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The future of instant payments: no shortage of change

The future of instant payments: no shortage of change

Martin Fiddaman, managing director, head of financial institutions and professional services at NatWest, shares his insights on technology, regulation and changing customer demands ahead of Sibos.

We may currently be in a period of uncertainty, but in many parts of the economy, it’s an exhilarating one, too. Our increasingly connected, there-in-an-instant world means people expect instant service - whether it’s a music download, a film hosted by Netflix or even goods from providers like Amazon. In the world of payments, the demand for an instant service is no less pervasive: customers want to pay right now and the supplier wants to receive payments instantly, including across borders.

In my career of 30-plus years I’ve never witnessed such a rapid pace and scale of change - and certainly not with so many developments shaping the payments world in consort: greater regulatory demands, new technologies and evolving customer demands deserve mention.

So it’s a dynamic time, but not without challenges for banks, which must balance protecting the customer and leveraging the demands of regulators with offering new solutions and services. In the cross-border landscape, there’s a comparable analogue: the shift from the traditional, slower system of correspondent banks to a more interconnected high-speed world.

One challenge is that different countries and banks are at different stages of their evolution and readiness, so there’s quite a range of propositions and systems, but the direction of travel is towards greater harmonisation. In the UK, for example, our new real-time payments system is growing at pace - its increase in payments in the year to July 2019 was about 28%, and the vast bulk of that percentage were one-off instant payments made on mobile or online. In the UK, real-time instant payment isn’t “the new normal”; it’s an old normal that will be subsumed by a truly instant world.

Tools for the job

Many people envisage a future where the faster payments systems within each country or jurisdiction will collectively mature and link up, but only when we have standards in place. This sounds straightforward but poses several regulatory challenges, such as instant fraud checking and transaction monitoring. In turn, this demands the right technology.

Artificial Intelligence (AI), for instance, is one way to solve the challenge of being quick enough to monitor real-time transactions and keep customers safe. Paired with other useful innovations such as data analytics, there is quite an onus on how banks - and fintechs - can and should make important investments around the technologies employed.

In cross-border payments, SWIFT’s global payment innovation (GPI) is becoming the standard for speeding up processes and promoting transparency and efficiency. In addition, other technologies, like the cloud and AI, are being adopted in different ways by different banks.

While banks could be perceived as less nimble than fintechs, they already have customer trust and robust systems and processes in place - and we understand customer needs, regulation and compliance. Our aim is to combine those strengths with the right technologies.

Deploying the right tech in the right way doesn’t entail a world of “banks versus fintechs”. Rather, we’re seeing a more collaborative and connected ecosystem where we’re all looking to improve our products and services, against a recognition that you shouldn’t always do that on your own. The smarter solution for a bank is to find a partner that can develop technologies better and quicker, leaving the bank to focus on customer solutions. At NatWest, we practice what we preach and, as one example, have been working with our partners to successfully embed AI-enabled transaction monitoring in a subset of our payments processing, helping to identify and prevent fraud.

Technology allows us to connect in different ways. Application programming interface (API) technology, which supports open banking, is transforming the landscape and offers huge potential. We’re piloting API connectivity with some challenger bank customers to offer an alternative to the traditional correspondent banking route.

Our innovation pipeline is strong in terms of design, development and, most importantly, delivery. And our experts, alongside our fintech partners, will be showcasing these innovations in the Discovery Zone at Sibos. I’m also delighted that each day between 2pm and 3pm we’ll be giving demonstrations on our stand, G104, of our latest innovations.

Disruption from within

The evolving market, driven by the desire to improve the customer’s underlying experience, ultimately changes business models by increasing competition.

We’re lucky in the UK because our regulator, the Payment Systems Regulator, is forward thinking. It has a wide remit, which includes promoting innovation and competition, so it’s challenging the industry to come up with better solutions and better customer experiences. That’s great because it puts the customer first.

Everybody in the payments industry has an idea of what the ingredients for a successful future look like. We’re all striving to get the mix right for a more connected and instant world; a world that brings new business models supported by technology, regulation and competition.

Against this backdrop, the incumbents are galvanising, ensuring that disruption happens from within.

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