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PAYMENTS MODERNISATION – STRATEGIC PRIORITIES FOR FINANCIAL INSTITUTIONS IN 2021

Dudley White, SVP, General Manager, Financial & Risk Management Solutions, Fiserv

 

As the steady march toward payments modernisation continues, financial institutions are responding, and a few are on the front foot.  Accelerated transformation, from cash to electronic payments and from physical to digital, has forced a reset of priorities. Add to this rapid technological advancement and changing market and regulatory dynamics, and the stage for a new way of operating is set. Here are four key payments modernisation trends to watch in 2021 and beyond.

 

  1. Accelerated Pace of Change

The COVID-19 pandemic, inroads by large technology companies into payments and emerging new regulations have accelerated the pace of payments transformation. What once would have been complex multi-year projects are now compressed into shorter agile transformation programs, implemented in months and not years. The shift to instant, real-time payments, the need to respond to compliance changes such as ISO 20022 and PSD2 and embrace new revenue-generating overlay services has further accelerated this pace of change.

 

  1. Data Insights and Liquidity

As we move towards faster domestic and cross-border payments, the need for real-time liquidity monitoring is increasing. For financial institutions, there is increasing regulatory pressure to effectively manage intraday liquidity risk. Real-time cash and liquidity services will provide greater visibility, access and control to corporate treasurers and improve intraday liquidity management. Financial institutions, as custodians to a large pool of customer data, have a natural advantage here, and intuitive, dynamic user dashboards can help them make the most of this data with extensive data modelling and machine learning capabilities.

Understanding the data surrounding a payment and the potential monetisation of not only that payment, but also the data that supports the payment, is becoming quite critical. These data insights are also driving investment in predictive fraud tools for financial institutions. The effective use of data, pattern recognition, artificial intelligence and machine learning applied at the time of processing the transaction is critical to detecting and preventing fraud.

Financial institutions and their corporate treasury clients are increasingly interested in benefits of the rich data that comes with ISO 20022 and 24/7 instant payments. The challenge – and therefore the opportunity – will be how to use data to make informed decisions, improve operational efficiencies, uncover new revenue opportunities and gain an enterprise view of what’s happening in their institutions.

 

  1. Flexibility is Key to Manage Growth and Operational Costs

There is a growing concern from financial institutions over the cost and oversight of maintaining multiple legacy systems, alongside the growing regulatory and compliance costs of doing so. This is not surprising given the cost of technology upgrades, managing the cost and complexity of new changes and regulations, and reputational damage that can be caused by any disruption to services or systems.

As payments transformation becomes a priority, financial institutions are combining multiple payment types onto a single platform to help reduce costs and simplify systems, processing and operational oversight while ensuring a frictionless payment experience for their customers.

Financial institutions will also turn to tech enablement in the cloud. It’s the key to being ready for the next decade of evolution in financial services. A cloud-based strategy offers business continuity and compliance advantages, with adequate measures in place to address risk and data security. 

Large financial institutions have mature information technology stacks and can host or manage licensed payments solutions on-premise or on a public cloud. Small to medium-sized financial institutions can offer the same services to their client base by adopting a flexible approach, through a payment as a service solution. While reducing costs and complexity, they can access a compliant solution built on a highly resilient, scalable infrastructure.

 

  1. Strategic Choices

As the lines blur between merchant and non-card, commercial and consumer, instant and other payment types, going for a big bang payments modernisation approach can be daunting;  therefore a viable alternative is starting with foundational components, such as investing in a scalable and flexible payments platform.

Getting those foundational steps right and understanding the roadmap for incremental functionality will enable institutions to measure the lift associated with each payment type and each clearing, whilst also staying abreast of the changing ecosystem. They can then incorporate new concepts like data analytics for operational efficiency.

Financial institutions recognise the challenge from non-traditional technology players. They are evaluating their payments technology, underlying infrastructure and operational management to plan successful strategies for their organisations and be ready for the future.

 

Finance

HIVERA BRINGS REGULATORY RISK SCORING TO FINANCIAL SERVICES

Financial services Chief Risk Officers and Heads of Compliance can now, for the first time ever, visualise and mitigate the regulatory risk in their entire unstructured data estate, thanks to hivera, a new regtech platform for financial services firms, designed to bring regulatory risk under control.

A new platform from data solutions provider, Automated-Intelligence, hivera enables clients to observe their unstructured data, assigning a tailored regulatory risk score based on the financial services firm’s risk appetite to that data, and automating the identification and remediation of threats to help mitigate associated risks.

Demonstrate Control
An estimated 80 percent of all data is unstructured. Until now, due to the challenges associated with discovering, analysing and managing unstructured data, this has created a significant challenge for compliance professionals, who are under increasing pressure from regulators to demonstrate compliance against policies and regulatory standards over all of their data.

hivera solves this problem. It indexes text-extractable content, providing users with advanced search capability to categorise personal information and commercially-sensitive data through metadata, security, keyword, phrases, and regular expression pattern matching.

Meanwhile, through the hivera dashboard, firms are presented with a risk score which correlates to the regulations they are subject to. In-depth insights enable them to visualise and address key compliance and regulatory risks within their data, whether retention related, security-related or a matter of personal and sensitive data. Moreover, with its user-friendly reporting modules, compliance professionals can quickly and easily provide compliance updates within the organisation or to regulators.

Automate Regulatory Risk Mitigation

In addition to significantly reducing regulatory risk and minimising human error, the hivera platform also offers huge resource, time and cost savings through automation. This is achieved through the application of fully-audited polices to categorised data, which enables ongoing data compliance and remediation. Policies applied against categorised data can perform deletions or archiving according to organisational retention schedules.

“hivera is transforming how financial services firms view unstructured data,” comments Simon Cole, CEO at Automated Intelligence. “By providing greater visibility and control over their unstructured data estate, we’re improving data analysis, data privacy, data protection and risk mitigation capabilities of our clients.”

 

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Finance

FINANCIAL INCLUSION WITHIN DIGITAL PAYMENTS

NICK FISHER, GENERAL MANAGER, SALES AND MARKETING UK, JCB INTERNATIONAL (EUROPE) LTD.

 

The shift towards an economy that removes physical cash has long been on the horizon in many regions. Sweden is an example of a country rapidly heading this way. Two years ago, just 1% of Sweden’s GDP was circulating in cash compared to 11% in the Eurozone, and research by the Swedish Retail and Wholesale Council showed half of the nation’s retailers saying that they probably would not accept cash after 2025.

 

In 2019 in the UK, cash payments decreased by 15%, although physical money was still the second most frequently used method comprising of 23% of all payments. The Financial Inclusion Commission in the UK states that there are over 1 million people that do not have a bank account, and the World Bank estimates that there are some 1.7 billion adults globally that still lack access to a bank account.

 

The finance industry has collaborated over the years to develop various credit products for affluent communities. These customers are considered a lower risk. However, institutions should continue to prioritise the advancement of services to serve an audience which remains – ‘unbanked’. Research by EY showed that financial inclusion could improve GDP by up to 14% in more rural, developing economies like India, and by 30% in frontier markets like Kenya. While the positive reasons for fully embracing digital payments and eliminating physical cash are plentiful, including lower payment processing costs for the retailer and customer convenience, physical cash provides the ‘unbanked’ with the ability to function day-to-day with a legal tender.

 

To establish digital solutions for the unbanked, payment players should adopt an inclusive mindset. The race towards a digital cash society will naturally get closer to the finish line with the passing of each generation, but governments could lend a hand to the unbanked by encouraging financial institutions to sponsor organisations that provide legal quasi digital cash products. In my opinion, the financial industry has an important part to play in developing low cost solutions to support the unbanked with authentication tools – such as biometrics and risk tools to manage real-time credit risk reporting with anywhere accessibility.

 

In both developing and developed countries, QR codes can play a superhero role as they offer simple, low-cost ways of processing payments on basic mobile phones. In June last year, we collaborated with FIS to enable cross-border QR codes in the APAC region. The ‘Worldpay from FIS 2020 Global Payments Report’ found that digital wallets, at the time, accounted for 58 % of regional ecommerce purchases and were expected to reach almost 70 % percent by 2023.

 

In developed regions, we are issued with a formal identification when we are born, no matter our circumstances, and this comes in the form of a birth certificate or, later in life, a passport. This does not always happen in developing countries as resources are often limited. Yet, advances in biometric technologies, such as fingerprint or palm vein may offer a solution to the requirement for proof of identity to open a bank account or to create a mobile wallet. Biometric organisations, payment leaders and innovators, such as Google Pay and Apple Pay, have partnered to make this a reality, despite the initial cost implications for development.

 

In summary, understanding the reasons for why some prefer physical cash, and others prefer digital cash, provides holistic learnings to achieve a society that ultimately uses digital cash only. Empathy is paramount for building customer-centric commerce. For me, at least, a world without physical cash cannot be considered responsible, or fair, until everyone can be accommodated.

 

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