Connecting more than 8,000 decision makers and thought leaders across the industry, Sibos 2017 in Toronto was once again the platform where the global financial community explored the disruptions and opportunities in payments driven by innovation, technology and new business models.
Each year we report on the themes we observe at Sibos to help readers keep on the pulse of the payments industry. Some themes endure year-after-year, as shown in the table below—real-time payments, cybersecurity, fintechs, blockchain and open APIs. Perhaps they are unsurprising, but individually each shows it is a driver of enduring change, and together they show how the industry is transforming and rotating to the new digital era.
Table 1 | Five most repeated themes at Sibos over the past five years
1. Market infrastructure renewal. Faster Payments in the UK has announced a renewal programme and has requested expressions of interest, a hot topic among technology companies in the exhibition booths at Sibos. This is just one example of a growing realisation by both banks and central infrastructure providers that adoption of technologies such as AI and machine learning, real-time messaging, 24×7 operations, analytics, cloud, IoT and open APIs is a major driver of change. New business opportunities and new business models, with the scalability for massive increases in transaction volumes will result from this change. Expect to see a growing number of major technology renewal programmes in payments over the next year.
2. Cybersecurity remains a top industry agenda, not just as an IT issue, but as a business issue affecting the wide spectrum of the digital banking landscape. Banks and market infrastructure will need to be one step ahead of perpetrators, due to the diverse and fast-evolving nature of threats to information security. This year, cooperation was the key imperative for cybersecurity. There has been significant cooperation between banks and governments internationally, but there was consensus that this cooperation needs to increase, to share information to protect the security of the system as a whole, including building fail-proof back-ups at an industry level.
3. Real-time payments were widely discussed in both conference and private forums. With NPP (Australia), SEPA SCT Inst (Europe) and TCH (USA) all due to go live shortly, there was a strange mood of nervousness and uncertainty instead of the excitement that might be expected. It may be a case of holding back on celebrations until systems are live, but there was a sense that industry participants still do not know why instant payments are necessary, nor how to commercialise them, or they fret about an elusive “killer app”. By Sibos next year, these instant payments systems will have come on-stream, and it will be interesting to see the prognosis on their adoption.
The use of the ISO20022 standard for instant payments was a related theme. Several times we heard that the richer data in ISO20022 instant payments messages is more interesting than the speed of the payment. Benefits include development of new data-rich products tailored to customer needs, and provision of mechanisms to better manage cost and risk. In addition, the standard enables Fintechs to access payment infrastructures, bank innovation and interoperability for cross-border payments.
4. The SWIFT GPI and Innovation in Cross-Border Payments initiative was promoted in conference literature and conference sessions by SWIFT. Launched this year, the initiative formalises the processing, SLAs and tracking of SWIFT messages in correspondent banking. It generally seems to be a success, with both banks and corporates claiming benefits from the clarity and certainty it provides in their payment processing. However, GPI is a same-day payment initiative, and with instant payments gaining traction in domestic payments, there is a sense that GPI is a welcome, but interim, solution. Will an instant GPI be next?
Ripple is an example of an instant payments cross-border solution that uses distributed ledger technology (DLT). It is also a potential competitor to SWIFT, and is expanding its network (Ripple also ran its own rival conference in parallel in Toronto). Other DLT cross-border solutions are likely to appear over the coming year, making cross-border payments a hotbed of new competition.
However, the innovation so far in cross-border payments is restricted to the clearing layer. Innovation has yet to reach the settlement layer probably due to lack of dialogue across different central banks. When it comes, it will surely catalyse cross-border payments interoperability.
5. Corporate banking is at the heart of Sibos, and while those from the wholesale side of banking worry that Sibos has become too focused on retail payments and retail payments innovation, the importance of corporate banking and innovation was very much evident. A key theme we observed is that corporate banking needs to address its constituents holistically—lending, payments, FX and trade. Strategies set across these constituents to drive initiatives for infrastructure renewal and innovation are likely to be more optimal, and more corporate customer-centric compared to siloed approaches in each individually. Change programs in corporate banking will become more prevalent and strategic.
6. Innovation has been a big topic at Sibos for many years, and it was clear that banks are stepping up a gear in innovation. This year, banks are asking how to build an innovation function and how to roll out innovation into the business. Many have innovation labs and fintech programs, and the next step is to industrialise innovation, to make it a new mindset and deliver significantly better services and products to customers. Fintechs were in evidence in the exhibition hall and the Innotribe innovation stream was much more integrated with the main Sibos event than it has been in previous years.
7. Open APIs was the standout technology at the conference. Mentioned in session after session, and promoted in many exhibitor booths, it is a clear leader in bank change initiatives and in fintechs, compared to other hot technologies such as blockchain or AI. The growth of open APIs is also leading to growth in the data economy where banks are looking at innovative ways to monetise data and customer information. There is a significant opportunity for banks to build new revenue models around API/data monetisation and we are already seeing a few players in the market who have solutions supporting it. Banks will very soon start demanding tools for integrating APIs with billing and invoicing, and complex multi-party monetisation models are likely.
Banks are also starting to explore new use cases that combine banking and non-banking APIs to satisfy everyday customer needs, integrating banking into their daily interactions (Accenture calls these Living Services)
8. Open Banking is fast becoming a global phenomenon. In Europe, it is driven by government authorities and regulation, while in the US, innovation and commercial opportunity are driving change; in Australia, it is both. We can expect open banking to grow significantly in importance over the next year, with revenue models becoming a hot topic. Inspiration is coming from telecom/ carrier billing which is seen as an industry model for developing new monetisation models.
Linked to open banking, platform banking is emerging as a related theme, with much talk on emulating platform business strategies (Google, Facebook etc.) in banking, with the associated network effects and distribution power.
9. Blockchain was a big topic, with general agreement it will become a foundation of financial services over time, but it was evident that the technology is still not ready—perhaps next Sibos there will be more to report?
Separate to the technology, banks are also realising that cryptocurrencies could go mainstream in some form, possibly as crypto-fiat currencies or in the form of digital assets such as Bitcoin and Ether, requiring new banking products and services. What these will be is too early to say, although it is also too early to set standards and regulation without stifling innovation. Co-creation of rules and standards between regulators and the industry was seen as a pragmatic way forward.
10. Banks and Fintechs. In direct contrast to reports over the past year that fintech collaboration with banks is more likely than competition, there was a palpable sense at Sibos that financial services companies, in fact, face an existential threat from fintechs. Much of this threat is from big tech, the GAFAAs (Google, Amazon, Facebook, Apple, Alibaba), particularly in the distribution of banking products and services. While banks have the potential to stay relevant through complementary partnerships with fintechs and big techs, there was a lot of discussion about the true role of banks against a background of fintech disruption and accelerating adoption of technologies such as open APIs and blockchain. Advisory services are one area where banks agree they have a sustainable role and can generate value.
Sibos 2018 is in Sydney. It will be fascinating to be there to see how each of these ten themes has developed in a year’s time.