This white paper looks at the progress in the payments realm over the past year— and takes it one step further — by delving into how new technologies will drive improvements in the client experience.
This is an exciting time for users and providers of payment services, a time of innovation and change that we have not seen for decades in the U.S. and in other parts of the world, with a number of market forces and challenges creating pressure on the payments system. New entrants like PayPal®, Google WalletTM and mobile network operators drive expectations in consumer payments, bringing ease of use, immediacy of transfer, transparency of pricing and end-to-end tracking capability. This is in contrast to traditional correspondent banking payment services where this level of service has not yet been achieved.
The intent of this white paper is to provide an understanding of how the use of new and advanced technologies can be leveraged to deliver a superior client experience. We have seen a shift from providing products to clients to delivering solutions to clients’ problems in the retail and consumer banking space for the past few years. We now see that shift within the corporate and financial institution segments as well. The key areas within the payments industry that still need to be addressed are:
Corporates and individuals and their financial service providers want and need more integrated solutions — a simple, intuitive banking service that can be accessed by clients at the right time, when they need it, as part of their day-to-day business or personal transactions — with the various components brought together by their financial provider to create a seamless end-to-end client experience. With increasing regulatory and compliance efforts driving up costs, and with intensifying competition from new market forces, a new model is needed; one that provides enhanced intelligence services that better identify business opportunities, understand end client behavior, monitor activity and liquidity, and create efficiencies via straight-through processing (STP), transparency and speed. To reach this end — to create a service mix that solves for each client’s unique requirements in a flexible, cost-efficient and seamless manner — requires concerted efforts to bring together internal legacy infrastructure with components from external third-party providers. This transformation is well underway.
Included in the full report is an Appendix with the results of a BNY Mellon client survey of senior representatives from 80 global banks.
Survey Insight: When asked which aspects of the payment process could be improved to create an “ideal” payments experience, respondents ranked security and reliability as their top priorities, followed by ease of execution and transparency.
Today, cross-border payments are settled across jurisdictions and through a number of correspondent banks that maintain bilateral agreements to provide services to each other. With instructions crossing domestic financial infrastructures, there is little upfront visibility for the originating client on the regulatory requirements in a beneficiary’s market, or on the requirements of the nostro correspondent(s), often resulting in instructions being stopped mid-way, pending details and supporting documents. End-to-end cost, transparency and timeliness are far less than optimal, and many of the processes are inefficient and complex.
Further, instructions may be initiated through differing channels, including manual input via phone or fax, resulting in incorrect information, often not realized until much further along in the payment chain. Details required in instructions are often repetitive and tedious to enter, with little information captured for re-use with recurring payments. Instruction errors often occur in fixed formats and require repairs that are manually intensive and increase the overall transaction service costs. Repairs and instruction enrichments are typically effected after calls or mailings to clients, especially in the case of high-value transactions for high-priority clients. When payments are settled through a number of parties in a chain, handling processes may take days or weeks to resolve, and only through dedicated operator intervention and follow-ups by the intermediaries involved.
These issues demand improvement, both at an industry level and within a bank’s own ecosystem. And because the issues contaminate downward from provider banks to their client banks to their end clients, it behooves banks to work together and focus their attention and resources on identifying feasible approaches for addressing them.
There are other forces in play as well. Regulatory changes, stemming from the 2008 financial crisis, while generally beneficial and well-intended, have driven up compliance costs and diverted attention and resources away from innovation. Others, notably PSD2 and the UK Open Banking Standard, mentioned above, have the capacity to irrevocably change the manner in which clients and non-bank entrepreneurs interact with banks, radically altering the terms of relationship between bank and client.
“The growth in networks and solutions, capabilities and services provides a wealth of new options, but at the potential expense of clarity for consumers, who want an experience that is intuitive and self-explanatory...”Carl Slabicki, Director and Product Line Manager, Immediate Payments, BNY Mellon Treasury Services
Survey Insight: More than half of respondents identified live tracking, amendment and cancellation of payment instructions as a “must have” API use case for addressing their current payment challenges and adding value for their end clients.
New platforms and technologies such as those sponsored by The Clearing House and by SWIFT are important and necessary steps in bringing payments into the twenty-first century. They address and improve nagging systemic problems such as transparency (SWIFT gpi) and, in the case of Real Time Payments, create an entirely new delivery platform. Client benefit should be immediate and much will be simplified for banks themselves. But they provide mostly differences of degree — improved transparency and speed of settlement, lowered cost, ease of access — rather than of kind.
APIs and the regulatory mandates that will enable them, PSD2 and the Open Banking Standard, respectively, on the other hand, open a door to a transformed future payments landscape that, because of the customization that APIs allow, is not yet entirely predictable. Because of these regulatory mandates in Europe and the UK, it is no longer speculation that technology will change the relationship clients have with their banks. It is a given and it will begin in earnest in 2018.
“In order to achieve the new payment experience, we have to first accept that incremental improvement will not achieve the target state. It is going to require vision and leadership to make some big decisions requiring some ground-up work.”Jim Walker, Managing Director, Head of Enterprise Business Architecture, BNY Mellon Client Technology Solutions
The growth and drift of market forces from the retail industry to corporate and institutional banking make it imperative for all existing service providers to rethink the payments experience from outside in and to identify key service-oriented solutions that will help provide timely information to end clients and to simplify the payment process, making it more cost efficient and resilient.
In the longer term, the initiatives of open banking will transform and redefine the entire relationship between banks and their clients. Banks need to anticipate and prepare for this, to position themselves properly, if they are to remain active players in a business whose changes may not be driven or mandated by banks.
There are three paths toward this end, depending on the case and situation. BNY Mellon has pursued all three:
We have been actively leading various industry and transformational initiatives to take advantage of the current period of change and to look at new and improved solutions that enhance the end client experience. And we interact with clients on the particular issues they want to solve for and that advance the future vision of the client experience. We believe this is the correct approach and necessary if payment banks are to remain competitive in the future, near-and long-term.
“In the future, a client should be able to initiate a payment using any device — securely, with certainty, using the most cost-effective route without having to define that route.”Edmund Esch, Managing Director and Global Head of Strategy and Product Management for High Value Payments, USD, GBP, and Euro Direct Clearing Services, BNY Mellon Treasury Services
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