Closing EBAday 2019 with a lively debate on what is expected from fully integrated, open-access infrastructures for domestic and cross-border payments, banking executives and technology innovators discuss how regional initiatives fit into the pan-European context, while keeping P27 in mind.
James Barclays, executive director at JPMorgan, explores the importance of revisiting infrastructure to evaluate cost and deciphering where scale fits in the process by describing a trip to Universal Studios in Orlando, Florida.
Barclays likens the journey from the car park into the resort to the payments industry: while his children run ahead in excitement, they cannot enter the theme park without their parents. He says this is similar to PSD2, as third parties have to register and needing a ticket to enter, is alike access solutions.
“When the doors open, you discover you’re in Epcot. My mother in law wanted to go on the Ellen DeGeneres ride, which seemed like it was put up by the dinosaurs, equivalent to an ACH transaction which takes 2-3 days.
“Me and my wife liked the Frozen attraction because it had great customer experience. However, we soon realised that it was exactly the same as the Vikings ride that had been in the same place 10 years ago. This is similar to RTGS solutions, as the industry is looking to renew the system, but process payments in the same way.
“The kids were smarter. They went straight to the race track, where the real user experience is and were able to design their own car and go from 0 to 100 in 2.4 seconds. But it was built on the same set of rails as the other rides and that’s why we let our kids go on that ride. We know it will be secure, robust and resilient. We want to know our payments are as safe as our kids when processed.”
Focusing on the benefits of national vs. regional variance, Barclays moves on to his experience on the Harry Potter-themed ride which got stuck halfway, but because contingency measures had been put in place to ensure security, the attraction was up and running in no time. “This is what customers want to see from infrastructure: cost, security and resilience against the excitement of customer experience.”
Tino Kam, head of transaction banking solutions at Nordea, agrees and says that while payment infrastructure may not be the most interesting subject for corporates, in the end, serving the customer is most important. “The most important thing in the infrastructure discussion is ensuring it is cost-effective, but from a product perspective, we need to see where we can support our customers and do it as efficiently as possible.”
However, a problem persists where customers believe that they are a direct customer of the schemes they are dealing with. As Liz Oakes, executive vice president, market development of new payment platforms at Mastercard explains, it is “all about choice, access and simplicity. It is all very well to turn up to Universal if you speak English, but if you can’t read the signs and don’t know what Diagon Alley is because you haven’t read the books, it’s confusing.”
She continues to say that there are hundreds of variants of what financial institutions are doing and can do, which is insignificant when considering the banking infrastructure that has been set up because every customer has a unique banking experience. “The sheer complexity of doing business is one thing, but what we’ve done and how we move money is absolutely amazing. However, we wouldn’t construct a global banking infrastructure like it is now if we were starting from scratch.
While the RTGS mad rush continues, and instant payments and PSD2 are enabling this renewal, the core issues here revolve around speed, access and data. “If we don’t harmonise, we’re missing the trick,” Oakes says.
Anders Olofsson, Finastra’s head of payments echoes Oakes and believes that there is no urgency for a global unification of standards. “It is important to sign principles to drive innovation, but it doesn’t need to be unified. Open Banking is proving there is room for innovation.”
Olofsson adds that he sees regulation has a driver for unification, but the elephant in the room is if the financial services industry doesn’t act, others will from outside of the sector.
Providing insight into P27, CEO Lard Sjogren suggests that despite failed attempts in the past, this time they’ll get it right because the Nordic region is largely export driven and clients have a different mindset today. “They used to accept what they were given and didn’t know what was happening outside of their country. We need to rethink how we do this as domestic is not the way to approach this.”
To consider all nine clearing platforms in the Nordics, Sjogren advises that it is time to stop using the standards that have taken over 40 years to develop and achieve scale with simplification. Oakes points out that there needs to be a balance between regulation and customer experience: “customers want cool stuff but don’t understand that it might not be legal,” she goes on to explain how users start to behave how they do in their daily lives and start to use emojis when making payments, which could be problematic. Serving the customer means serving all segments of society and addressing the needs of the vulnerable, not just who financial institutions see as profitable customers.
Sjogren adds that with P27, they are in a different starting point than others that are also building payment platforms. “We are not building a new rail next to existing ones, we are building a new platform. To look at transaction monitoring, for examples, five billion transactions are processed in one system so it is easy to find mule accounts in one, than in nine different platforms. I don’t know if that’s innovation, but it solves a problem we have today.”