London’s Royal Garden Hotel hosted Fundtech’s Insights EMEA Conference 2014 last week. With Bitcoin exchange Mt. Gox having suddenly gone dark just hours earlier, it showed remarkable foresight on the part of the conference organisers to have a morning plenary session focussed on how the digitisation of banking is changing our world. Speaker Chris Skinner, chair of the Financial Services Club, engaged the audience with his view that digitisation is as much of a step change in banking as was switching from gold to bank notes in times gone by.
Skinner noted that the drivers of digitisation are consumers and that the process of change that they are instigating is rippling through first corporates and then banks. “If you have systems over 10 years old, review them and be ruthless,” he recommended to his audience. “Rip them out!”
In a world where most people have more computing power in their phone than was in the Apollo 11 moonshot, banks need to find ways of using these new tools at their disposal to engage with their customers in a more progressive way. Skinner made the point that it took Barclays 13 years to get two million people signed up for internet banking, but just two months to achieve the same figure for mobile banking. Some 14% of new customers to Barclays in the past year also came via Pingit, the bank’s mobile payment app.
Touching on the topic du jour, Skinner said that despite the collapse of Mt. Gox, digital value is something that is real and with us today, and the success or otherwise of Bitcoin is not ‘the be-all and end-all’ to this cultural shift. He described a virtual currency exchange he has worked with that allows people to trade in points they may have accumulated in an online game they no longer play for value with someone else who has just started playing that game. “Digital is a journey, not a destination,” concluded Skinner.
Immediate and Faster Payments
While the concept of digitalisation might know no boundaries, banks face practical challenges in keeping up with changing customer demands. One such area is immediate and faster payments, which was under discussion from a panel of industry experts on the first afternoon of the conference.
In introducing the panel, moderator Gene Neyer, payments product manager and senior vice president (SVP) at Fundtech stressed that faster payments are not a new phenomenon – back in 2006 both South Africa and Mexico introduced systems that have many of the characteristics of what we now think of as a faster payments system. Since then, a good operational knowledge has been built up in the industry and today an increasing number of countries are reviewing how they can move towards faster payments. Neyer said that by looking at how schemes have developed previously, conservative estimates project that over the next decade we will see one country per year introducing a new faster payments scheme.
It was suggested to the panel that the decoupling of clearing and settlement in a faster payments system, where clearing may happen automatically and yet settlement may take one or more days, may prove problematic. However, Liz Oakes, principal advisor, payments & transaction banking at KPMG UK pointed out that in the UK Faster Payments scheme, clearing and settlement are separate but still intra-day when the Bank of England (BoE) is open for real time gross settlement (RTGS).
“The system is set up to do that,” said Oakes. “We have never had an issue where this has caused a particular market problem. It is all about managing collateral and liquidity, and most of the banks want to manage this in a stable way that fits with their environment, so different countries have different approaches as to whether clearing and settlement are joined together or separated out.”
Picking up on the theme of the consumer driving innovation that emerged from Chris Skinner’s presentation, Craig Tillotson, managing director at Faster Payments Scheme Limited made the point that consumers will give an emotional response to the desire for faster payments. “I have a background in the telecoms industry, but a question I never had to ask customers was ‘how fast does a text message need to be?’,” said Tillotson. “The answer is obviously ‘I want it now’. Why would anything other than immediate be good enough?”
The faster closure of a transaction should bring about a happy customer experience for banking customers, and the ability to deliver reporting on this successful transaction is in the competitive space, according to KPMG’s Oakes: “The design of many of the immediate payments systems at their core do not necessarily determine what each bank offers to its customer in terms of payment initiation or reporting on either side.”
For multinational corporate (MNCs), the main issue with the various faster payments schemes around the world is that they have all developed in slightly different ways. “Our multinational customers run broadly the same business model in their different countries, and therefore it is always challenging when you need to make adjustments in country for different operations,” said Marcus Bateman, vice president – corporate electronic payments at Barclays. “Corporates would certainly like consistency.”
“The challenge is not about immediate payments, that’s the easy bit,” said Tillotson. “The challenge is two-fold. First, it is about being 24/7, to never be off, which is hard. Then related to that is – taking the UK as an example – we have 250 institutions that either directly or indirectly use Faster Payments. How do you ensure the delivery of ubiquitous real-time payment solution to every customer in every use case while at the same time you don’t have massive walls to climb for smaller institutions to be part of that infrastructure?”
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