Sibos 2020, the world’s largest financial services conference, was held virtually this year from October 5-8. The theme this time was “Driving the evolution of smart finance.” As usual, the conference served as a platform for the global finance community to have stimulating discussions and exchange ideas.
Seven key themes for payments jumped out at me from Sibos this year. (Seven is a lot, but what can I say? Payments was a fast-evolving space even before the global pandemic hit fast-forward on everyone’s tech transformation strategies.)
Here they are.
1. Rapid adoption of innovation & technology
Banks were forced to innovate this year due to the impact of COVID-19. The minimization of physical contact resulted in a fundamental shift in how markets interact. Standout technologies and their applications included:
- Artificial intelligence (AI) and machine learning, due to their uses in transaction monitoring, KYC/AML checks, and automating activities.
- Data analytics was talked up for its ability to support customized services, cash forecasting and efficient decision-making strategies.
- The cloud was praised for its ability to streamline IT and infrastructure costs.
- Distributed ledger technology was another big topic, as it can enable bank transactions to be settled efficiently at lower cost and with more transparency. There was a lot of discussion this year around whether or not to implement DLT as a central bank digital currency.
- Open banking was presented as a pragmatic way forward that enables collaboration and co-creation of products and services.
- Finally, 5G will enable unprecedented levels of connectivity and speed, low latency and high reliability, allowing us to instantly make digital payments.
2. The customer of the future
Customers are now more diverse, complex, excited, segmented and digitally savvy (specifically Gen Z). Changing customer behaviour is moulding the future of finance. The secret to success for firms lies in developing customized products and services that align to the needs of the individual. According to Gonca Latif-Schmitt, global head of commercial cards for Citibank, offering personalized services to customers will boost revenue 6-10%.
So banks now need to modernize traditional methods of client engagement. This can be done by using AI, machine learning and data analytics to get deep insights of customer wants; re-architecting business systems to create digital and physical experiences; using UX and self-servicing tools to give more power to customers; automating mundane tasks to free up the workforce for more stimulating work; collaborating with fintechs and bigtechs to provide innovative solutions; and curbing fraudulent activities to protect the interests of the end customer.
For corporate customers, banks need to address their constituents holistically—incorporating lending, payments, FX and trade. Strategies that address all of these elements together are likely to prove superior to those that approach each in its own “silo.”
3. Market infrastructure renewal
Various market initiatives, such as instant payments schemes adoption, RTGS renewal, ISO 20022 migration[LK1] , and new payments architectures, have demonstrated to banks and central infrastructure providers that adoption of cutting-edge tech is driving front- and back-end productivity.
New business opportunities and new business models, with the potential for massive increases in transaction volumes, will result from this infrastructural renewal. Expect to see a growing number of major technology renewal programs in payments over the coming years, making transactions instant, frictionless, predictable, transparent and secure in securities, FX and beyond.
4. New pathways to cross-border payments
Cross-border payments are still complex, hard to access, subject to multiple compliance checks, and laden with high fees. Victoria Cleland, chair of the Committee on Payments and Market Infrastructure task force on cross-border payments, said that the “the value of cross-border payments is phenomenal. In 2017 it was $150 trillion, which is now expected to increase more by $100 trillion within 10 years as international business grows.” SWIFT GPI has contributed greatly towards cross-border payments as it formalizes 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, 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 the interoperability of cross-border payments.
There was also a discussion at the conference around the future of central bank digital currencies. It was agreed that there is a long road ahead for global mass adoption to facilitate cross-border payments; however, there can still be limitations around FX and non-harmonized AML regulations.
5. Collaboration between players
In direct contrast to reports over the past year that fintech competition with banks is more likely than collaboration, there was a palpable sense at Sibos that financial services companies, in fact, have the potential to stay relevant through complementary partnerships with fintechs and big techs.
Banks have the trust of large customer bases and have stringent risk and compliance procedures. On the other hand, fintechs and bigtechs are strong in providing innovative, customer-centric solutions and design thinking. This clearly signifies that banks and fintechs are complementary, and partnerships between them are the winning combination that will deliver a superior end-customer experience.
The evolution of fintechs is incremental and regulators have even started including fintechs in their ambit to drive market competition.
Cybersecurity remains at the top of the industry agenda and not just as an IT issue. COVID-19 and the accompanying massive increase in demand for remote access have also impacted payments security and forced financial institutions and firms to expand their digital walls. Banks and market infrastructure will need to be one step ahead of perpetrators due to diverse and fast-evolving threats to information security.
This year, cooperation was a key theme for cybersecurity. There has been significant cooperation between banks and governments internationally, but there was consensus that this cooperation needs to broaden to include the sharing of information. This will help preserve the security of the system as a whole, including building fail-proof back-ups at an industry level.
There is a need to raise the bar of cybersecurity hygiene among customers, as this would reduce the risk of cyberattacks and minimize the impact of fraudulent transactions. Banks should also use AI and machine learning for real-time monitoring and fraud identification, and should work to enhance their digital compliance expertise.
7. The future digital workforce
Digitization, along with the new normal in the wake of the global pandemic, is driving the need for a digitally sound workforce. With continuous technological change, digital upskilling plays a vital role in enabling workers to meet financial and strategic goals. Simply put, firms need to train their talent. Additionally, they must understand how they create data, and ensure they make better data-driven decisions as the demands around the nature of work change.
This year Sibos was greatly focused on “sustainable finance” where the experts examined the role of the finance industry in using incentives, innovation and investment opportunities to support clients’ transition to a sustainable, low-carbon economy.
Sibos 2021 will be hosted in Singapore. It will be fascinating to be there, to see how each of these themes have evolved in one year’s time.