Innovation in banking and payments

In his opening remarks, Javier Pérez-Tasso, chief executive, Americas & UK at Swift identified innovation as a key theme in the financial industry. The fourth industrial revolution, technology, has given consumers their best experiences, and in turn is increasing their demands from their payment service provider. The challenge that institutions now face is to remain relevant to their customers in this new world. Pérez-Tasso used the example of Taylor Swift and her 107 million Instagram followers to support this point; Instagram has to stay relevant to (Taylor) Swift or she could simply move to another platform and take her followers with her. Banks always need to be innovating with a customer-centric focus.

At the same time, infrastructure is just as critical as front-end innovation. An underlying robust and reliable financial services infrastructure is fundamental. Pérez-Tasso used Swift's gpi solution as an example of this in the cross-border payments world. Swiftgpi provides richer information for both banks and their clients. Since its go-live in February 2017, , nearly half of all gpi transactions are credited within 30 minutes, some in just seconds. In a payments panel discussion later in the day, David Scola, global head of financial institutions at Barclays, commented that gpi is a massive leap forward and resolves many of the issues that cross-border payments had been facing. He predicted that there would be a greater uniformity in correspondent banking as a result.

Is it possible for the pace of change and innovation to be too fast? This question elicited a variety of opinions on a panel tackling the evolution of the payments landscape. Paul Stoddart, CEO of Vocalink, commented that the pace of change in payments is actually too fast for infrastructure providers to be able to provide stability and simplicity. He did note that standardisation is key , and that the increasing standardisation that is being seen in the market is a good thing.

For Starling Bank's CEO, Anne Boden, the pace of innovation could be going even faster. She commented that the UK is forging the way and changing payments on a global scale, adding that PSD2 is incredibly important in this regard and that the UK has to get this right. Boden also cautioned that the world of banking has to collaborate with the fintechs or risk being left behind. Richard Martin, Global Head of Product Management at Barclays said that the requirement for evolving the payments infrastructure is because of the increasing need on the customer side, particularly on the corporate side. He added that innovation is also coming through from banks, and it is important to recognise this.

During a 'lunch and learn' session, Dr. Markos Zachariadis and Dr. Pinar Ozcan from Warwick Business School (WBS) at the University of Warwick provided a look at how innovation in the platform space has the potential to revolutionise banking. Platforms create value by enabling connections between different parts of the industry landscape. They can scale very efficiently and unlock new sources of value creation and supply. Platforms also leverage network externalities, meaning that more users create more value, which in turn creates more users, and so on.

Zachariadis noted how platforms and APIs are highly compatible. Advances in API technology applied to areas such as open banking led to a Swift Institute and WBS study focussed on the key platforms emerging in anticipation of open banking.
The study found that there are four types of platforms in banking:
• Incumbent bank platforms. The study found that these are not yet there.
• Incumbent-centric platforms provided by white-labelled fintechs. Here the platforms are there and deals have been announced, but nothing is live.
• Independent, non-incumbent platforms. These are challenger bank platforms, from newborn digital banks. Several of these already exist.
• Independent account aggregators. These connect to multiple banks to show all accounts in one place and are already in the market.

Collaboration is key

The host of the Swift Business Forum London, technology presenter and social psychologist Aleks Krotoski, flagged another of the key discussion topics at the start of the day, noting that collaboration is at the heart of the conversation . Indeed, it was discussedearly on by Andrew Pearce, global head of payments at HSBC, that institutions could only tackle the complexity of today's market through collaboration and leveraging the ecosystem. He said that market participants are making deals with multiple entities for a single goal and that, while this can add a layer of complexity, if banks don't deal with it they will "miss the bus." Bob Wigley, chairman of UK Finance, continued that collaboration between participants in the payments network is the key to retain customer trust and tackle external threats.

Moderating the opening plenary on seizing the opportunity, Swift's CEO, Gottfried Leibbrandt, posed the question as to how banks can combine their legacy systems with new technologies. For Pearce, banks have to be flexible enough to enable new technologies for corporate customers, while still taking the necessary safeguards to protect the institution. He advocated that banks build across their networks and have a continuous release mindset. They need to be able to plug-in and unplug easily, while still being able to meet multi-faceted customer demands. Pearce said that this is one area where collaboration comes in, as banks can deploy fintech capabilities to enable this. He acknowledged that not everything is going to work commercially and that it is important for banks to be able to experiment in a safe environment and to not be afraid of developments failing.

For Wigley, collaboration is key to providing the right services to customers and value to institutions. Leibbrandt added that the power of APIs has been revolutionary for correspondent banking. This would not have been possible without API technology.

What is the customer perspective of industry collaboration? On an afternoon panel discussion, Sonia Rossetti, managing director, transaction banking at Standard Chartered asked Stephen Darnley, director of Group Treasury Projects for IATA, how concerned he would be if a bank used a fintech as part of its offering. Darnley commented that he wouldn't feel concerned, if doing so makes the process more efficient and reduces costs.

Cyber resilience

Collaboration is not only important from the perspective of creating more advanced solutions and simplifying workflows, it is also essential in tackling the evolving cyber threats facing the industry today. In an afternoon session on cyber, Cheri McGuire, group CISO at Standard Chartered, said that information sharing is a key tool across critical infrastructure in order to prevent new types of attacks. She used the example where a number of institutions had noticed a pattern in a certain credit card fraud; it may look like a small amount of money to one bank, but collectively it added up to a serious amount, which allowed the banks to cooperatively go to the authorities. Banks need to look at law enforcement as a partner in this regard, she added.

Kevin Giles, head of triage, incident handling and coordination at the UK National Crime Agency's National Cyber Crime Unit, agreed with the point that industry collaboration is vital to prevent cyber-related attacks. He added that underreporting is a big problem for law enforcement. Without the reporting, it is difficult to address the scale of any particular type of fraud.

A poll in this session asked whether the topic of cyber is a major concern and if the community needs to do more, or whether it is overhyped and should be managed like any other risk. A whopping 85% stated that it is a major concern, making it clear that it is top-of-mind for the industry. Giles agreed with that conclusion and noted that a key challenge is making sure awareness of the variety of cyber threats is raised amongst the general community. Chris Uliott, CISO for NatWest said that some in the security industry do overhype cyber in some ways, which in turn can lead to some fatigue. For McGuire, an important step is to practically link the issue to other business risks.

While DDoS attacks do seem to be decreasing in the financial sector, Uliott noted that there are occasional spikes in activity, so vigilance is still warranted. Destructive malware is a major threat, McGuire said, while the Internet of Things means that previously 'dumb' devices must now be taken into account in a cyber threat management programme.

Another audience poll assessed the longer-term outlook on cyber among the delegates. The pessimistic view, that attacks are getting more sophisticated, better funded, and that we need to expect the worst, gained 58% of the vote. An optimistic view - that if institutions continue to focus on the topic it will become stable and managed like other risks - netted 26%. McGuire added that she is an optimist, but you cannot ever say that you have it under control; the threat is always evolving and it needs to be managed as such.

In some ways, cyber-attacks are the latest evolution of the bank robberies that have existed for centuries. In his opening remarks, Pérez-Tasso highlighted Swift's Customer Security Programme as an example of a proactive step to tackle this issue.

A Brexit boost?

Of course, no financial services event in the UK is complete without some discussion on the effect Brexit may have on the industry. In the opening plenary, Wigley said that UK Finance promoted the idea of a services-orientated free trade agreement, something that he said has been taken on board to some extent by the current UK government. He also cautioned that if the parties involved don't get the agreements right, there will be a reduction in the banking capacity for all EU citizens, not just the UK.

In the closing plenary , Natalie Ceeney CBE, chair at Innovate Finance, said she believes collaborating with fintech gives the best chance for financial services to survive and flourish post-Brexit. There is a culture of innovation in the UK supported by the regulator, however talent is in short supply globally. The UK needs to continue to attract talent, and Brexit casts doubt over whether the country can continue to do this. Ceeney agreed that this is a key point to address.

In terms of transaction volumes, things are not going to change when Brexit happens. Marion King, Group Director of Payments for NatWest commented that what will potentially change is the investment in fintech and talent in the sector.

Addressing Brexit, Angela Knight, chair of Tilman Brewin Dolphin, said that she would replace all of the men negotiating Brexit for the UK with women, suggesting that 90% of the ego would leave the negotiations immediately. Knight added that institutions need to identify the opportunities that exist for them as part of this process. The UK is not geographically leaving Europe, it is leaving the EU, which she stressed is important not to forget.

When delegates were polled about what will happen to the UK financial services industry between now and Brexit, a majority (53%) of agreed that there will be short-term challenges, but then longer-term growth. This suggests that, while departure from the EU is raising some obstacles, the industry is somewhat bullish about the longer-term outlook.