12 October 2015
ISO20022 Standards for Real-time Payments & the Future of Money
The opening morning of the Sibos 2015 trade show in Singapore’s Marina Bay Sands resort began with an investigation into the collaborative work going on to ensure ISO20022 harmonisation and global interoperability of real-time payment infrastructures. The Innotribe conference stream then looked at what the ‘future of money’ might be.
“There is a proliferation of various real-time payment systems around the world,” said Liz Oakes, Associate Director, Payments, at KPMG, referring to various projects in Australia, the UK, Singapore, US, Denmark, Sweden, and so on, as she compered the 9-9:50am session at Sibos 2015 entitled ‘Real-time payments and ISO 20022: Update on Global Collaboration’. “It’d be really nice if we didn’t end up with 35 slightly different flavours of IS0 20022.”
ISO20022 is becoming the de facto standard for real-time payments infrastructures, as it has with other payment forms and structures around the world, “because it promotes efficiency and ease” said Oakes, but there is work to be done to get various different systems to talk to each other, in the US for instance, and for cross-border systems to be interoperable.
“ISO20022 helps us carry data across our plumbing,” said Ricky Lim, ex-MD of BCSIS which engaged VocaLink to help build the FAST payment system in Singapore. He is now head of regional cash management at OCBC Bank. “ISO20022 also helped us future-proof the national payment infrastructure in Singapore as it means we can carry bigger payloads of information – useful for the future for instance, with B2B payments for corporates. As China adopts ISO20022 it also means we should be able to plug into other nations’ systems simply, so banks can operate cross-border much more easily.”
Improving functionality for bank and other end users was a key focus of the Sibos 2015 Innotribe session. Stig Korsgaard, VP and Functional Head of Nets, the Danish real-time payment infrastructure, was keen to ensure that end uses weren’t forgotten in the debate, citing SEPA compliance; P2P and merchant usage as key uses for the Nets real-time payment system in Denmark. “Consumer end users don’t know they’re using ISO20022 technically in Denmark to process a payment,” he said. It is unlikely they care either, which is why collaboration matters. It should deliver the seamless payment service that customers want. It is for the industry to ensure the necessary collaboration to deliver a seamless service.
Innotribe’s Future of Money Debate: A Burning Platform or Co-operatition?
The Innotribe session next up at 11am on Day 1 of Sibos 2015 addressed the ‘Future of Money’. It examined if banks are sitting on a burning platform that will be disrupted by a wave of innovative new startups which will take away their payment and transaction business. The debate in some ways mirrored this year’s Future Money event in London where the interaction between startups that want to displace banks in the payment chain was a lively one. New firms are often reliant on banks and real-time infrastructures to deliver their services.
The Sibos 2015 Future of Money session moderator, Udayan Goyal, Co-Founder and Managing Partner of Apis Partners, introduced the debate in Singapore by explaining that it would focus on disruption in the credit arena specifically, having looked at Bitcoin, the blockchain and other disruptors in previous years and in a separate standing-room only session earlier in the day at the Innotribe stand, “The people on stage today will change the way credit is scored, distributed and given,” he said, while also referencing the ways banks, FinTech startups and others will compete and sometimes cooperate, with his strange new word “co-opetition”. In his opinion, Co-opetition best describes how banks and technology companies are interacting. They are ‘frenemies’ in other words.
The Startup Challengers
Goyal introduced Christoph Rieche, CEO and Co-Founder of Iwoca, a UK-based direct non-bank online lender to SMEs; Jojo Malolos, Asian Managing Director for Cignifi, a US headquartered startup that uses ‘big data’ research & analysis, mainly of mobile phone data, to provide credit histories to consumers in emerging markets; & Alexander Graubner-Mueller, Founder and CTO of Kreditech, a German FinTech disruptor that does personal loans online.
Julian Kyula, Founder and Group CEO of Mode, was also on the stage as his firm uses mobile telco, utility and other information to analyse data flows. In common with peers Mode filters the data it collects through a behavioural software platform before deciding upon the appropriateness or otherwise of a loan, how best to route it, and so on.
Neal Cross, Chief Innovation Officer at DBS Bank was the only banking representative on the stage. He said it was “an honour” to be up there with the startups on stage, which were providing “a wake-up call to banks”. He also amusingly referred to how he’d dressed down in his polo shirt – he was the only one that had. All the start-ups at the payments-focused Innotribe session use big data analytical techniques to try to outperform banks, often in emerging markets where traditional credit checking structures are not yet so well established. At the very least big data credit scoring and delivery techniques could be used to lock banks out of fast-growing economies in Africa, India and elsewhere where branch banking networks don’t yet exist to a large extent.
As the final on-stage panel member, Gottfried Leibbrandt, CEO of SWIFT, sounded a warning to the disruptors, however, kick-starting the ‘bank’ response when he commented that: “The hard part is not making the loan. It’s getting the money back.”
The Banks Respond
A debate ensued with five heads of innovation and strategy at the banks responding to the FinTech startup challenge. Situated at the back of the packed Sibos conference room, which was standing room only, were representatives from Wells Fargo; Lloyds Banking Group; Bank of New York Mellon; Standard Chartered; and Euroclear.
Kreditech’s Graubner-Mueller kicked off the Bank v Startup argument by provocatively declaring – after their innovation programme overviews – that: “I’ve heard a lot of talk about innovation here, but not really heard anything innovative [from the banks].”
That drew a sharp response from DBS Bank’s Cross, who lived up to his name, as he explained that they run hackathons to encourage the nimbleness of startups at his internal bank teams. Cross added that it was his “job to change the culture” at his bank, which was easier to do at a smaller bank such as his, in comparison to one of the larger established Tier 1 banks represented at the back of the Sibos 2015 Innotribe conference room.
“How many startups are left, excepting PayPal, M-Pesa and a few others,” responded Steve Ellis, EVP and head of group-wide innovation at Wells Fargo, as the debate got lively. Ellis added that many mobile transactional products and other new developments had actually been started by banks, payment providers or other so-called traditional players, which were eminently capable of innovation themselves.
It was also mentioned during the ‘Future of Money’ Innotribe debate that it is important to remember that many newcomers rely on the architectural rails set up by deposit-takers. These financial institutions (FIs) are subject to regulations that startups are simply not subject to.
Leda Glyptis, Head of the EMEA Innovation Centre at Bank of New York Mellon, had an interesting perspective on the debate as an ex-startup employee that has since joined a bank. “The drive for API banking means that banks will soon be able to approach startups and ask ‘what can you do for us’.” The co-operative model was obviously more of interest to her than the co-opetition model on the spectrum of the debate.
Banks have two big advantages, concluded Iwoca CEO Rieche: “Your deposits are state guaranteed and you have large customer bases built over time. Only one of those advantages [i.e. the first] will stay.”
The battle between banks and startups has commenced with the co-operative space yet to be fully found, but it is clear that disruption is well and truly here in the payments sector.