The future of payments

Increased levels of data, combined with new ways to crunch numbers, mean the world of payments is changing fast. Speakers at the Sibos conference share their thoughts on the years to come.

Achieving more secure, transparent and efficient payments is something that just about everyone involved in financial services would welcome, not least consumers and regulators. Across the globe, consumers are increasingly demanding real-time payments, while regulators are driving markets towards open banking.

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Some banks have been quick to respond with new innovations to transform payments for customers. However, there remains much uncertainty in the wider marketplace about how to harness new capabilities such as machine learning, APIs (application programming interfaces), instant payments and distributed-ledger technology.

To get a glimpse of what tomorrow’s payment industry might look like – and how to prepare – more than 7,600 representatives from the global financial community gathered at Sibos (the leading global event for the banking and payments industry) conference. Here are some of the key messages and predictions they heard from leading players in the global payment industry.

1. Technology will be the great leveller

“Something phenomenal is happening with technology everywhere,” says Ulku Rowe, technical director, financial services at Google Cloud. “You look back at human history and there’s never been a time where life experiences have changed so much in a single human lifespan. Technology is creating a level playing field for everyone – newcomers and established players alike. The barriers to entry to marketplaces are completely disappearing.”

This presents a fantastic opportunity for firms to think about how to set themselves up for the future, explains Ms Rowe. “With the internet of things you have access to devices, all these interactions, creating massive amounts of data that can be analysed and turned into knowledge and insights about interactions with your clients. That’s never been possible before.”

Ms Rowe’s advice for business leaders is to start by focusing on customer needs, and to prioritise agility. “That creates a culture of innovation in companies so that they're ready for the future. Those companies that can move faster will be the ones that not only survive but thrive.”

2. Find the sweet spot where technologies meet

Reflecting on current and future payments trends, Leila Fourie, CEO of the Australian Payments Network, emphasises the need to think about how different technologies can interact and even merge together. “I think it would be naive to think that one technology will necessarily dominate over another,” she says.

Finding the sweet spot where different technologies combine could therefore be tremendously powerful. Ms Fourie suggests a few examples at Sibos. “There are some interesting case studies with artificial intelligence being used in a blockchain environment to manage liquidity trading positions. Also, I can foresee a world where AI is used in smart contracts for blockchain.” Ms Fourie adds that she expected to see “an explosion in API tech” in the coming years.

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3. Central banks are here to stay

History has proven that security, interoperability and standardisation are key to longevity in the payment industry. So, despite the speed of technology disruption in the financial sector, central banks will remain “the plumbing of the payment system” for the foreseeable future, says Esther George, president and CEO of the Federal Reserve Bank of Kansas City.

“I think the banking system and its regulations have resulted from the interests of financial stability and in the interests of maintaining the public’s expectation for trust,” says Ms George, before explaining that the Federal Reserve’s focus remains fixed on the safety, accessibility and efficiency of the banking system. George acknowledges market demand for standardisation across borders to help facilitate faster and more efficient international payments, while stressing the importance of the stability and security in domestic banking systems.

Ms Fourie also speaks about the need for regulators and central banks around the world to standardise approaches to facilitate faster and more efficient international payments. “The highways we’re building between the tech companies, social media companies, the banks, the fintechs etc are all global highways,” she says. “It’s really important that we think along global lines and standardise this in a more unified way.”

4. Innovation must move to the core

Ms Rowe warns that technology innovation must not be left on the fringes of a business. “Technology can’t just live on the edge or it’s going to die,” she says. Instead, business leaders have to get innovation into the core of their business operations to achieve maximum benefits. By way of example, Ms Rowe talks about Google’s huge data centres and the complex variables that impact their energy expenditure. By employing a machine-learning model, Google reduced its data centre cooling costs by 40%, according to Ms Rowe.

“Think about that number: 40%. If you’re a financial services company, if you could take down the transaction costs by 40% or if you could speed up your customer onboarding by 40%. This is equally applicable to the financial services industry, if you take innovation to the core,” she says.

5. Data is the path to future success

So what will the most dominant players in tomorrow’s payment industry look like?

“I think there are a few characteristics required for success,” says Ms Fourie. “I think those institutions who are able to collaborate and partner with others will win. Those institutions who put the customer at the centre will win. Those who are agile and able to rapidly roll out new products will win. But perhaps most importantly those institutions that win are going to be those that prioritise data and prioritise machine learning.”

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Ms Rowe concurs with Ms Fourie’s prediction. “The winners are going to be the ones that actually understand that they can turn their data into insights and knowledge. Data in itself is not valuable. It is what you do with that data and how you apply machine learning. Can you have your data scientists extract meaning out of it? Those are the institutions that will be successful.”

This article first appeared on the NatWest business hub.

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