‘The payments industry is challenged by soaring growth in non-cash transactions’, according to the newly published World Payments Report. The pressure is on banks to come up with real time payment processing strategies. And to develop and maintain the security strategy around that. The technology has already been developed but how do you roll it out on a massive basis? Anna Milne investigates
Take the bitcoin protocol, the blockchain. This has been a groundbreaker in moving the industry forward and depicting the possibilities of future payments landscapes. Processing payments in real time will become a heavier and heavier demand, and very quickly, on the banking industry. Cue Ripple and its open source, distributed payment protocol, which will "enable the world to move value like information moves today".
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The World Payments Report rates highly the impact of banks’ legacy systems and the difficulty in taking on new payments protocols such as Ripple when their back office is not ‘synched up’. But what should be pointed out is that undertaking the transformation is a risk well worth taking, sooner rather than later, for the rewards that can be reaped.
At British Bankers Association (BBA) conference in September in London, it was widely agreed that banks need to just bite the bullet and get to work transforming their legacy systems. Their hesitation comes about, and is partly justified, by not knowing what’s around the corner in terms of compliance and thus the fear that, having transformed a system in a certain way, they might have to change it again in order to be compliant with new regulation. This is likely, yes. As technology develops, so will regulation around it. And the evolution of both is and has been accelerating. The hard question is perhaps not how the banks will respond to regulatory compliance but how the regulators will define compliance and work together globally to create a standardised system.
But partly justified is the operative phrase here because the other widely held opinion, one not vocalised by the banks is the inherent culture that impedes change or proactivity. The top layer decision makers are not inspired to take it upon themselves to initiate change; perhaps in some cases they’d rather not start something they won’t see through and are not enthused by having their personal legacy defined by the wobbly future of transforming their bank’s monolithic legacy. It’s a can of worms they don’t feel particularly compelled to open.
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By GlobalDataThere are many interesting takeaways from the World Payments Report but one is this:
"As banks face more complex and numerous regulations, a focus on data management will help them to recoup the investments made in compliance. Single data models will enable firms to move away from silo-based approaches and towards greater effectiveness and efficiency, and improved customer knowledge. By analysing data, firms can develop more targeted services for their customers."
Of course banks will recoup investments made in compliance. Speaking to HSBC’s head of global RBWM financial crime compliance, Marcus Wogart, 80% of the world’s data is unstructured, and therefore untapped. Francis Bacon once said knowledge is power. So it follows that data is power. And, in finance anyway, power is money. In transforming legacy systems and becoming digitalised, banks should not just focus on the cost involved but the potential value to be gained. Suddenly KYC becomes not just a compliance target but a profit tool.
Companies like Ripple are putting real time payments infrastructures in place and banks are starting to sign up in this area; not surprisingly small banks such as Fidor in Germany and Cross River Bank and CBW Bank in the US. Fidor has also used Facebook profiles to onboard their customers, to great effect. The bigger banks will surely follow suit, not to mention Swift.
Illustrations: Kosta Peric, Bill & Melinda Gates Foundation (Swift’s Innotribe co-founder)
