- December 16, 2019
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Harnessing the power of ecosystems to turn disruption into opportunity
Global financial service providers are engaged in race to build communities and create compelling and trustworthy ecosystems
The industry focus for this year's Sibos is to cultivate and balance responsible innovation with stability and transaction security amidst trade-technology tension, unpredictable geo-political landscape, cyber threats and emergence of new competition or big tech.
An extension of last year’s theme, “enabling the digital economy”, this year saw more mature discussions around how one can leverage new technologies such as artificial intelligence (AI), application programming interface (API), distributed ledger technology (DLT) etc., and external partnerships to enhance business models and networks. In particular, acceptance of tokenised payments to improve existing payment systems was a popular topic as the industry gathers pace to achieve critical mass in using DLT. At the top of the agenda was digitalisation to achieve trade transformation as institutions shield themselves from rising costs of compliance and due-diligence. The launch of new products and services on platforms also garnered a fair share of conversation as institutions consider leveraging unstructured data to deliver better client experience.
Here are some of the highlights that emerged from the gathering as The Asian Banker spoke to leading industry practitioners and stakeholders on topical trends, the challenges and initiatives faced, and the key to ensuring the success of their clients in a hyper-connected world.
Increased commercialisation around blockchain
The interplay between geopolitics and technology and its impact on global corporates has inadvertently accelerated the aim of financial service providers to reduce costs and improve profitability. Digitalising trade becomes more critical as corporates relocate parts of their supply chains to new markets, so as to avoid punitive tariffs.
In the course of the past three SIBOS sessions, there has been a significant buzz around blockchain network. However, obstacles around scale and interoperability have always compounded the industry’s shift to achieve large scale digitalisation.
With technology central in meeting new cost efficiencies, financial institutions are connecting with other banks, platforms and technology companies to tackle several inefficiencies associated with trade financing. “In terms of blockchain, like everything else, it has a place in terms of innovation and we continue to look at test cases for where it makes sense for us,” said Jafar Amin, Asia Pacific regional president and head of corporate and investment banking at Wells Fargo. As one of the biggest dollar clearers in the world, the bank has invested significantly in end-to-end solutions, as a part of its cross-border and book transfers business.
Tapping into flows between Japan and Asia Oceania region, Mizuho Bank leverages technology to expand network and last-mile connectivity. “Digitisation is transformation, and this year at SIBOS, there is much more mature discussion happening around commercialisation of DLT and data,” highlighted Devashis Das, deputy head of Global Transaction Banking, Asia Oceania at Mizuho Bank, as he increasingly spent his time interacting with multiple fintechs from DLT space.
The industry has begun to come together to create their own common digital trade finance consortiums. Marco Polo Network, which was developed as a joint undertaking with technology firm TradeIX and enterprise software firm R3, houses a wider trade ecosystem such as Enterprise Resource Planning (ERP) providers and logistics companies. On the other hand, Voltron – an open industry utility for documentary trade – is a consortium focused on developing end-to-end documentary trade solution using R3’s Corda blockchain platform while we.trade, which is now comprised of 14 member banks, is built on the IBM blockchain platform using Hyperledger Fabric.
UniCredit drives expansion of its Asia business by offering competitive Euro-denominated funded facilities while operating a lean scale for global transaction business and supplemented by a much focused strategy to bridge clients between Asia and Europe. Although there is still a lot of ‘noise’ around digitalisation in Asia, its global head of transaction banking, Luca Corsini, observed that these consortiums are headed in the right direction. “we.trade, Voltron, Marco Polo and so on are very good exercises that represent cooperation within banks that are starting to play around blockchain. Basically, they will need to find a standard to talk to each other and I see this going in the right direction,” he noted.
Confident about the prospects of expansion in trade flows between Europe and Asia, Patrik Zekkar, global head of trade finance and working capital management at Nordea observed that on the back of the renewed EU-Asia partnership, technology has a massive role to play. He highlighted, “We see the first signs of real commercial contracts signed, and if you go into a bit of micro level, we see that technology really plays a role and it has come to a stage where blockchain and DLT are now materialising with commercial offerings to the customers.”
When it comes to the application of blockchain, our discussion also brought out institutions’ desires to deliver greater value to clients, rather than just cost savings. Internally, banks are enhancing process inefficiencies stemming from trade’s traditional paper trail. By putting in place a combination of technologies such as AI, robotics moving to cognitive intelligence and optical character recognition, they see the next step for these individual trade platforms to start interacting with one another. To sum up, trade-tech was at the core of SIBOS universe this year.
Achieving new standards for richer payments data
Gains from APIs and its overarching capabilities to deliver new methods of transferring data will not be realised until common payment standards and messaging formats are adopted across the value chain. In a quest to reduce fragmentation from disparate local technologies and multiple regulatory constraints, it is critical for the industry to achieve interoperability of messaging standards.
Adoption of ISO 20022, the financial messaging standards framework for industry-wide communication, holds promise to accelerate straight-through-processing. As the clock to migrate to ISO 20022 from the existing MT messages format ticks, we caught up with the industry to understand their views.
From a vendor perspective, Nick Armstrong, CEO at Identiti believes in the practice of modernising legacy system rather than replacing them. This comes at the lowest possible cost of adopting to compliance technology and requires only a fraction of process change. “With Overlay+, our solution for ISO 20022 migration, it creates a rapport that sits around legacy systems and can read and write rich information to a private distributed ledger. That’s how you can be compliant without having to spend a huge amount of money, ripping and replacing the systems,” shared Armstrong.
Peter Hazou, director for business strategy at Microsoft, highlighted that achieving standardisation is critical in driving interoperability, a concept easier to define but harder to execute. “Historically, each country had their own system backed by their own data standards, but SWIFT provides a great platform to achieve standards and drive interoperability enormously. So far, ISO 20022 is a big standard coming that will really permit much richer use of data globally,” he added.
According to a Deutsche Bank white paper on ‘Ultimate guide to ISO 20022 migration’, relative to the existing formats, the new standard is capable of accommodating far richer data components, which can be transmitted along the transaction. For financial institutions (FIs), this improves transparency and secures payment processing, in sync with compliance regulations. For corporates, richer payment data and standardised formats not only ease their pain point around reconciliation, it additionally allows them to integrate vendors more flexibly into their own corporate ecosystems. From a Deutsche Bank perspective, Jennifer Scott-Gray, head of Corporate Bank for Australia, talked about her key priorities as she pursues the integration of new technologies into the bank’s existing platforms and systems in Australia. “The focus remains to drive core functionalities by getting our clients comfortable with our systems and extend state-of-the-art products to the treasurer and broader corporate to facilitate their business,” revealed Scott-Gray.
Collaborate and thrive
Priorities to enable platforms and connect thriving ecosystems have manifested itself in banks opening up account and transaction data to other institutions, fintechs and payment service providers. The impetus to provide value added propositions built on the premise of collaboration and aggregation in view of regulatory factors such as open banking, have in large been responsible for increased data sharing to ultimately drive customer experience.
“SIBOS 2019 can be rightly called as collaborate and thrive as fintechs continue to bring new methods and fresh thinking to make things simpler,” remarked Shekhar Bhandari, business head of global transaction services at Kotak Mahindra Bank. He talked about how open APIs have become mainstream in India and customers were leveraging them to operate and transact in a secure and seamless manner.
Mark Evans, managing director for transaction banking at Australia and New Zealand Bank (ANZ) gave an account of differences in adoption of open APIs in Australia vis-à-vis in markets such as the United Kingdom. “While in UK, it is much more focused around payment vertical, whereas in Australia, open banking equals open data, making it more horizontal across governments, utilities and other areas.”
Michael Lim, head of financial institutions at ANZ highlighted that there were great opportunities for incumbents to learn from the new partnerships. Commenting on the rapid volume build-up and scale of the new players, he highlighted, “If they are building volumes for themselves, there is a huge opportunity for incumbents to bank them and provide all the infrastructure support around their customers’ cross-border needs”.
On the whole, the industry realises that there is a greater need to offer standardised, flexible data architecture in meeting high service level expectations of their customers.
gpi the new and bigger game in town
Real-time domestic payment infrastructures enabling 24/7 money transfers and processing capabilities have become an industry norm. Over the last few years, several central banks in more than 30 countries have introduced or are committed to introducing ‘Real-time Gross Settlement’ systems. Following Australia’s announcement of New Payments Platform (NPP) and European Central Bank’s (ECB) introduction of Target Instant Payments Service (TIPS), US Federal Reserve is the latest central bank to jump on the RTGS bandwagon with FedNow Service- its new interbank RTGS service.
Developments in real-time domestic payment and settlement has enabled the industry to look for solutions that revolutionise cross-border payments. The SWIFT trial involving 17 banks across seven countries – Australia, China, Canada, Luxembourg, The Netherlands, Singapore and Thailand – saw payments between them settle within 25 seconds and the fastest between Australia and Singapore in just 13 seconds. It integrated SWIFT gpi Instant into FAST, Singapore’s domestic instant payment service.
Enthused by interesting developments around gpi, Clayton McDonald, head of sales for Global Payments Division at INTL FCStone talked about the hassle of cumbersome investigations over intermediary network to track and trace payments, pre gpi. “gpi has really taken off recently as a topic of discussion that shows transparency in the chain all the way through. There is no need to go to a global bank as gpi enhances transparency for us to exactly spot our payment in the chain via the gpi tracker,” noted McDonald.
“Right now, there is lot of conversation around gpi to connect the cross border piece with the instant payment, which was piloted sometime ago between China and Australia. I see that as a very promising thing,” added Das of Mizuho Bank.
However, Michael Correa, general manager for APAC at Westpac takes a different view. Although he accepts that these are developments that promise to transform the cross-border payments experience, he also added, that the end state remains to be achieved. “The question for me always comes down to what is going to be the end state. And are we in this testing mode now where we’re trying to figure out what works and what doesn’t work or what becomes dominant, and what doesn’t?” he asked.
Whatever the outcome in the next few years, the widespread adoption of gpi is proven and is fast becoming ubiquitous. In 2018 alone, more than $40 trillion was sent over gpi service while the share of cross-border messages using gpi edged 270% annually. Successful trials of gpi cross-border transactions are set to significantly improve the future of global payments in terms of last-mile connectivity.