SIBOS Day Three Real time payments going mainstream

By Ravi Patel
Ravi Patel is contributing to the Daily Fintech as Guest Author. He is the co-Founder and CEO of YoloPay, a Singapore-based mobile payment company developing payment solutions for families. Prior to this, he was a consultant and business strategist in the financial services industry.

Ed Note: I asked Ravi to cover SIBOS as a reporter as I was busy as a speaker/moderator and connecting with clients for Daily Fintech Advisers.

One of the most heavily discussed topics at the SIBOS 2015 conference in Singapore was regarding the arguably utopian state of any payment system – ‘Real-time’ payments. Maybe this is not so much of a surprise since the event was organised by Swift who essentially have a monopoly on inter-bank financial communication networks. So definitely the right place to have the discussion.

But what I found interesting is the divergence of solutions to the problem. Broadly speaking, there are two camps here: The old guard who believe we have come a long way and still have much more to do to get to the utopian state. And the new FinTechs who believe their alternative solutions can fundamentally rewire the system using the new distributed ledger technologies. And do it quickly.

Whether this becomes a race or we see an evolution towards different solutions for different requirements, we will need to see. But I summarise below some of the key trends I saw:

1) Volumes are steadily growing – According to McKinsey & Co, payment volumes, payment revenues and the percentage of total banking revenues had all been increasing with a healthy growth projected from 2014-2019. Total payment revenues is projected to grow by 6 percent per annum each year through to 2019 eventually accounting for 40 percent of banking revenues. This is driven by continuing economic growth in a more globalised world, the growth of mobile as a new payment medium and also the growing inclusion of payment capabilities to new segments, in particular developing economies in Latin America and APAC.

This suggests that the demand for payment solutions and the need for efficient payment operations will notably increase. So this validates strongly the call to action.

2) New standards and technologies – There is a clear appreciation that the initiatives to deliver real-time payments in some countries such as the UK, Australia and Singapore can be considered a success. And general desire to expand this across other markets was very apparent. For example, Japan had announced that in the next year it will be implementing a real-time payment system and Thailand had also just recently announced it will be partnering with VocaLink (the company responsible for implementing Faster Payments in the UK, FAST in Singapore and a similar system in Sweden) to deliver a real-time mobile payment system. Sadly the US was highlighted as being a very difficult market to implement real-time payment on the current infrastructure due to the federal banking structure and thousands of banks within.

There were multiple sessions on the implementation of ISO 20022 specifically, a new standard with new business processes for electronic data interchange between financial institutions. (ISO 20022 was the basis of Singapore’s FAST payments solution.) One thing remained clear throughout, the complexity of banking infrastructures and regulatory pressures meant that implementation was going to take time. According to one survey by a consultancy Dovetail, over a third of banking executives surveyed believed that it would take more than 2 years to implement instant payments.

3) Alternative solutions – And unsurprisingly, the FinTech also had an approach. Both Earthport and Ripple were on site presenting their distributed ledger technologies (“DLT”) to bypass traditional networks and settlement processes and deliver real-time payments far more efficiently and cheaply using their API-accessible platforms. While still very early days, the banks appear to be interested. For example the Consultancy R3, is working with 9 banks across the world to explore how to implement distributed ledger technologies to impove operations (read here).

After speaking to several traditional technology vendors (meaning they have been around the block a few times) some were truly embracing the potential of DLT to transform multiple aspects of the financial services industry. IBM specifically mentioned DLT as one of their two areas of focus (the other being ‘Cognitive’, its deep learning capabilities). There may well be a race in the need to build capabilities including the technical human resource pool who will be called in to transform the financial services industry…. Once they have worked out exactly what the problem is; and got permission from the regulators to go ahead; and prioritizing with the increasingly tough regulatory burden; and making the business case on an increasingly competitive marketplace with thinning margins. Needless to say, while this is certainly a high point in the hype cycle and whether it continues to grow or we get bored and move our hype elsewhere, the DLT is clearly a strong contender for driving the sustainable and long-term growth of the industry.

The question is now, will it make more sense for the incumbents to transform or for a new challenger to rapidly disrupt in particular product/niche. Once again, the reigning theme at SIBOS 2015, at least for me, is one about business model – What does the bank of the future look like? These are exciting times.

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