27 September 2016
Review from SIBOS - Day 1
Judging by the number of suits on show, I can confirm that Sibos continues to be a focal point for bankers rather than fintech executives, although the latter are clearly front of mind at the various meetings. Indeed a major theme of this year’s Sibos is an exploration of new opportunities (and challenges) for the finance industry, alongside the emergence of Switzerland as an important fintech hub.
The spectre for Fintechs was clearly evident at the opening meeting I attended: Immediate, open and context – the perfect storm in payments. The ‘immediate’ in the title was not the focal point for much of this discussion, as one speaker noted: “real-time is whatever it means to you”. Instead the immediate payments infrastructure was seen as a given necessity to help realise the opportunities brought about by PSD2 and Open Banking.
Claus Richter from Nordea was very bullish about the Open Banking initiative suggesting banks can look at it two ways: either as a threat or a commercial opportunity. Adopting the latter, he argues it can help banks drive new revenue, making banks more innovative in the process and dramatically increasing speed to market for new products. This upbeat perspective was challenged from the floor - how can this optimism be reconciled with the fact that banks are facing increased competition in an environment of falling transaction fees and foreign exchange fees? Where will this revenue growth come from?
According to Claus, while it is impossible to know exactly what a successful revenue model will look like in an Open Banking world, there are number of possibilities ranging from existing transaction fee-based models to licensing deals with fintech firms. The use of API will create new opportunities around data and this could be a key area where banks could invent new revenue models. Unfortunately, this wasn’t fully expanded upon through the discussion, other than there being an expectation that it could enable banks to better target customers for new products.
An overriding theme was that partnerships with Fintechs will be key. I would definitely agree with this as there is significant advantage for both parties from such partnerships. Fintechs will want to work with banks as they are a high revenue, single sale opportunity. As was alluded to in the discussion, in an Open Banking world, the one competitive advantage available to banks is trust. This certainly tallies with research published elsewhere showing significantly higher trust among consumers for banks in the delivery of payments services, compared to other providers (the notable exception being PayPal). Fintechs will want to tap into this consumer confidence.
For banks, financial technology enables them rid themselves of legacy infrastructure and gives them the tools they need to quickly bring new innovations to market. Andy Schmidt, from analyst firm Tower Group, noted that innovation has been bred out of bankers and through these new partnership opportunities, there is the chance to reverse this.
On to a theme more familiar to VocaLink, Jose Beltran from French processor STET, presented a discussion on instant payments entitled ‘The Impact of the New Normal’. In this session, the discussion focused on the emergence of instant payments and how it could revolutionise how we make payments, as well as the technical details and challenges for STET in developing its own instant payments solution which they aim to launch next year.
From a market assessment of Instant Payments, there was plenty to agree with Jose on here. Instant Payments is being driven by a combination of regulatory demands to deliver efficiency and innovation in payments, expected payment innovations and competition brought about by PSD2, market demand in the shape of highly connected consumers who expect immediacy in their services, and technology advances that have made instant payments possible on a mass scale.
Highlighting Faster Payments in the UK and other systems around the world, Jose pointed out that instant payment solutions have not cannibalised existing credit and debit transfer payments but instead created new areas of growth. He also pointed out that as a 24-7 payments system, data shows that 50 per cent of Faster Payments transactions occur outside the operating hours of other clearing cycles, emphasising the importance of constant availability for the service.
Instant Payments are an enabler to develop new user cases, including new ways to pay merchants, P2P and other cash alternatives, and cross-border payments. Different business models have the potential to be a win-win for both business and consumers. Importantly, new instant payment services will keep the banks at the heart of the payments service. This is something that Pay by Bank app in the UK, which uses the Faster Payments rails, has also been keen to emphasise.
One of the advantages of instant payments is that it creates new and simple means by which people can exchange money with each other. Instant payments is, as Jose put it, cashless cash. What he means is that instant payments has the same key advantage that cash has over other payment types: the ability to immediately transfer value to another person. This creates certainty and removes the need for trust.
Innotribe’s workshop on Emerging technologies for financial services, was my last port of call of Day 1. This event was very much Sibos but fintech-style. Unlike other meetings, this was set in a circular room with a curved screen going around the circumference, so whatever way you were facing you could see the presentation. Hosted by futurologist Michell Zappa, the meeting was divided into two parts; the first conceptually argued that technology has behaviours. When we try to predict how future technology will evolve we need to consider a number of key principles, for example, the unintended consequences of technology can often bring change which is not obvious at the time. We also often tend to overestimate the short-term effects of technology, but underestimate the long-term effects. This leads into another principle of exponential change. Technology builds on itself making change occur faster and faster. Strategically, these two points are critical to understanding the potential for change that new technologies can bring.
Another principle that Michell discussed is the tendency for science fiction to become science fact. The basic premise being that fictional ideas we have now can often lead to them becoming reality in the future. Personally, I’ve never held this idealistic view of change. Our ideas are grounded in our reality, and while science fiction may try to break free or go beyond this starting point, it is nevertheless a starting point. Fortunately, this idealist view of change is reconciled by a wholly “materialist” principle introduced by Michell: Combinatorial Evolution. This principle argues that inventions are the result of intentional combinations of existing technologies through a process that involves interplay between experience and knowledge — and driven by need. Technology can only exist based on existing technologies. Everything is dependent and builds upon what came before.
This introduction was really engaging and got us in the mindset for the next part of the meeting where we considered research carried out by Innotribe on emerging and potential future technologies. In particular, assessing the interplay of different technologies and mapping their likely realisation. This was an interactive session where we tried to create new product solutions for customers. This research will be made available by Innotribe so well worth checking out.