Industry experts agree rethinking technology is key to transformative disruption in 2022

The events of the last 18 months proved to be an inflection point that accelerated the digitisation and pushed banks to rethink how to transform technology to survive and thrive in the future. Institutions rapidly adapted to digital and remote operations, ubiquity of contactless real-time payment became the new normal and e-commerce and cybercrime surged. Meanwhile, payments landscape is evolving with ISO 20022, digital currencies and crypto assets.

Centred on ‘Recharging Global Finance’, SIBOS 2021 saw experts deep dive across a variety of burning topics including digital acceleration, transformative technologies, frictionless payment, digital currencies, cyber-risks, and sustainability with the ‘net zero’ target.

Increased focus on scalable technology, data and ecosystems

As traditional physical and digital ecosystems converge, there is need for a digital paradigm and alignment of technologies and business models in financial services. New cloud native digital players bring unprecedented innovation and disruption, customers now expect hyper-personalised service. To prepare for these changes and enable faster value creation, banks need to strategise their technology holistically.

The pandemic accelerated the shift towards digitisation, adoption of contactless and real-time payments, need for scale and remote operations. These in turn pushed the transition towards open, collaborative ecosystem and adoption of agile and scalable cloud-based systems.

David Becker, managing director Asia at Temenos, pointed that there is renewed focus among banks on addressing the cost base and the current legacy monolithic infrastructure. “Cloud-based solutions provide the flexibility and cost-effectiveness along with the ability to grow the business to a wider audience and target market,” he stressed.

David Becker, Managing Director Asia, Temenos

“Banks are now facing a tough outlook in the coming months and years, but an advantage held by incumbents is the size of their balance sheets and ability to invest. Therefore, incumbents should use this time to accelerate their digital strategies using cloud to drive their transformation,” said Shweta Jain, head of retail banking cloud and digital strategy, Finastra.

Increased competition from tech players propelled banks to focus on customer experience, harness the power of data for more personalised service.

Radha Pillay, regional sales director APAC at SmartStream, shared, “Clients have been trying to expedite how they can monetise the data, have better analytics by utilising AI and machine learning to improve their customer services”. He opined that there is also a strong case to utilise AI and machine learning to automate operations.

Radha Pillay, Regional Sales Director APAC, SmartStream

Industry embraces contactless, real-time and new messaging standards in payments

The payment landscape evolved rapidly as contactless, real-time and QR-based payment volumes surged during the pandemic. Emerging business models of embedded finance and buy now, pay later gained adoption.

David Chance, vice president strategy and innovation at Fiserv, emphasised the importance of resiliency for payments and overlay services. “There is increased focus on taking advantage of the managed services, the ‘payments as a services’ to build resiliency,” he explained.

David Chance, Vice President Strategy and Innovation, Fiserv

Evolving payments offer new opportunities and challenges. David Brown, head of payment APAC, Finastra, highlighted, “Standard in real-time payments really focused on the retail customers, but now it’s moving into the corporate space, and the dynamics are changing. Some banks have a real challenge in adding these new dynamics to their current environment, causing them to rethink their payment solutions”.

David Brown, Head of Payment APAC, Finastra

With instant and frictionless domestic payments, customers demand this experience in cross-border payment as well. Kanv Pandit, senior vice president, banking and payments, Asia Pacific at FIS, highlighted, “Cross-border payment revenues in APAC are still relatively low and that is a bit surprising considering this region is home to some of the major remittance beneficiaries from a remittance corridor standpoint. We have seen some of the progressive banks start to take action to really enhance their cross-border payment capabilities. The use of bilaterals is widespread, and I think that has to do with the fact that market infrastructure has lagged. We are starting to see investment taking shape”.

Kanv Pandit, Senior Vice President, Banking and Payments, Asia Pacific, FIS

Emerging fintech innovation in remittance, bilateral country arrangements, distributed ledger technology and emergence of central bank digital currencies (CBDC) are all changing the shape of international payments. These force banks to be agile to prepare for the digital future.

“These industry changes pose challenges to banks. They have to be very open in their ability to be able to plug in different alternatives, have the logic that they can easily configure as a business, which transactions to be directed to which channel of payment and configure accordingly,” argued Brown.

The imminent adoption of ISO 20022 standards is likely to bring greater global connectivity, transparency and provide opportunities with richer data. The banks will need to gear their technology framework to adapt to these changes in messaging standard as well as build their interoperability.

Chance observed that there is growing need to normalise the data flows, understand the interaction, why payment is happening and how to route it and provide these insights back to the end user.

Digital currencies and crypto assets are shaping the future

Decentralised finance (DeFi), non-fungible tokens (NFTs) and other digital assets continue to gain traction with the developments of tokenised assets. The growth of cryptocurrencies, stablecoins and CBDC can potentially facilitate cross-border payments, bring greater liquidity and financial inclusion.

However, these crypto and digital assets remain currently embroiled with risks and challenges around interoperability, privacy, stability, security standards, growing cybercrimes and regulatory disparities. The regulatory response of different countries has been mixed. Central banks will need to strategise and future-proof themselves, given these ongoing rapid developments in digital currencies.

“It is a real area of interest how we incorporate CBDC at the wholesale level for international payments, to resolve the liquidity and reporting flows around payments and use retail CBDC for financial inclusion,” Chance added. He argued that cryptocurrencies are more like investment assets rather than for payments tools due to money laundering and other risks. They also utilise significant computing power.

Meanwhile, financial institutions will need to prepare to be able to offer services around new emerging modes of payments. It is challenging for banks to cover all these different modes of payments. They need to be open to plug in different alternatives and be able to configure the business to varied payment options.

Increased spotlight on security and resilience

The pandemic witnessed a surge in cyberattacks and data breaches across the industry. Cyber threats have become more sophisticated, innovative, organised and even led by state actors. The adoption of open banking, interconnected systems and devices create new challenges in cyber defence. There is greater need to address the fractured approach to information sharing, augment industry-wide information and collaboration for security.

Most banks already focus on multi-layered protection ensuring authentication, authorisation, access controls and security. Real-time security checks, validation, threat detection and prevention are proving to be essential especially in payments.

Advanced analytics provide invaluable tools in fighting cybercrime as AI and machine learning-based models can enhance the effectiveness and efficiency of payment screening and real-time fraud detection. Pandit underscored, “We have seen banks, including clients that we are working with, further expand efforts to use AI and machine learning to address the issues of security and payments fraud. Banks are having to deal with data, which is structured, unstructured, on a real-time basis, so a lot of innovation and sophistication is needed now to really address the topic of security of payments and fraud and risk”.

The momentum to continue in 2022

Ecosystem collaborations, real-time infrastructures, adoption of emerging technologies and growth of digital assets is expected to further accelerate in 2022.

“We are working with a number of clients on strategic initiatives around AI and machine learning and distributed ledger technology and where institutions seek better understanding of the value of such technologies and what they can offer. We are looking at specific use cases,” said Pillay. He added that banks want user interface to be simplified, to be more intuitive, have more agile and seamless operations along with the ability to monetise data for value added service to customers.

The adoption of cloud-based solutions, digital and open banking are going to be driving forces into next year for our clients, as much as for our own business,” added Becker.

Brown highlighted that there is huge focus among banks to ensure that they have strategic solutions to support the SWIFT changes, the real-time gross settlement (RTGS) clearings and any changes to real-time payment schemes, over the next 12 months.

Emerging developments in artificial intelligence, robotics, internet of things and quantum computing are likely to drive the change in the future. Banks need to customer-centric in everything they do, build a culture of innovation and cultivate strong partnerships to pivot and scale with speed. They need to be continually adaptive, collaborative and innovative. These profound changes require them to rethink their technology infrastructure more holistically today to plan for tomorrow.