29 September 2016
Review from SIBOS - Day 3
An absolute must for any seasoned conference goer is to bag yourself one or two souvenirs from the main exhibition floor. This year some of the stands seem to want to assist us in this mad dash with a wide range of environmentally friendly shopping bags. I now have more canvas bags than a Greenpeace convention. My favourite souvenir so far is a brilliant Lego cash-in-transit van from Danish cross-border payments company, Inpay. I also love the mini-bags of shredded dollars that the US Federal Reserve teased us with. Of course, we are in Switzerland so many exhibitors are wooing us in with tasty chocolate treats. Well not all, it appears that Swiss payments processor SIX are in league with my doctor with their healthy range of self-branded apples.
Returning to the conference, I attended a very interesting meeting discussing how banks can utilise the data they collect as part of their due diligence and know your customer (KYC) requirements to create new business opportunities. For example, with regulatory costs of compliance pummelling banks at the moment, many are looking for an upside by using the data collected to help drive new revenue opportunities.
The discussion itself was very practical, providing audience members with pointers on how to get started in developing business cases around data, why it is important and some of the pitfalls to be wary of. Chaired by former Bloomberg anchor, Kavita Maharaj, her TV presenting expertise really helped to ensure a quick and lively flow to the meeting. Speakers in this session were Patrick Craig of EY, Eric Clapton of Lloyds Banking Group, and Jim Wadsworth of Accura (a VocaLink business unit).
The meeting kicked off by looking at the types of data that can be used by banks. Jim Wadsworth highlighted payments data as a particular valuable source for banks. We all make payments which generate a huge volume of data. He said VocaLink alone processes over 11 billion transactions to a value of £6 trillion a year and at Accura they are looking at ways to use sophisticated analytics to generate valuable insights. While this can be used for compliance purposes it can also be used to support their business more widely, such as helping banks make better lending decisions, and identify and prevent fraud. The data can also be used from a macro-economic perspective to help provide valuable insights into what’s going on in the economy to support policy makers.
Patrick Craig from EY pointed out that all the data gathered by banks over the last 10 to 15 years for regulatory and compliance purposes has provided them with excellent insight into their customers. By combining the data collected as part of KYC programmes with, for example, transaction and even social media data, they have the opportunity to significantly enhance these learnings. He suggested that the key question banks should ask themselves is what can we do with this information to better serve our customers and improve financial products?
Lloyds Bank’s Eric Clapton (we must get him and VocaLink’s David Gilmore into the same room for an “I share a name with Rock God competition”) gave a good example of how the KYC data they have gathered from their small business customers has been put into practical use. In 2015, when the North Sea oil prices changed dramatically, they were able to mine the data to identify customers who would be potentially affected by this and reach out to them to offer help and assistance.
Another practical example was provided by Jim Wadsworth, where Accura has helped a UK bank to help protect its corporate and business customers from fraud:
“We provide a bank client with daily data, which highlights potential questionable transactions that have occurred based on our analysis of payment transactions. The feedback our client has had from its customers has been excellent, they seem really pleased that their bank is looking out for them. This is also helping the bank to build and enrich their relationship with their customer.”
Introducing new data-based products and services is a major challenge not just on a practical and technical level but also because of the sensitivities involved with using personal data. For Jim Wadsworth, the work they are doing at Accura using sophisticated analytics around payments generated by banks and all their customers, creates some hurdles that need to be carefully handled. While legal and regulatory considerations, such as making sure the right permissions are in place, is clearly important and time consuming, it is also important to go beyond that and look at things from an end customer perspective:
“If you talk to businesses and consumers, and explain to them that we are going to use their data to help protect them against fraud, most people will be very happy with this. However, if you say we are going to sell your data to third parties who may want to send you vouchers for a pizza – they are rightly not going to be pleased with this. The customer consent is really important. Work needs to be done to ensure they understand what you are doing and perceive it as a good thing”.
Patrick Craig agreed with this point and stated the banks need to get the balance right; there has to be a clear benefit to the customer. A good example, according to Jim Wadsworth of this balance, would be the use of consumer payments data to improve access to credit. Today consumer borrowing is largely based on the banks use of credit reference agencies. But there is whole range of customers that have little data that may nevertheless be low risk. Leveraging payment data could assist these customers to gain access to lending. It would also help banks manage risk, which could potentially mean giving preferential rates to customers. In this scenario, there are clear benefits to both parties.
Patrick Craig also warned of a careful balance in wanting to see the benefits from your investments in data services, and abiding by data sharing and protections laws. General Data Protection Regulation coming out of the EU aims to give consumers more control of their data, so investing in data lakes and opening up data for insights is all well and good but you need to be aware of the potential risks. This means that when developing data-based use cases that you also engage in a good legal framework for data sharing.
The explosion in the development of real-time payments around the world has focused the attention on what is seen as the next frontier: instant cross-border payments. If you read my update from Day 2 of Sibos, you may recall that I attended a meeting discussing interoperability of instant cross-border payments. Following on from this, I finished day three by popping along to an update on the progress of the International Payments Framework Association (IPFA).
IPFA was founded six years ago by banks, ACHs and IT providers with the aim to develop an efficient way of processing cross-border, cross-currency low value payments. As a non-profit association, the IPFA offers is members rules, procedures and guidelines, which in other circumstances they would have had to develop themselves, as well as provide the opportunity for members to participate in this rule making.
The meeting was timely, as the IPFA announced on Monday (26 September), the first global scheme to facilitate instant payments as cross-border and cross-currency credit transfers. Chairman of the Rules Committee, Wijay Asinwartham, provided a short overview of the aspects of this rulebook.
There are a number of characteristics in the new IPFA rulebook including:
- There is an IPFA participant in both countries where the transaction flow happens;
- There is a payment exchange agreement between the two parties, for example around dealing with exceptions and settlement procedures;
- For the currency conversion the default position is the originating bank will make the currency available (i.e. is responsible for settlement);
- Payments are irrevocable;
- Schemes must function 24-7
Speaking from the panel, VocaLink’s Kris Kubiena gave context to the importance of work being done by the IPFA:
“A couple of years ago I would have been here evangelising about instant payments at a national level and I think it is fair to say this has now become mainstream. It is clear that the next step change in payments will be cross-border instant payments. We have customers that are live (e.g. the UK and Singapore) and customers implementing instant payments (e.g. the US and Thailand) and cross-border is a topic that comes up from the outset.
“The considerations and challenges we are hearing about actually don’t differ that much from those you face with national instant payments. A key point is that instant payments whether national or cross-border is not the end game. It is about reconciling the needs of the regulator, consumers and the participants. The consumer wants to have an experience that is seamless, the participants want to delight their customers but also generate revenue, and the regulators have their own specific requirements, such as AML rules. Reconciling these three can be tough. The challenge is around what use cases you want to implement and what are the products and services you are going to drive. It is not just VocaLink that is implementing real-time payment services and we recognise there needs to be interoperability between systems whose schemes potentially have different rules from our own. This is where the IPFA can help to define the base standards that we all have to adhere to.
“I think it is going to be very interesting over the next couple of years to see how cross-border develops. It will move forward and it will be exciting.”
I think it is safe to say instant payments, particularly the possibility of cross-border flows, has been a major theme of Sibos 2016. Sadly my time here is drawing to a close. There remains only one thing left to do: I’m off to buy some sellotape – those dollars won’t stick themselves back together.