07 October 2016
The future of payments at Sibos 2016: security, fintech and PSD2
Numerous financial experts gathered at the yearly Sibos conference, hosted by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). They spoke about the challenges that the financial market is facing at the moment. We have gathered some interesting insights, based on the Sibos Issues.
Cyber-security is one of the most serious challenges facing the global financial community. The threat has evolved as hackers hunt for ever-bigger returns. Previously, hackers focused on internet banking, preying on the comparatively weak defenses of consumers’ personal computers. Now, sophisticated and well-resourced criminals are targeting weak links in banks’ own systems to attempt much larger thefts.
“The cyber-threat is here to stay,” added Gottfried Leibbrandt, CEO at SWIFT. “We continue to see new cases of input fraud from compromised customers’ systems – this situation is far from over. Although it is reassuring that some of the cases were identified and prevented, others were not. Our users must shore up their security.”
And that is not their only privacy issue. The money of the future will carry identity with it, and thus sensitive personal data. This needs careful handling. Amber Case, cyborg anthropologist and Harvard Berkman Klein Center fellow: “I want to talk about the idea that you should own your information first, and a third party should only be able to access that information for a temporary period in order to get something done. The ideal user experience would be one in which you can see what’s happening to your data, and authorize transactions at each point of exchange.”
The future of money goes along with the evolution of fintech. Are the changes being brought about by innovations such as blockchain, big data and device-neutral digital delivery so profound as to require new types of providers, as we’ve seen in retail, telephony and consumer electronics? Or will banks and fintechs establish a new equilibrium, finding that they need each other in order to deliver maximum value to end-users?
Fintech: chance or threat?
Banks understand the impact of the digital revolution on customer expectations. “The fact that nearly everyone walks around with a super-powerful, easy-to-use handheld device has permanently changed the user experience paradigm,” says Sanoke Viswanathan, chief administration officer and interim chief information officer at JP Morgan’s corporate and investment bank. “Institutional clients demand the same simplicity on their phones and desktop that retail consumers can get. Clients can do pretty much anything they want on their phones, but when they get into the office, they’ve often been forced to use antiquated technology. That just doesn’t make sense.”
Banks may be showing signs of the flexibility that has enabled them to thrive for so long, but Eric Pradier, general manager for consulting in EMEA at Hewlett Packard Enterprise, believes they must learn faster from FinTechs, changing their own models to keep pace with innovation and to maintain client relationships. In particular, Pradier emphasizes the growing importance of data aggregation and analytics techniques that leverage social media and other sources of unstructured data to help banks customize and personalize their services. “Banks need to develop flexible hybrid technology models in which their IT departments become more like service bureau, sourcing the products and services needed by internal clients more frequently and extensively from external sources. Some services can still be delivered by legacy systems, but others can be sourced more effectively from the cloud, tapped into as and when required, rather than owned by the bank,” he says.
And then there was the discussion about PSD2. An aspect of PSD2 that hasn’t yet gained much attention, says Gareth Lodge, senior analyst at Celent, is the splitting of payments processors into schemes and processors. This would mean that in theory Visa could process MasterCard’s transactions or vice versa. There could also be an impact on card schemes if large retailers decide to become PISPs. This would enable them to bypass the card schemes and would also have an impact on banks’ merchant acquiring revenues. Large-volume corporate payment processors, such as power and water utility firms, might also be interested in TPP status, for example as a means of implementing payment plans for customers or ensuring access to the accounts of persistent late-payers.
The biggest impact on banks, however, is likely to arise from the requirements governing access to accounts, which will affect many parts of their existing payments business and operating models. As Lodge points out, very few banks’ payments operations are organized into a single group, in part because they serve disparate client bases. “Undoubtedly there will be duplication of effort going on across banks with regard to access to accounts,” he says. “Banks need to be much more centralized in managing payments from a single reporting line and need to take a holistic view of payments.”