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BANKING AND PAYMENT CERTIFICATION BODIES: WHAT, WHY AND HOW?

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By Reza Rahmani Fard, Head of Product Management, Fime

 

With the global digital payments market set to be worth some $8,059.3 billion by 2023, at a CAGR of 20%, payments are undergoing a rapid period of growth and transformation. New payment methods such as real-time payments, initiatives such as open banking, and technologies like biometrics, all contribute to a constantly evolving ecosystem. The potential for innovation and optimization is clear. But if this value is to be realized, players must first ensure the security and interoperability of new products and technologies. A robust certification process is one way to achieve this.

 

What is a certification body?

Certification bodies are independent organizations which work to ensure the security, reliability, and ultimate functionality of a product. With participation from actors across the ecosystem – in a payments context, banks, regulators, Fintechs, vendors and others – the main goal is to agree a technological standard, then ensure compliance with it. Third-party testing laboratories complete the process by testing and confirming a product or service’s compliance.

Through this standardization, it is then possible to ensure trust, interoperability and the security of products, even across vastly different instruments and form-factors.

 

Reza Rahmani Fard

Why? Payments pain points: What’s certification got to do with it?  

When managed effectively, certification bodies can coordinate industry-wide solutions to otherwise significant challenges, easing pain points and ultimately driving innovation. There are several key issues in today’s payments market which a dedicated certification body could ease.

The rapid evolution of the digital payments market is a case in point. Digital transactions soared to in excess of 700 billion by the end of 2019, up from just over 400 billion in 2015. The downside, however, is the resulting rush to keep up with consumer demand, which can lead to poor implementations. Certification has a clear role to play here, establishing standards which ensure control and confidence.

Other examples of ecosystem-wide challenges where certification has particular relevance include market fragmentation, market commoditization, and market exclusivity. But to understand how certification can support and advance specific projects, let’s look at two unique areas of the ecosystem in more depth: open banking and regional payments initiatives.

 

Certification for open banking

Few areas of the payments landscape demonstrate the importance of a standardized, certified approach better than open banking. Despite the almost unlimited potential, many stakeholders are still struggling to keep to open banking rollout schedules more than two years after PSD2 came into effect. The lack of a standardized approach is acknowledged as a key factor in this, and one the ecosystem is trying to right through initiatives such as STET and The Berlin Group, which are working to establish open access APIs.

If standardization is essential, certification also has an important role to play:

-Enforcing standardization, ensuring implementations’ interoperability and security, while bringing clarity and stability to a complex environment.

-Ensuring harmonization of the secure data exchanges between banks, Fintechs, and schemes would answer the challenging question of industry competition by creating a level playing field for new entrants.

-Supporting banks and Fintechs with their regulatory and legal compliance burden, as well as helping to manage increasingly complex governance issues.

-Fostering innovation. As new payment channels and new authentication methods such as biometrics and tokenization bring new levels of security to payments, certification can streamline and share the innovation through the common standards it defines. This, in turn, drives down the development cost, enabling new players to focus on innovative implementation, rather than commonly-defined baselines.

 

Benefits for regional initiatives

A growing number of domestic schemes and regional payments initiatives are working to establish a tailored, unified solution for their respective geographical areas. The aim is for these single solutions to enable multiple use-cases; leverage centralized fraud-scoring and prevention to improve security; and, of course, align with the required payment regulations.

A dedicated certification framework, once again, has a lot to offer:

-Cutting through interoperability issues and friction between domestic and proprietary payments.

-Ensuring brand consistency, and the necessary infrastructural alignment of acquirers and issuers with the payment system.

-Driving cost-efficiencies by establishing control over interchange fees and sharing card and terminal payment application costs. Certification can help regional payment initiatives keep costs low.

-Streamlining, simplifying and accelerating the rollout of each independent card and payment terminal application. New, compliant products can hit the market as fast as possible.

 

How to start?

With the benefits of setting up a certification body so clear, the question is where to start. Collaborating with an expert partner who can simplify the process from start to finish and help stakeholders avoid the mistakes of the past is one option.

Fime’s end-to-end consultancy services can guide organizations through each step from initially defining the specification through to operating the certification board. Its clear strategic advice covers all aspects of the process, including the associated business, administrative and operational concerns.

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Banking

Bringing Automation to Banking

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Ron Benegbi, Founder & CEO, Uplinq Financial Technologies

 

Automation is everywhere you look these days; from supermarkets to warehouses to automobiles. This prominent trend shows no sign of abating anytime soon. However, some sectors remain behind others when it comes to adopting automated technologies. Banking is one such segment, but there’s now evidence to suggest that this could be about to change.

 

What do we mean by automation?

There are a lot of ways to define automation, but broadly the term applies to any technological application where human input is minimized through design. Over the years, automation has evolved from a basic level, which took simple tasks and automated them, all the way to advanced automation powered by Artificial Intelligence (AI). In general, automated solutions work to increase productivity and efficiency within businesses and often result in a reduction in costs associated with human capital.

 

Ron Benegbi

Why has the banking sector been slow to adopt automation?

The banking sector has been built on a number of long-standing, tried and tested processes and protocols, which have been continually fortified and refined over time. This is one explanation as to why the sector has been so slow in adopting new, automated methods within its operations. Additionally, many major financial institutions have spent decades building their own internal legacy computer systems, which are often incompatible with modern automated solutions.

When combined, these two issues have caused a significant lag in the banking sector with regards to the adoption of automated technologies. This lag has created a market opportunity that a number of fintech providers have been able to exploit in recent years. Offering a more responsive and tech-first user experience, many fintech providers are leveraging the power of automation to better meet the banking needs of their customers. However, there is still time for the banking sector to start bridging this gap.

 

Does automation have a place in the banking sector?

The opportunity for automation to play a role within banking can be transformational.

To achieve this, it’s important that legacy organizations begin to learn from their more tech-savvy, smaller counterparts. If used effectively, automated financial solutions can greatly improve the experience of banking customers, both on a personal and business level. So, what exactly does this change look like, and how far away are we from seeing it become a reality?

A good place to start is the small business credit lending process, where not much has changed since the 1980’s. Over that period, the world has greatly transformed, but the methods used to assess credit worthiness have remained somewhat static. For the most part, banks assess data related to businesses’ accounting and banking records and from credit scores. For many businesses, especially the newer and less established ones, this antiquated approach is having a detrimental effect. In fact, it’s often cited as a contributor to the huge funding gap between SMBs and their larger counterparts.

 

How can automation benefit the banking sector?

By adopting more automated technologies, lenders in the banking sector can begin to assess more comprehensive information when making credit decisions. Notably, new methods exist, which enable additional data sets to be evaluated, in order to build a more accurate financial depiction of a business’ overall position. This data can come from sources like external market attributes, economic indicators, demographic data and exogenous shocks.

By leveraging additional data sets through new methods of financial automation, banks are now in a position to respond more effectively to small businesses, including those in emerging and evolving markets where there is a lack of conventional sources of information.

With more ways to access funding, facilitated by alternative data and automated processes, small business owners can improve their operational efficiencies and accelerate their growth efforts. In doing so, legacy oriented financial institutions can now better equip themselves in protecting against new, nimbler tech-based disruptors.

 

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Banking

MYTH BUSTING THE ROLE OF OPEN SOURCE IN FINANCIAL SERVICES

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Nigel Abbott, Regional Director North EMEA, GitHub

 

There is no denying the financial services (FS) industry is under pressure to innovate. Not only have customer and consumer expectations for digital experiences surged in recent years, but the emergence of nimble and ambitious fintechs have disrupted the market. Yet, despite striving for innovation being table stakes across the industry, FS organisations inevitably face familiar hurdles that slow their progress, including concerns surrounding security, compliance, and the ability to act fast.

Open source is increasingly seen as a route to drive innovation and create new value. The FS sector’s utilisation of open source and the transformative role it can play is accelerating – on paper, at least. According to the recent Fintech Open Source Foundation’s (FINOS) 2021 State of Open Source in Financial Services survey, as many as 80 percent of FS leaders said that innovation, reduced time-to-market and total cost of ownership are factors for FS businesses to consume open source.

Nigel Abbott, Regional Director North EMEA -GitHub

But the reality is these positive adoption figures don’t tell the whole story. The survey also revealed that 75 percent of FS technology leaders said their businesses are either not “open source first”, or that they did not know if they were. Tellingly, less than one in ten (eight per cent) said that their business has put in place policies to encourage open source contribution.

The statistics point towards disparity between uptake of open source and the ability to use it to its full potential. But why?

For me, it comes down to some common myths about the role of open source that need demystifying:

 

Myth #1: There are limits to the innovation that open source can deliver

This could not be further from the truth. All enterprises, including FS companies, rely on open source software to build the best software for their customers, improve infrastructure, and unlock the potential of their engineering teams. Nationwide, for example, has completely redesigned its DevOps processes to respond faster to market changes and keep pace with customer expectations to remain relevant. The impact is transformative when they actively embrace it and participate fully in the open source community, creating a win-win situation for end-users. 

 

Myth #2: Data can be shared without consent 

Quite the opposite. Open source does not require FS businesses to share all their secrets and give away their competitive advantage. Instead, taking an “innersource” approach allows financial institutions to take the skills of developers who are accustomed to using open source tools and brings these inside the company firewall, providing a secure internal platform for working collaboratively on projects.

 

Myth #3: Open source is not secure

The most common misconception is that higher security risks are associated with code being openly available to anyone who uses it. But the open concept is, in fact, one of the biggest security strengths of open source. This is because of the collaborative nature of how code is built. The open source community has a shared responsibility for developing and maintaining secure code, and there is a vast global pool of developers identifying and fixing security issues. Supported by the right tools and processes, open source makes it easier for developers to code securely throughout the entire software development lifecycle, reducing the amount of time and financial investment in delivering secure products. Research from Red Hat found that security is regarded as a top benefit for enterprises using open source.

 

Myth #4: The open source community lacks finance sector contributors

This is untrue. Financial enterprises of all shapes and sizes are prominent participants in the open-source community and lead by example, sharing meaningful code contributions. Challenger banks and institutions such as Goldman Sachs contribute to open source initiatives via FINOS. By opening their code and ideas, FS companies can share lessons and support the whole community – helping them deliver better services and more value to their customers. And crucially, they are advancing a community that they can systematically tap into and benefit from.

Open source is already delivering innovation in the FS sector. But the bottom line is that there is so much extra value it can bring. Unlocking the full potential of open source to effect change does not just require buying DevOps tools. Open source requires organisation-wide understanding and support, a culture of collaboration and a progressive DevOps and governance process to thrive. Only then can it deliver its true value and accelerate innovation.

 

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