Life as we know it in banking and payments will soon change forever, according to Jeremy Light, head of Accenture Payment Services in Europe, Africa and Latin America.
The UK-based expert predicts a Cambrian explosion of APIs, leading to API consolidators and aggregators and, ultimately, to new businesses and new business models. Five themes are driving change in payments today, he told AB+F.
"Individually they have a significant impact on the way we pay. Combined, these effects are amplified, creating a powerful force on the payments landscape."
For Light, payments trends are pointing towards a new world of open banking, a world in which consumers do their banking outside the banking environment, for example on merchant apps.
“Living services - on demand, immediate, digital services mashed together from multiple service providers - will now include payments and other banking services, delivered through open APIs," he said.
'Strong, continuous, invisible authentication'
Firstly, Light argued, banks across Europe are preparing for PSD2 in January 2018, much of it focused on building open API capability. As the payments API economy grows in 2018, these APIs can be rebuilt quickly, and often, to meet market demand and opportunity.
Secondly, he pointed out, the new PSD2 requirements for strong authentication will impact every customer payment interaction.
“Banks and other payment service providers are caught between the regulators focused on fraud prevention and merchants focused on seamless shopping. The answer is biometrics behavioral biometrics which allow strong, continuous, invisible authentication.”
Thirdly, Light added, instant payments are coming to Europe, with most providers investing in real-time capabilities.
“However, banks face a dilemma - they struggle to find a compelling business case based on hard numbers, but intuitively they know instant payments are essential in a digital economy, and they can see the successes in the UK, Sweden and Denmark."
Fourthly, robotics can provide fast return on investment to automate away repetitive manual tasks in bank payment processes, reducing costs and improving customer service, while artificial intelligence can tackle more complex tasks such as anti-money laundering screening.
Light’s final point is the Cloud, which is ideally suited to payments processing with its peaks and troughs of transaction flows, with the move to open APIs and with the proliferating ways to pay, 24×7.
“Cloud is the cornerstone technology for ubiquitous payments, anytime, anywhere, from any device," he explained.
Transaction peaks and troughs
But while the Cloud is ready for banks; it seems that the banks are not ready for the Cloud. Of all industries banking has been amongst the slowest to migrate core processing to the Cloud, according to SAP’s UK head of financial services, Jonathan Charley.
The benefits are clear, moving data to the Cloud cuts costs - partly because banks only pay for only the resources they consume. Charley backs Light’s point about transaction peaks and troughs.
“While there is a huge spike in the number of people withdrawing cash from ATM’s on Christmas Eve, for the rest of the year much of that capacity will remain idle with maintenance bills and licences still being charged," he said.
“For Paypal there is nothing to fear from Black Friday or Amazon Prime Day, the one-day only global sale when enormous spikes are experienced. Paypal uses public cloud services and only pays for the volumes that are used and only for when they actually used it.”
In a report, Charley dismissed the concern that the regulators would not approve banks using the public Cloud. He cited UK smartphone bank Monzo as an example of a challenger bank that is running entirely in the public cloud.
“Central banks and regulatory bodies are big users of the public Cloud as it gives them the ability to work on large datasets, structured and unstructured data, supercomputing and analytics tools to carry out tasks such as identifying fraud and suspicious trading in real-time and only paying for it when they need it.”
In response to concerns that using the Cloud makes bank’s dependent on tech giants, who may themselves want to provide financial products, Charley insisted that control is not lost.
“It is more about allowing those with the expertise to do the tasks that they know best and allow the banks to focus on banking.”