Innovation eats banks

The era after 2020 will be more volatile and full of drastic changes. What are the strategic  areas for banking payment industry? Should payments be as quick as e-mails or messaging with smart phone applications? Banks must develop the  faster and cheaper infrastructures. A new technology and protocols could provide banks with a competitive technological advantage.

  Mobile money services

  At present 3 billion people  are connected to Internet  using over 2,5 billion mobile devices,  generating 30 TBs of IP traffic per second.  The mobile payments channel of convenience are crucial for customers using a high value of interaction. The mobile money services   allows clients to send and to receive funds via mobile. Innovation trends for banking payment industry are:  

• the processes of accepting payments and making settlement in multiple currencies
• the need of a predictive real time information and predictive analyses
• aster and real time payment schemes
• creening services
• 3D infrastructure
• Smart Big Data analytics
• Mobile banking apps and  e-channels with associated security
• strategies for operational excellence reduce processing time
• cybersecurityand connectivity across the globe
• real time payment infrastructures
• natural catastrophe data analytics
• decentralised record keeping system based on block chain technology

   The majority of customers  use online banking done now via „tap to bank“ card technologies or mobile devices. However, it is still hard to maintain a real time or near real time services around a clock in a world, where customers have 24/7 access to Twitter and Facebook.

Innitiatives and alliances

The several new initiatives in EU payment and financial services industry  occur to design a future of payment market.

•         The EU Euroclearing Cooperative  – ECC

The six 6 EU´s, H DiaS, Equens,Iberpay, Kir, ICPPI, Tranfond have formed a JV alliance to process payments for real time clearing and real time interbank settlement inSEPA.  This will provide central ACHinteroperability and interbank settlement over Eurosystem by end of 2015. 

•         EU Automated Clearing House Association -EECHA.

ECC and will have Interoperability with  the association EECHA- EU Automated Clearing House Association.

•         The European Union Agency for Network and Information Security - ENISA

ENISA was established to secure the EU cyber space and to network information security problems and protect of information incidents in   the EU´s digital frontier.

•         EU data protection At – DPA

        European Payment Council-  EPC constitutes a two new bodies for 2015-2017: 

•  The EPS scheme Technical Forum to talk about dialogue between EPC as a scheme manager and Payment Service Users – PSU  developing the technical solutions and using use  ISO 20022 message formats and tostrenghten dialogue between the EPC and the SEPA Compliant Clearing and Settlement Mechanism - CSM
•  EPC2.0  Evolution of SEPA regulations and mandates, schemes

        SEPA CT  Rulebook version, 8.1 and SEPA DD Rulebook, version 8.1

       Sepa Cards Standardisation Volume, version 7.05

•  FINRA – monitoring , regulation over social media and commutations monitoring and Real Time Payment infrastructures monitoring
•  Card Stakeholders Standard Group – CSG
•  Euro Retail Payment Board - ERPB - chaired by ECB , strategic Qs

API Bank initiatives

 A real time payment initiatives in eurozone  will bring the new services for banks and non-banks. Banks have to chance now  to compete in a new services, but not in next 5 years time . Reforming banking sector in Europe is confronted by so called API (Application Programming Interface) bank initiative. This  initiative talks  about access  to the banking account ineurozone to non banks parties (TPP - Third party Payment). API Bank initiatives means that non banks parties and innovations  firms can securely use customers banking data in  24/7 with their permission. An API Bank initiative will enable  to  download a for clients their  years current account transactional data in a single files.

The old banks may not survive in a new environment. The new way of doing business  allow developer's, innovators, customers and competitors to have access to accounts. API Bank – that will be a very different landscape, where banks will be competing on their application shores. At present the banks failed to engage constructively with the legislative process such  as API Bank developer programmes, as much as their interest rate or debit card design. No contractual relationship means that banks can´t charge the TPP for provision of these services.

API Bank trap

API Bank  initiative will occur an imminent demise of traditional banks. The goal of extend innovation through the organisation as well as facilitating co-creation. An  API Bank initiative will provide the bare minimum services required for compliance for free, but offer richer services on chargeable basis. A potential trap that business strategy must navigate competitive payments innovations and  if the bank are forced to open up their API´s, then they should.

API Bank legislation forbids discrimination in terms of priority, mandatory access via API charges and timing  for non-banks  initiated transactions.  Customers will give their business to vendors that provides security and convenience. Bank management is not very supportive to be a leader of a new products in changing payment API landscape. Bank management still believe a bankers life is a loan. The business access to banking account via API  will mean  a technical difficulties  and securities thread that banks will have to develop to service in digital age. Monetarization of the APIs in the heart of the bank digital strategies

Payments biometrics

 Most new smart phones has NFC technology with  digital mobile transactions to get away from physical cards. There are several kinds of mobile payments biometrics authentication methods for mobile services. A  voice recognition is mostly used , followed by fingerprint,  iris scanning or RCA tokens of authentication. The core banking system are confronted with online applications optimised for mobile and tablet and features of 3D interface. Big IT firms  offer an open cloud platform for smaller or mid sized banks, as a means of cutting back on expensive HW. This all can improve the bilateral settlement, real time funding, prevent duplicate invoicing in trade finance or  reducing fraud comprehensive transaction traceability.

by Miloslav HOSCHEK

 June 27, 2015