Now is the time to disrupt payments

Rather than being behind the curve in terms of new payments technologies, banks are “a bit delayed” said Michael Spiegel, global head of cash management at Deutsche Bank. While innovation by bigtech and social media firms really took off during 2007-2010, banks had “other challenges” at that time, he said, writes Heather McKenzie.

By Jon Watkins

The ‘big issue’ debate, Disruption in the Payments Landscape, featured a representative of the bigtechs, Ulku Rowe, technical director, financial services at Google. She told delegates that there was no “magical moment” when it came to adopting technology. Rather, “now is the time”.

There has never been a time when so much is changing, she said, pointing to technologies such as the cloud, mobile, social media, big data, internet of things and machine learning. These technologies are levelling the playing field for everyone, lowering the barriers to entry for access to customers and devices.

“All of these technologies create a lot of data that can be turned into knowledge and used to interact with clients in ways that were not previously possible,” she said. Large enterprises such as banks have the same access to these technologies as the fintech start-ups, she pointed out. Moreover, they can also take advantage of their brand, data, and people to “disrupt themselves” before they are disrupted by others.

In adopting new technology financial institutions needn’t give up their legacy systems. Rowe said as new technologies are introduced, the old ones don’t go away. In fact, there are still 1.2 million dial-up modem users in the US. “The challenge for everyone is how to build technology for the diversification of payments and systems and handle legacy along with new products.” The way to do this, she added, is to use containerisation and APIs to provide a ‘wrapper’ around old technology. This allows financial institutions and other organisations to provide a diverse set of services through a single window.

It is also not a case of “one or the other” when it comes to technology. Organisations will have to support a diversity of systems – legacy and new, she said.

Leila Fourie, chief executive of the Australian Payments Network, envisages a merging or confluence of technologies, particularly in blockchain and artificial intelligence (AI). “We are seeing some interesting case studies in which AI is being used in blockchain to manage liquidity trading positions or in smart contract. It is naïve to think that one technology will dominate over another. There will be collaboration between institutions and within technology types.”

Esther George, president and chief executive of the Federal Reserve Bank of Kansas City, questioned whether legacy systems were indeed outdated. “The reality is that legacy systems are updated by virtue of new technologies,” she said. “For example, the cheque is now in an electronic form. Legacy systems reflect the current environment.”

Spiegel also mounted a defence of legacy systems, saying the bank’s chief digital officer often remarks that without legacy, a bank “doesn’t exist”.

One of the challenges for banks is that while they know everything is changing in payments, they don’t know where it will land, he said. “We all know we have to do something about it.” Spiegel said this would involve working with fintechs and would also be an iterative process.

In innovating, banks do not want to disrupt their core systems, he added. Core systems can continue to be improved, with new technologies developed either outside or in a ring-fenced scenario. New market entrants have a distinct advantage in not being weighed down by legacy platforms. Rowe advised that technology “cannot live on the edge. You have to get innovation into the core”.

The panel also discussed the collaboration trend, with Fourie observing that Australia’s New Payments Platform involved “enormous collaboration” and all participants, including regulators and fintechs. Such collaboration was the most important aspect of meshing technology together to enable the NPP environment, she said.

Spiegel believes banks were worried about fintechs “for too long” and that the threat posed by them was greatly exaggerated. “There seemed to be a fear of connecting to fintechs and a fear of change. Now that banks have connected with fintechs, we are all driving towards better solutions.”