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For any leader of an organization steeped in payments — banks, fintechs, and technology providers — it’s a time of great opportunity and great complexity.
Customer demand for instant payments, instant credit decisioning, and more-frictionless payments is increasing. Borders are coming down, at least in the realm of transactions, creating a need for solutions that enable the free movement of those payments. More and more players are crowding into the real-time-payments (RTP) space, complicating the choices and costs for those entities that process payments. And then there’s all the associated data and how to use them.
In this episode of the PaymentsJournal Podcast, three industry experts discuss what’s going on at the intersection of cloud computing and payments connectivity and where things seem to be headed:
- Nilesh Dusane, Head of Institutional Payments at Amazon Web Services (AWS)
- Matt Loos, Strategy Executive at the Society for Worldwide Interbank Financial Telecommunication (SWIFT)
- Steve Murphy, Director of the Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
What Customers Want From a Payments Experience
“We hear consistency across the board from all the clients around trying to improve that end-to-end customer experience,” Loos said. He pointed to the past decade or so and the rapid growth and increased competition in the payments space, which “requires you to invest in ways to do things more efficiently.”
He said all of SWIFT’s clients have some sort of cloud strategy, ranging from the short term to the long term, because of the inherent benefits:
“When you start combining these technologies, it really starts creating a different experience behind the scenes, which can create a much better and different experience up front,” Loos said.
SWIFT’s point of emphasis, Loos said, is on “creating an instant and frictionless world for cross-border transactions.”
“These technologies are going to be required to do that in various forms,” he added.
ISO 20022 as Table Stakes
ISO 20022, the International Organization for Standardization’s standard for electronic data interchange among financial institutions, is at the heart of SWIFT’s efforts to facilitate these payments that transcend borders and methods, Loos said, calling it “table stakes.”
“We will start that journey later this year [November],” he said. “I call it a journey because it will take many years for the industry to translate completely into an ISO 20022 format.”
The result, he said, will be more data but, more importantly, more structured data, which can be used to refine back-end processes and front-facing experiences for customers.
“Clients are ready,” he said.
Dusane said AWS sees two macro trends playing out now and into the future:
- The payments industry in general is moving toward the ISO 20022 standard, driven by a desire for “better data and more data to improve the overall customer experience.”
- All over the world, new RTP systems are popping up. The aim of AWS, he said, is to support the needs of those systems and create a faster time to market.
Artificial Intelligence, Machine Learning, and All Those Payments Data
Feedback across all customer segments, Dusane said, points to a desire to make the data associated with payments more useful. Accordingly, he said, AWS works with partners to create customer-facing solutions that bring together structured data (data that are organized and decipherable by machine-learning algorithms) and unstructured data (information that is not arranged according to a pre-set data model such as message strings and emails).
Machine learning, for banks, has been in use for decades, Loos said, particularly for things such as straight-through processing and dealing with repeat errors. The turn now, he said, is toward “anomaly detection,” which has applications in fraud detection and anti-money laundering, among other uses.
At SWIFT, he said, large volumes of data are generated by transactions. “It’s not our data,” he said. “It’s our clients’ data.” Securely leveraging that information, SWIFT has been developing models based on that historical data, with additions from its clients, to develop a more powerful base of knowledge.
“Securing it and making sure we do it in a meaningful way is critical,” Loos said.
In the credit sphere, the implications are enormous. The data that drive Know Your Customer (KYC) standards and identity verification make possible payments mechanisms such as Buy Now, Pay Later. “Let’s be honest,” Loos said. “This is just great technology companies coming up with an amazing algorithm that is probably more powerful than banks have had in their credit departments in maybe 20 years.”
Dusane said AWS approaches the steps as “individual processes within a payment transaction” — instant decisioning, KYC, additional verifications, whatever is needed for the payment to succeed. The goal, he said, is to analyze that vast data quickly, at scale, without creating a financial burden for the bank or payment company to run those models.
“Interoperability” Is the Word
Loos said that he expects the fragmentation in global payments — new methods, new players — to increase certainly in the short term but also probably in the longer term as well.
Add to that what the future of monetary systems is likely to be, and the challenge becomes getting all of these payments systems and all of these elements of the payments infrastructure — The Clearing House (TCH) in the United States, the European Banking Authority (EBA) — working in concert when consumers seek ways to use the method and currency (central bank digital currencies, stable coins, etc.) they most desire.
“At the global level, the way[s] a customer can make payments are going to be different,” Dusane said. “What that leads to is different payment networks getting created all over the world.”
Interoperability plays a big role in solving that puzzle, he said. Just as important: controlling costs for financial institutions. With a proliferation of payments networks, the costs of connecting can become so high that institutions will opt out, thus missing out on potential markets and customers. Cloud services can mitigate that, he said.
“That will enable these payment networks to service the needs they’re trying to cater to,” he said.