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ARTIFICIAL INTELLIGENCE CAN SOLVE THE LATE PAYMENT PROBLEM – BUT ONLY IF GOVERNMENT AND BUSINESS WORK TOGETHER

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Paul Christensen is the CEO of Previse, the AI fintech that gets suppliers paid instantly.

 

If 2020 was the year the world moved from paying lip service to digitisation to relying on it, then 2021 is the year we leverage technology to implement strategic and sustainable change. This starts at the very top.

 

The UK Government recently confirmed £800 million in funding for its ‘blue-skies’ Advanced Research Projects Agency (Arpa) which will fund research into cutting edge Artificial Intelligence (AI) and data. This research has immense potential to solve long-standing issues in how we store, process and harness data across government and industry.

 

The promise of technology itself doesn’t need much advocacy: most industries now accept that they could do things better by introducing digital solutions. The key for government will be to carefully identify where and how new technology can be applied in the most effective way. To do this, it must ensure that research conducted by the likes of Arpa is carried out in step with the industry players, to translate research into commercial technologies.

 

Nowhere is this need for technological intervention clearer than in the world of B2B payments, which are positively archaic in comparison with B2C. Small businesses have suffered greatly for many years as a result of this and their lot has been made worse by the pandemic. In January this year, it was estimated that UK SMEs are chasing £50 billion in late payments.[1]

 

Furlough, CBILS and SEISS grants have been crucial lifelines but have left out many and racked up debt which will have fiscal consequences for future generations. One way for the UK Government to protect SMEs in the long term is by harnessing innovative technology, to get all suppliers – no matter how small – paid quickly. In order for this to work, government needs to establish an open dialogue with tech-forward businesses to determine how it can best leverage technology to help.

 

AI enables SME suppliers to be paid instantly, while large corporates pay on their normal terms. Small businesses unlock much-needed liquidity while large corporates strengthen their supply chains at minimal cost. A true win-win for business that doesn’t cost the taxpayer a penny.

 

By leveraging cutting-edge technology and working in line with business to develop inclusive solutions, government can actually bring about a cultural shift in B2B commerce, where instantaneous payment matches that of the B2C world. After all, a customer couldn’t go into Starbucks and order a coffee, promising to pay in 30 days. Technology, in consultation with industry, is the key to unlocking a new era of equitable B2B payments.

 

The UK Government needs to ensure that the research emerging from the likes of Arpa looks to address the very real pain points that businesses suffer. Practically speaking, this can be done by Arpa working in tandem with government bodies best positioned to promote the technology – such as the Department for Business, Energy & Industrial Strategy – and ultimately, the businesses which seek to benefit from it.

 

The Government plainly understands the role of data in the UK’s future but must ensure a co-ordinated approach to create innovative solutions that truly benefit Britons. Harnessing AI to tackle the slow payment problem would allow the UK Government to stimulate an inclusive recovery without further increasing the taxpayer burden. Giving every small business the option of day one payment is just one instance of how government could work with innovative businesses to leverage AI and data to implement genuine change.

 

Arpa is often dubbed the ‘blue skies’ research agency. Aiming high in pursuit of change should certainly be applauded. However, government inter-departmental coordination and collaboration with industry remain crucial for the agency to be effective.

 

By engaging with industry, government and Arpa can encourage businesses to embrace technology, to update antiquated payment practices and establish fair payment terms. Creating cutting-edge technology is commendable, but using it to implement change requires a coordinated effort. Let’s hope that while Arpa reaches for the sky, it keeps at least one foot on solid ground.

 

 

[1] According to Tide Bank

 

Banking

Cryptoassets and the European Central Bank’s new “PISA” Framework

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By

Alpay Soytürk, Chief Regulatory Officer Spectrum Markets

 

The European Central Bank has published a new oversight framework for electronic payment instruments, schemes and arrangements: “PISA”. In doing so it is further expanding its supervisory portfolio and entering into an area of significant public interest as the framework includes crypto-assets.

Crypto payments

The PISA framework will cover crypto-asset-related services but only to the extent they are relevant to the task of promoting the smooth operation of payment systems, which is as central an element of the ECB’s mandate as the definition and implementation of monetary policy, foreign exchange operations or the management of the euro area’s foreign currency reserves.

As an example of the scope of crypto-payments subject to the PISA framework, the ECB has highlighted the acceptance of crypto-assets by merchants within a card payment scheme and the option to send, receive or pay with crypto-assets via an electronic wallet. There seems to be a clear focus on payment tokens that does not include utility tokens, security tokens, Initial Coin Offerings or Security Token Offerings.

 

Out of scope

PISA excludes services where the transfer of value has only an investment focus. It also excludes services for which the transfer of value is executed solely in banknotes and coins, paper cheques, paper-based bills of exchange, promissory notes or similar. Paper-based vouchers or cash card issuance are also not in scope. The latter refers to cards that are issued for the purpose of depositing funds on it at the disposal of the receiver of a payment.

In other words, PISA focuses on all mechanisms that are based on electronic payment instruments with a general purpose, i.e., whose value transfer function is not limited to a single type of payment recipient or specific use, including instant payments and payment mechanisms in the B2B-sector, plus the usage of electronic payment instruments to place or withdraw cash.

 

Regulatory context

The ECB defines electronic payment instruments as (sets of) personalised devices, software or procedures agreed between the end user and the payment service provider to request the execution of an electronic transfer. In practice, this covers payment cards, credit transfers, direct debits, e-money transfers and digital payment tokens.

Consequently, there are overlaps with the PSD2[1] rather than with the MiCA[2] or the DLT Pilot Regime[3] proposals. As such, the ECB is expanding the scope of definitions to take into consideration the technological progress of recent years.

For the ECB, all representations of value backed by claims or assets denominated or redeemable in euros are in scope as well as other digital assets that are accepted under the rules of a scheme for payment purposes or to discharge payment obligations in euros.

 

Oversight and enforcement

The ECB maintains a Crypto-Assets Task Force, and it was this body’s analysis that led to the conviction that there are potentially material financial stability risks, and risks to the safety and efficiency of the payment system as a whole, should payments via stablecoins remain unregulated.

Following a 2020 public consultation, this finally led to the establishment of the PISA framework. However the ECB lacks the infrastructure to perform all the relevant surveillance and enforcement tasks to ensure the very highest levels of governance.

Consequently, for oversight purposes, i.e. the collection and assessment of information and implementation measures, the ECB assigns primary oversight responsibility to the national central banks within the Eurosystem.

The ECB has explained that, in this assignment, it emphasises proximity to the entity subject to oversight (e.g., the country of incorporation, national laws attributing specific oversight responsibilities to central banks concerned, subject to any Treaty-based requirements).

“Schemes” and “Arrangements”

PISA aims at the governance bodies of so-called “schemes” and “arrangements”, ensuring they behave in compliance with the ECB’s oversight expectations.

A scheme is defined as “a set of formal, standardised and common rules enabling the transfer of value between end users by means of electronic payment instruments”, managed by a governance body – while in practice, the governance body and the payment services provider are identical. Examples of schemes are card payment schemes, e-money schemes, digital payment token schemes, credit transfer schemes and direct debit schemes.

The ECB defines an “arrangement” as “a set of operational functionalities which support the end users of multiple payment service providers in the use of electronic payment instruments”. An example of an arrangement is an electronic wallet. The definitions, which are cryptic in the most literal sense, are designed to cover the entirety of the relevant area which would be difficult with classic categorisations where a service is provided organisationally and physically decentralised.

Looking to 2022

PISA was approved by the ECB’s Governing Council on 15 November 2021 and becomes applicable as of 15 November 2022 for schemes that are already subject to oversight by a national central bank within the Eurosystem. New schemes and arrangements have to abide by the PISA rules within one year after being informed that they fall within its scope.

 

[1] Directive (EU) 2015/2366, the “Payment Services Directive (PSD2)”
[2] Regulation on “Markets in Crypto-assets”
[3] Regulation on a “pilot regime for market infrastructures based on distributed ledger technology (DLT pilot regime”)

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Banking

Cloud technology in banking: Why adoption is on the rise

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Alpesh Tailor, Executive Director at digital transformation specialist GFT

 

The banking sector has never shied away from innovation, whether it is new products to improve customer savings habits or new ways of interacting with people and business, but embracing new technologies such as cloud has, until recently, been relatively slow. However, leading global financial institutions such as Goldman Sachs and Deutsche Bank have accelerated their adoption of cloud, which can provide insights for efficient technology transformation across the sector.

We conducted research to measure 21 medium-size and large banks’ sentiment and operations regarding cloud technology. Examining the relationship between cloud technology and banking professionals, our research provides an insight into the overall finance sector’s perception of cloud technology and how its application can improve banking procedures and efficiency.

 

Scale-up abilities

A significant trend showed that the way people use their finances and banking systems has changed, particularly when it comes to payments and transfers. Our research revealed that 86% of bankers have adopted cloud services to harness its virtually unlimited scalability, citing a definitive change in transaction behaviour as the main reason for moving to the cloud.

In the world of retail banking, buy-now-pay-later, open banking, and contactless payment systems have revolutionised the way people use their bank, making financial management easier and more efficient. However, despite these evolutions, high street banks are playing catch-up to the challenger banks who possess fewer legacy processes and, therefore, an easier migration to new technologies, such as the full utilisation of cloud and artificial intelligence.

The cloud provides a dependable, scalable, and flexible data system that allows traditional banks to modernise quickly and stay abreast of the innovations that ‘born-in-the-cloud’ challenger banks are bringing to the market. An increasingly popular way of doing this is by adopting a hybrid and multicloud approach.

Most organisations are considering diversifying their cloud technology, with 76% of bankers now agreeing with the importance of implementing multicloud systems in order to benefit from resilience and security improvements made by the main cloud providers. These cloud ‘hyperscalers’ also provide regular updates and continue to release exclusive new services and platforms as they continue to innovate.

 

Optimising costs

Our research indicates that cost optimisation is a primary reason that banks are looking toward the cloud for their future storage needs, with 81% of bankers confirming they have adopted cloud technology to save costs.

Installing and maintaining on-premise IT systems is lengthy and costly for financial institutions. When using the cloud, however, purchasing and installing hardware is no longer required as the cloud service provider hosts all the required infrastructure. The management of the hardware is included within this, reducing the overall cost of IT support further.

 

 Organisational inertia

Technological innovations are usually heralded for their ability to streamline operations, making them quicker and more secure. Our research illustrates that 62% of bankers believe organisational culture and inertia to be a key challenge within the sector. Besides being flexible for scalability and cost, adopting cloud technology can bolster organisational efficiency, since banks can spend fewer resources managing the relationship between trading volumes and payment infrastructure. Bankers acknowledge this opportunity, with 95% of organisations understanding that cloud technology can reduce time-to-market.

 

Overcoming misconceptions with cloud technology

Misconceptions usually exist around any emerging technology and our research found that this theme continues with cloud technology.

43% of the bankers we spoke to admitted that security concerns have impeded full cloud migration – a concern that has frequently been confirmed when speaking to financial services institutions. However, cloud providers invest heavily in the security of their cloud infrastructure which, as a result, makes it almost always safer than its on-premise, client-owned counterpart.

One aspect of adopting the cloud that continues to cause concern, is that which is commonly termed the ‘digital skills gap’. More than half of banks claim a lack of cloud-savvy employees internally has slowed down adoption. At GFT, we understand that this is a major issue for the adoption of cloud technology in all sectors, including banking, and have committed to training and encouraging young people to learn the required skills and enter the sector. We recently launched our Manchester Innovation Hub – a dedicated location to support the upskilling and growth of tech roles in the north.

Going forwards, cloud technology is the primary option for banks seeking to evolve and scale their business, whilst minimising risk, time and cost. Bankers recognise these benefits and the overall findings of our research suggest they will continue to grow their investment in cloud technology. Whilst evolving traditional legacy systems is very challenging, cloud technology continues to advance and we believe that over time it will become a powerful mainstay within the financial services industry.

 

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