SIBOS 2021: Key trends and themes
From innovative payments methods to new standards for interoperability, global financial leaders explored how banks are disrupting themselves and fast evolving at Sibos 2021. Here Westpac IQ talks to the key trends and themes to come out of the conference.
By Nicholas Neveling
The global financial services industry has accelerated its digital transformation through COVID-19, with the pandemic underscoring how essential technology has become for the sector’s long-term sustainability.
This was the prevailing consensus at this year’s Sibos 2021 conference, the long-running forum organised by global financial transactions network SWIFT, which has become an influential platform for setting the industry agenda and identifying emerging trends shaping the future of financial services.
In his opening conference remarks SWIFT Chief Executive Javier Pérez-Tasso addressed the delegates, saying: “It has impressed me how the industry as a whole has not only maintained business as usual, but has also built great momentum in its digital transformation.
“The industry has been on a massive digital journey, and with a much bigger sense of purpose and responsibility, because a lot of this innovation is about the efficiency and transparency of financial services, and also reaching the unbanked, climate and sustainability, and diversity and inclusion.”
Commenting on the key themes that have emerged in 2021 Nish Dharmaratne, Global Head of Product at Westpac Institutional Bank agrees, noting that customers have come to rely on digital banking in increasing numbers, which means financial institutions have had to redouble their efforts to streamline back-end interoperability and standards, in order to further enhance the seamless front-end experience consumers now expect from financial services providers.
“The pandemic has transformed banking habits, especially in developed markets where corporate and retail customers were accustomed to over-the-counter physical banking,” she says.
“Through the pandemic those customers had no choice and had to access their banking needs digitally. This was especially noticeable in the over-55 demographic. As customers have taken up digital services and seen the benefits, comfort levels have climbed and encouraged customers to start using new payment technologies such as QR codes and smartphone digital wallets.”
Accelerating payments modernisation
Payments has been one of the areas most directly influenced by customer expectations of frictionless, digitally-enabled banking services.
McKinsey partner Marc Niederkorn detailed how instant payments saw growth of 40–50 per cent in 2020 with a 25–30 per cent increase in digital wallet transactions, a jump of 55–60 per cent in buy now pay later (BNPL) deals and a rise of 15–20 per cent in e-commerce transactions – albeit with wide regional variance. Cash transactions, by contrast, dropped by 16 per cent.
“These fundamental trends are here to stay and will influence payments growth in the coming years,” Niederkorn said, adding that new digitised payment methods could help to lift the contribution of payments to overall banking revenues from current levels of around 35–38 per cent to 40 per cent by 2025.
As payments have been digitised and new entrants have disrupted distribution structures, revenue streams and business models in the payments space have evolved and broadened.
One development has been the move of payments into adjacent, higher margin services, where payments platforms move beyond vanilla transaction processing to leverage their position in the transaction chain and match buyers with sellers and provide point-of-sale and purchase finance.
“One of the trends we have seen is that payments are moving from regular payments to fast payments, to easy payments, to invisible payments and now payments 4.X. These are payments as an experience, which are an embedded and invisible enabling function, which triggers a lot of optionality,” Jeroen Hölscher, Head of the Global Cards & Payments Practice at Capgemini, said in a Sibos panel discussion.
Service providers have responded to the convergence between payments and services by developing their own wallets. Singapore headquartered ride-hailing app Grab, for example, has developed a wallet that holds cash or customer card details allowing users to pay for rides seamlessly, but also shop with other businesses that accept GrabPay. This has enabled Grab to retain customers within its ecosystem.
“Payments have moved beyond shifting money from point A to point B and have become embedded into the customer’s lifestyle more readily, rather than something that just happens at checkout,” Westpac’s Dharmaratne explains.
“This has put user experience at the centre of payments, with financial institutions now playing a role in improving the experience for end consumers and corporates across the entire wholesale and retail value chain.”
Navigating disruption
But it is not only in the payments space that the rate of digital disruption in financial services in being felt in the post-pandemic market, and much conversation at Sibos 2021 focused on how industry incumbents were reappraising their business models and adapting to new market drivers.
At the conference, Di Challenor, Managing Director for Global Transaction Services at Westpac Institutional Bank, outlined how Westpac had adopted a banking-as-a-service model to give the bank optionality and flexibility against this fluid backdrop of digitisation.
“The fundamentals of banking are changing, in particular the distribution of financial services,” Challenor told conferences attendees. “Today in Australia 60 per cent of Australians looking for mortgages no longer go to their bank. Customers wanting short-term credit no longer default to pulling out their credit cards. They look to ‘buy now pay later’ players … this significant shift in customer behaviour requires banks to really rethink how to reposition in this new world.”
Recognising these significant industry shifts, Westpac began exploring technologies available globally to find a leading player with a cloud-native core banking ledger and the ability to develop application programming interfaces, also known as APIs (protocols that enable the integration of application software and services.
“Westpac becomes the curator. Selecting and offering excellent banking experiences for consumers across a whole range of financial services,” Challenor explained.
This model reduces time to market and costs for banks, allowing them to remain relevant, and provides a framework for adapting to changes in distribution and bank business models.
Clearing bottlenecks
With banking-as-a-service platforms formulated to dovetail with customers who are increasingly comfortable using multiple payment platforms, and merchants recognising the value in offering a broad suite of payment options, enhancing interoperability between payments providers has become fundamental.
The implementation of ISO 20022 standards (which underpin a new transaction management platform rolled out by SWIFT) across the payments sector is expected to play a central role in tackling friction in clearing systems. The world’s largest banks have backed the ISO 20022 benchmark, which is expected to be adopted by 90 per cent of the world’s public and private high-value networks by 2025.
Nasir Ahmed, ISO 20022 Programme Lead at SWIFT, said ISO 20022 was “characterised by a rich, structured and flexible data model”. This would provide financial institutions with more detailed information, encouraging institutions to introduce new APIs and new technology to process transactions, including AI and machine learning.
In a separate session, however, Visa Europe CEO Charlotte Hogg said that although ISO 20022 represented progress, it wasn’t a cure-all.
“You shouldn’t assume you have solved interoperability just because you have one standard,” Hogg said, adding that reliance on a single technical solution could create single points of failure. Hogg also argued that cross-border regulatory harmonisation was as important as global industry standards for enabling frictionless cross-border payments.
“In Australia, the journey towards ISO 20022 has already begun. The upliftment and data enrichment is expected to reduce friction, deliver faster processing and lower the cost for banks,” Westpac’s Dharmaratne comments.
Stepping back from the global cross-border space, there have also been significant moves in regional and domestic markets to streamline and/or consolidate payment clearing platforms and protocols.
In Australia, for example, the PayTo Service, which will allow customers to authorise third parties to initiate payments directly from their bank accounts, is set to go live next year. This will be facilitated by the New Payments Platform, which allows customers to modify and manage payment authorisations to third parties directly and digitally.
Is crypto the key to efficiency?
Crypto and virtual currencies will also influence how financial institutions work towards removing payment pain points.
“We see a whole lot of crypto projects coming across in all forms and shapes … this includes the use of stablecoins or central-bank-issued coins to do cross-border payments. Bitcoin has already been around for a while, and this is accelerating the growth of cross-border payments,” Michael Gorriz, Group Chief Information Officer at Standard Chartered Bank said.
Financial institutions are now exploring how they can go about interfacing existing infrastructure with the blockchain and distributed ledger technologies that are used to power crypto assets.
Integration with blockchains has the potential to drive efficiencies, cost-savings, automation and transparency, but doing so does still pose complex security and integration challenges for institutions trying to connect their backend systems in with blockchain.
Private key security and the integration of multiple blockchains remain limiting factors, especially for multinational institutions dealing with a broad universe of counterparties across a range of fields. Financial institutions will have to manage integration and security across derivatives, trade finance, equities and myriad other financial instruments and transactions
Finance with a purpose
Overlaying all discussions at Sibos 2021 about transformative technology and digital disruption was the theme of sustainability and how financial institutions had a role to play in wider society.
In a keynote interview HSBC Group Chief Executive Noel Quinn said COVID-19 had been a wakeup call illustrating the vulnerability of the global economy to a natural event. With the risk of a natural climate event all too real, sustainability had to take a more prominent role going forward than in the past.
Dharmaratne reflects that “At Westpac there are multiple initiatives in play to support the economy as we transition towards an accelerated period of ESG-based solutions as part the responsible financing initiatives, which resonated well with the themes discussed during Sibos.”
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