character sets 10 times larger than legacy MT messages – useful for non-Latin languages – so the network can carry much more information per payment.

“At some stage, without the right message types, you will not be able to communicate,” says Shoshani. “This is where we come in, doing the conversion
and enrichment, as a service.

“For customers that need to enrich the data, you have to change the channels and train/educate users. Banks have to change payment and other supporting systems for channel, statement and compliance, to handle the extra information. Some local clearing systems may not be processing many cross-border payments and are not in a hurry to adopt ISO 20022, which adds complexities; how do you handle this until they do?” he says.

Had a solution like Bottomline’s Universal Aggregator been available when DBS started building its payments capability nearly a decade ago, the bank might well have gone down that route, he reveals.

“We looked for providers offering that single point of connection,” he says. He thinks fintechs like Bottomline have ‘done a remarkable job’ so far in connecting the pieces, and that’s to the banks’ advantage:

“Given banks have direct access to clearing systems and FX markets, and are gurus on compliance and risk, they should be able to put this together to deliver great payment rails on the banking network.”

This article was published in The Fintech Magazine 25, Page 26-27

The post EXCLUSIVE: “Payments on the Menu” – Eli Shoshani, Bottomline Technologies and Sandeep Lai, DBS Bank in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.