Banks are working tirelessly to upgrade their transactions capabilities so that money can be transferred seamlessly in real time, in line with the needs of commerce in the digital age. This was one of the key priorities highlighted during the “Ask the Experts” forum on global payments I spoke at as part of the 2020 Virtual International Convention of the Bankers Association for Finance and Trade1 (BAFT).
The primary takeaway for me was that it will require a joint, coordinated effort among industry members to achieve the utopia of payments fading into the background so that banks can devote their full attention to clients’ needs. And perhaps the most important task to accomplish in pursuit of this ideal future is improving the exchange of data between banks to avoid losing information, holding up payments or unnecessarily repeating operational processes including screening.
Better data will play a pivotal role in making payments more “context aware.” Banks should take a leaf from technology companies’ playbooks and focus on the consumer or business behaviours that drive payments, putting customers at the centre and treating payments as the outcomes of those behaviours, rather than the reason they exist.
When that happens, banks can begin building other lucrative services around payments. After all, payments in themselves generate little value, while the trade and commerce that led to the payments is valuable, as is the data and credit decisions behind those commercial transactions.
Grasping the data issue
Several technology solutions have been proposed to improve the exchange of data between banks, including distributed ledger technology (DLT). But it is important not to rush too fast into technological solutions before gaining a proper grasp of the problem.
The crux of the issue is harmonising data exchange on payments. Standard Chartered believes that is best accomplished by establishing and following industry standards, such as the ISO 20022 standard for payments data interchange between financial institutions.
If a particular payment transaction starts in an ISO 20022 format and transmits via the financial market infrastructure clearing it in ISO 20022, then the probability of that message having data issues is practically zero. In that case, banks can speed up the processes, tune the regulatory compliance properly and ergo, realise the full potential of available data.
Solutions such as DLT, on the other hand, could run into adoption hurdles. For any given DLT to work, all participants have to be on the same network & technology. That just adds the problem of achieving universal adoption to the problem of data harmonisation we have today.
Cross-border payments are the collaborative problem to solve of our time, to make sure that we have sustainable commerce; and banks can learn a lot from fintechs, especially when it comes to the control, management and exchange of data, albeit on an open-loop network compared to the close-loop ones that fintechs usually propagate.
While some have expressed concern about technology companies entering the financial services space, the net result will likely be a more vibrant landscape, as it galvanises banks to cooperate with both other industry members and with fintechs in the spirit of healthy competition. As other forums on the topic have noted, multilateral collaboration, active public-private dialogue, could well be the way forward.
Banks will remain an indispensable part of the landscape, because at the end of the day, fintech firms will continue to rely on them to provide finality to the commerce transactions. Still, to realise the full value of those transactions, it is imperative that they work together through forums such as BAFT – GPIC and SWIFT user groups to stay ahead in changing times. Standard Chartered plays an active role in such forums, committed to co-create solutions as part of its ongoing mission to advance global payments thus driving commerce and prosperity.