Financial services innovation and how industry participants can keep up with ecosystem culture were two of the key themes on day 1 of the Swift Operations Forum Europe (SOFE) 2019.
Shrugging off a rainswept late November morning in Amsterdam, well over 400 delegates from 48 countries attended day 1 of the SWIFT Operations Forum Europe 2019 (SOFE) at the city's Hotel Okura venue.
The theme for this year's instalment of the annual gathering is 'Managing Transformation', reflecting the operational impacts of everything that is going on in the industry at present, such as the industry-wide move to ISO 20022 as the payments standard of choice, while financial services evolve at speed in order to meet changing customer needs.
Assessing the state of play
The morning began with welcome remarks from Leo Punt, head of Global Customer Support at SWIFT, who remarked on how innovation and new technologies are driving change across the financial services industry. Thinking about the centres of innovation in Europe, Punt noted that both London and Berlin were listed in a recent top 10 global innovation hubs listing from EY, while in Europe specifically, Stockholm, Paris and our host city of Amsterdam round out the top 5.
Punt highlighted some of the key talking points around the innovation in financial services that exist today. The first of these was around customer expectations, with customers expecting money to flow as fast as goods. At the same time, the financial industry is a clear target for criminals. While this is being addressed, the entire community must remain vigilant.
He said that the global regulatory agenda is fostering openness, and pushing new technologies, but noted that compliance obligations remain vital. There are also new players challenging banks in some of their traditional markets, with organisations such as Amazon and Google ready to step into areas where they can easily take a customer base.
On the structural side, market infrastructures are renewing and real-time payments are an important part of that, while open banking is delivering enhanced data.
Having set the scene for some of the topics under the microscope at SOFE 2019, Punt introduced Stephen Gilderdale, SWIFT's chief product officer, to the stage for the opening plenary presentation.
SWIFT's role in financial services innovation
Gilderdale told the assembled delegates that SWIFT's vision for cross-border payments is to make them as seamless and convenient as the most advanced domestic payments systems are. This means they should be instant, accessible, and ubiquitous. He thinks this is possible despite global differences in payments systems and regulatory requirements, for example.
"You cannot have a safe cross-border payments system if it is not innovating," Gilderdale said. "Without constant innovation, it will die."
gpi continues evolving
SWIFT's gpi is core to its philosophy of real-time cross-border payments. The speed of gpi transactions will continue to increase as banks increasingly move away from batch to real-time processing, Gilderdale noted.
"In terms of the future for gpi, you will see us providing an option, for those who want to, to be part of a more stringent SLA, which will allow you to have confidence that cross-border payments will be processed in even shorter times," he said.
When it comes to making instant, transparent, ubiquitous and secure payments a reality, Gilderdale said that by 2020, gpi will be the norm across over 11,000 financial institutions connected to SWIFT. This will change everyone's experience, from market infrastructures and capital markets participants through to corporates and consumers.
The recent developments of gpi have been part of the roadmap to broaden its appeal and establish it as the new normal for cross-border payments. In 2018, tracking was extended on the network as the Unique End-to-end Transaction Reference (UETR) was added to all SWIFT payments. In 2019, SWIFT introduced Basic Tracker, which lets banks track and confirm cross-border payments in real-time. In 2020 the next stage of the roadmap will be reached - Universal Confirmations. This will see all SWIFT financial institutions confirm MT 103 messages, and will be mandatory from Q4 2020. Other gpi functionality going live next year includes pre-validation (going live in Q2), case resolution (Q2), and inbound tracking (Q3).
Standards switch facilitating richer cross-border payments
Complementing the work happening on gpi is the move to make payments smarter. Straight-through processing (STP) can be enhanced by revolutionising payments data quality, data screening, and data validation. The switch of all payments formats to ISO 20022 for financial services is a catalyst for this, with the initial migration deadline of November 2021 growing ever nearer.
The move to ISO 20022 will drastically improve payments data, enabling full end-to-end payments. Better data will also allow smart payments screening, bringing in AI and machine learning tools to reducing false positives and manual checks. Message validation tools will enable users to verify message data is complete and correct before sending.
ISO 20022 is being adopted by over 70 countries that have or are replacing their domestic/legacy formats. Some 80% of high value payments will be on ISO 20022 by 2025, Gilderdale said.
SWIFT is updating its portfolio to support the industry-wide adoption of ISO 20022. On the standards side, it will provide a translation portal and readiness portal for banks, along with a slew of information accessible through MyStandards, for example. Gilderdale made the point that shared services is where the value of ISO 20022 will particularly be felt, as sanctions screening, business intelligence and payments controls can all be enhanced with the better data that ISO 20022 can provide.
Technology cultivating an open ecosystem
Gilderdale also commented on how SWIFT is opening up its platform for the development of next generation payment solutions. The organisation is focused on understanding how to work with platform partners to better integrate across the industry.
APIs are powering the platform revolution across industries, with Amazon, Netflix, Instagram and Uber acknowledged as famous examples of this. SWIFT's approach to developing API products is based on the three pillars of modelling, publishing and consumption. The modelling pillar refers to a collaborative way of converting business processes into technical specifications to design APIs, and then finalise as API contracts.
These API contracts can then be published on SWIFT's developer portal for the financial services community to self serve what is available, and test using a sandbox. The final pillar, consumption, speaks to the approach of enabling seamless connectivity to consume APIs, bringing content providers and consumers together.
In terms of cloud computing, Gilderdale flagged up SWIFT's two recent announcements regarding Cloud Connect and Alliance Cloud. Under the Cloud Connect initiative, SWIFT will develop network architecture and automation templates for customers to ease deployment on ‘hyper-scale’ public cloud platforms such as Microsoft Azure and Google Cloud.
Alliance Cloud is an option for institutions of all sizes that wish to host their messaging operations on SWIFT-managed infrastructure. It is the next generation from Alliance Lite 2, but Gilderdale commented that it is completely different in terms of the technology stack. It has the same functionality users are used to, but it can do a lot more besides. It is integrated with SWIFT value added services such as gpi, SWIFTRef, and financial crime compliance.
The overall vision is to think innovatively. Gilderdale explained how SWIFT has a different approach than previously when it comes to thinking about innovation. The goal is to find solutions for community issues, rather than adding new technologies for the sake of it. Technology is an enabler, not an end point, he noted, hence the focus on APIs rather than DLT, for example.
This is part of responsible innovation, which also includes only moving from innovation to implementation when it makes sense for who SWIFT is.
How to navigate a complex ecosystem
With the entire world of work being revolutionised for those in the financial services sector, it is perhaps unsurprising that some are a little overwhelmed by how they can journey through this new world in a way that can deliver step change customer benefits.
To try and find pointers on how to successfully achieve this, delegates flocked to an afternoon plenary panel all about this topic. Panelists were Irene Duyn, programme manager at ING Cumulus Park; Don Ginsel, head of Holland FinTech; and Kees-Jan Koppenaal, commercial director EMEA at Mambu. The discussion was moderated by Nkiru Uwaje, global innovation manager at SWIFT.
Ginsel noted that the biggest benefit of a financial ecosystem is its collaborative nature which brings in many speeds and sizes of companies. Duyn agreed that financial services companies are increasing moving towards collaboration, and that digitisation is making market participants more intertwined and reliant on each other. She commented that when the industry was first faced with new market entrants, its first thought was to go on the defensive. However, the second thought was that if other firms could enter the financial services space, which industries could financial services look to work in as well.
Koppenaal said he thought it was important for financial institutions to be open and interconnected as the walls between industries blur. This is to the benefit of the FIs, as aside from moving into other industries they also need to think geographically. If a bank is expanding into another country, it needs to be able to be compatible with that location. However, while he said that an open system is essential to driving new ways of doing business, it does also lead to more complexity being brought into the organisation, which is something to be aware of.
It is hard to visualise how integral the financial services industry actually is, Ginsel commented. He compared it to the automotive industry as an example. In that sector, the big brands don't make anything, they don't have a balance sheet or anything like that, they just orchestrate all the products coming to them, put it together and make sure that it is what customers want. For financial services, APIs now allow the industry to get into the same game. It is possible to optimise the value chain, because market participants can instantly work together. Direct data exchange between machines means you can cooperate with anyone, so long as the customer gets a better service. Ginsel said it is important to learn how to do that and how to surround yourself with all the best suppliers and partners.
The human element of the ecosystem was also discussed, with Duyn pointing out that people can struggle to work with others from different departments within their own organisation, let alone when looking at a cross-industry approach. She said that ING Cumulus Park is looking at building the infrastructure to put this process in place.
On the subject of what ecosystems are trying to solve, Duyn commented that it was about staying future proof. Banks need to understand the ecosystem and their role in it, as standing still is not an option. Ginsel mentioned that it is possible for financial institutions to drive a lot of efficiency by building on infrastructure that already exists, they don't necessarily need to reinvent the wheel themselves. He added that financial services is just one part of a huge technology stack, and it is important that banks are cognizant of this. The mindset of having to own or control an ecosystem is unhelpful, he advised, and most financial institutions will find that the more they give, the more they will receive in the ecosystem environment.
Koppenaal made the point that around 80% of a bank's IT budget is spent on keeping its current systems running. This does not leave much left over for innovation, but he also made the point that without change traditional financial institutions could lose relevance. He suggested that investing more of that budget in the ecosystem world of interoperability would be a sensible course of action. Koppenaal closed by reassuring the banks in the audience not to be afraid of exploring what is out there - institutions should capture what is changing and look at how they can facilitate it.
Overall there was plenty to ponder but, ultimately, a lot of opportunities to hear about and discuss for the delegates in the day 1 plenary sessions at SOFE 2019. Tomorrow's programme includes founder of AMF Ventures, Tony Fish, who will be discussing how banks can find their 'new north star' in order to chart previously unmapped territory.