Daniel Houseman, partner of KPMG, contributed the following as part of the PIMNTS 2018 e-book.
Innovations payments in 2018 pushed the playing field, with newcomers, customer ups and cross-border contacts, enabling all payments in real-time almost anywhere and almost anytime.
The year 2018 saw a large number of new suppliers and innovative services launched in the market, and the continued growth of some professional and creative players.
This year has shown that a "one size fits all" approach no longer works for banks – or their clients. Although banks have traditionally controlled infrastructure, hardware, and operating systems for financial services, newcomers may have the graceful infrastructure and innovative proposals to personalize the needs of individual consumers. Newcomers may not have the need for any in-house infrastructure, rather than utilizing cloud infrastructure / third-party service providers and partners to deliver new products and services on a large scale.
This has inspired many unprotected companies – a lack of insight into customer behavior data to deliver targeted offers, as well as a lack of innovation to create new customer experiences, has opened the way for newcomers. To better compete with new entrants into the industry, traditional banks or payment providers need to take immediate advantage of new technology, offer payment methods that provide the best customer experience, enrich existing data sets, reduce friction, and facilitate smooth economic transactions.
Current giants such as Swift, Visa and MasterCard are focusing on the impact of growing customer expectations and technological innovations on their businesses, launching additional services such as digital identity, and looking to play a deeper role by controlling and owning payment infrastructure. On the other hand, players like Verrency hope to provide banks with new capabilities and solutions, without making costly changes to existing pay rods, devices or communications through an open-source white platform.
Current banks that understand and accept old infrastructure constraints and process constraints are increasingly looking to FINTech partnerships as an efficient capital-based way to quickly introduce new capabilities and expertise into the market. For example, BBVA $ 1B invested in FinTech M & A, a major shareholder in Atom Bank and SolarisBank.
The rise of the customer
The democratization of data through technological innovation and regulation has created ideal conditions for technology savvy and emerging companies in the future to demand a fully detailed digital experience in their day-to-day operations.
A wave of new banks such as Revolut has captured the attention of consumers worldwide, with only digital offerings that support the needs of global citizens across borders. There has also been a race to remove payments in retail, with free online shopping experiences in the 7/11 shop and on Alibaba.
With more transparency comes more freedom and choice for customers, many open banking systems around the world have strengthened this trend. For example, the PSD2 application across Europe opens financial statements for FinTech companies and developers in all sectors, which has revolutionized how these entities operate. By using account aggregation and payment start-up technology, both banks and FinTechs can now allow users to view their balances, make payments, and get personalized advice through the channel or application they choose, even if their actual accounts are held by another bank. This provides insight into financial products that fit the actual needs and behavior of customers, placing customers at the heart of the payments revolution.
SMEs in particular have a lot to gain from open banks. They tend to have complex financial arrangements and lack the tools to extract the full benefits of data generated by customers. In fact, KPMG spoke with 1,000 small and medium-sized companies in the UK as part of the Open to Open Banking report and found that small and medium-sized companies still trust the major emerging market banks with their financial statements. However, almost a year since the start of open banking in the UK, small and medium-sized businesses still need some convincing benefits and uses to bring them. Almost half say they will not share their data in open banking.
The innovation in international payments, previously considered to be highly efficient, expensive and mysterious for both sender and receiver, was an important step forward in 2018 – democratization of business-to-business payments, C2C and government space. There is clearly a huge demand for safe and cost-effective international payments in the market, with Transforts, the global C2C Money Transfer Service, and black reporting for the second consecutive year, valued at more than $ 1.
With 40 countries around the world now working to implement faster payment plans successfully, the next step is to enable cross-border payments – to spread innovation globally and accelerate access to financial services for all, from companies to small businesses to underserved populations . There is an increasing ambition to link local systems to deliver real-time cross-border payments. From paving the way for tourism spending to designing better remittance systems for foreign workers, RTP offers cross-border access and greater choice for consumers, businesses and governments on both sides.
The SWIFT gpi system was a major achievement in 2018, enabling rapid cross-border transaction settlement, with valuable data exchange and full tracking. For companies and governments, the ability to link goods and services to payments in real time and at reasonable prices anywhere and at any time promises a major shift in trade and reduced friction in supply chains. For example, in the not too distant future, SWIFT gpi could facilitate an Australian miner to raise an invoice and ask for a batch from a steel plant in China, and for settlement to take place within minutes.
We believe that each of these three models of cross-border payments will need to be evaluated on a set of criteria. These include network and acceptability, interoperability with payment networks, real-time processing capability, payment transfer mechanism, organization, cost of implementation, operation and inclusiveness.
Looking forward to 2019, these trends will continue as technology, innovation and regulation continue to accelerate competition. The absence of standardization between financial institutions and judicial bodies increases the cost and complexity for all in the ecosystem. In our view, increased competition and cooperation among financial institutions, the development of common standards in areas such as data models and message structures, increased cross-border communication and patterns of interaction would accelerate the democratization of payments.