Let’s get digital: a blueprint for the payments model of the future

Digital services and devices are shaping our experiences – and expectations – more than ever before. What does this mean for payments and how should we as an industry evolve? In the Sibos 2022 session 'Let's get digital: A blueprint for the payment model of the future', a group of banking colleagues gathered and looked ahead to the future of digital payment services. The panel included John Hunter (Wells Fargo), Bruno Mellado (BNP Paribas), Philip Panaino (Standard Chartered), Renata Vilanova Lobo (J.P. Morgan) and the session was led by moderator Pinar Ozcan (University of Oxford).

The need for better payments

Philip (Standard Chartered) opened the debate and referred to the example of a $100 cross-border donation which ended up being $16 on the receiving side. This example said it all. Payments must be seamless and transparent. Banks must ensure that they ‘do good’ with their payments. Renata (J.P. Morgan) agreed completely. “We got used to poor service in cross-border payments, but the pandemic has forced us all to go digital. This has changed consumer expectations and should drive the payments industry going forward.”

Payments are ‘in demand’. Even though the payments space is still predominantly owned by banks, we see a lot of disruption. Banks should see this as an opportunity to better work together because the old ways are not good enough anymore. Banks need to find a new collaboration model focused on reducing friction, supporting interoperability and offering advanced services. John (Wells Fargo) pointed out that SWIFT gpi is a good example showing what banks can achieve when they work together. This service helps to reduce friction and increases the quality of service. At the same time, there is a risk that collaboration and partnerships create more fragmentation. For John this is the reality. “There is money in payments. This attracts others and this will create more fragmentation.” Philip concluded that “as long as $100 ends up being $16, we still have more work to do.” 

Collaboration is key

Banks know how to make partnerships work and correspondent banking is a good example of that. Banks should build on that, but that will not be enough. “We now have more and different players, such as fintechs and regulators. They have new ideas, different objectives, cultures and IT,” Renata added. She advised banks to adopt a partnering strategy that focuses on what they do best while working with partners to learn from them. Let’s not forget that the fintechs grew their business by taking care of things that banks could not. And instead of all building the same thing, banks should think about what they can do together. Big banks should let smaller banks leverage on that. The ones that manage to do that will be successful. “Banks are working on ISO 20022, instant payments, new settlement models, etc. Doing all of that is challenging for banks,” Bruno added. This is where banks need to collaborate and share notes to find the right path to a successful future.

Data at the centre

The panellists agreed that data is at the centre. The migration to ISO 20022 lays an important foundation and is a very important first step. It will help remove friction and, as the adoption grows, new opportunities will arise to reduce friction even more. Parties should jointly explore how data can be used to remove friction. Philip noted that sharing data is crucial to create new value because the price for payments is moving to zero. This is very true, but not everyone understands this. There are still banks that see data as ‘biohazardous waste’. 

We are in a perfect storm now. There are so many new players, technologies, users and requirements. Cross-border payments will be very different in the future, but no single model will emerge as replacement for the correspondent banking model. Things will continue to evolve until we finally get to have smooth, instant cross-border payments. This will be accompanied by more fragmentation at higher speed and banks need to play their part, e.g. by managing liquidity for their clients and offering them a connected experience. Banks will remain relevant, but perhaps more as providers of value-added services rather than commoditised services. 

Payments are cool

The way we do payments will fundamentally change in the coming years. According to Philip “we are moving to a world where payments are invisible and irrelevant, but the customer experience is not”. When the price point for payments goes to zero, banks should realise that the value for their clients lies in this experience. This requires banks to be less protective and to embrace partnerships and collaboration. Not only among banks, but also with vendors, fintechs, regulators, etc. In the end, it is not so much about what we built (technically), but how we build and use it. You cannot do this on your own. We must work together and enjoy that “payments are cool”.