EBAday 2020: Turning point in payments
The European Banking Association’s EBAday 2020 addressed the ongoing payments transformation as the pandemic accelerates digital payment appetite. Delegates at this rescheduled virtual event agreed that Covid-19 has also sharpened resilience in financial services, reports flow’s Graham Buck
Like most other live annual events scheduled to be held over the past eight months, the Euro Banking Association’s EBAday 2020 had to radically reinvent itself due to Covid-19. "The turning point in payments transformation" was originally planned as a two-day conference in May, taking place in the World Forum at the Netherlands west coast city of The Hague. First postponed to late November in the hope of a swift return to normality, it was subsequently converted to a three-day virtual conference as the pandemic persisted.
Introducing the 2020 event, EBA Chairman Wolfgang Ehrmann insisted that no compromises had been made on content and more than 20 sessions were being offered featuring “the well-knowns, the unknowns and the soon-to-be-knowns”. Since last spring the EBA had stepped up meetings with its members and working groups, maintaining networking but doing so virtually rather than face-to-face. The vision for EBAday 2021 is currently uncertain – preparations are underway that cater for three options; a traditional onsite event, a further virtual conference or potentially a combination of the two.
Disruption and dislocation
The crisis has transformed the payments world every bit as much as the whole global economic environment has been redrawn over the period since EBAday 2019 Stockholm in June last year, when the biggest news was Facebook’s announcement of plans to develop its own cryptocurrency, Libra. In addition to the changed format for the 15th EBAday and the need for sessions that addressed the many challenges created by a global health crisis, the EBA opted to live dangerously by inviting as the keynote challenge speaker Chris Skinner, the controversial independent commentator on – and critic of – the financial markets.
Author of several books, his most recent is Doing Digital: Lessons from Leaders, published in April this year, which among other observations claimed that “the business model of the banking industry is completely broken.” In his introduction, Ehrmann said that he looked forward to hearing Skinner’s views, one of which is that “anyone who supposes that the banking industry is disruptive is stupid”.
Open banking to invisible banking
Among the Day One opening sessions, a discussion titled ‘How open is open banking?’ moderated by Leo Lipis, CEO of Lipis Advisors saw agreement among panelists that the service is still in its infancy and the supporting technology attracts substantial venture capital investment. Lipis suggested that in another 10 years the success will be evident if it is no longer a major topic of discussion, or as Shrey Rastogi, senior product strategist at software group Temenos said “open banking has become invisible banking”. J P Morgan’s Mario Benedict added that this would largely depend on whether partnerships and other collaborations between banks and their fintech providers prove sustainable.
In the session ‘Intraday liquidity and instant payments’, moderator Joost Bergen, owner of cash solutions specialist Cash Dynamics declared that instant payments “are here to stay” but it remains to be seen just how they will change the way that corporate treasurers manage their liquidity operations. Krister Billing, responsible for business development and market infrastructures at SEB agreed that the drive to adoption has so far been largely consumer-driven, helped by the rise of the gig economy, and instant payments are less apparent within companies. He also suggested that greater harmonisation is needed before higher-value instant payments become more common. Lori Schwartz of J P Morgan said they were challenging the boundaries, and had an obvious attraction; remitting cash to the recipient faster enables you to retain it for longer and it was evident that instant payments are growing quickly in the B2C space.
A changing payments ecosystem
As the moderator of the session ‘The 2020 payments ecosystem – strategies to prepare for the future’, Chris Skinner began with an audience poll asking viewers “Has 2020 changed your views in payments”, with over 70% choosing the response ‘Yes, we are moving quickly to digitalise and nearly a quarter ‘No, we were ready’ – although nearly 5% agreed with the response ‘Yes, we were a mess’ (when the pandemic first hit). Skinner referenced his recent blogs on how “2020 has become 2030” as the pandemic has “turbocharged” the digitisation of payments.
Discussion touched on the issue of the future of cash, with a second audience poll finding that less than 40% believe that cash will disappear completely. As Skinner noted, people like cash because of its anonymity – and usefulness for covering up illicit activities. Very likely the future would be a mix of cash with new payment systems, he predicted. Session panellist Shahrokh Moinian, Head of Wholesale Payments EMEA for J P Morgan, noted that cash usage in 2020 is down sharply on last year due to the pandemic, with the decline ranging from 20-30% in some European markets to 60-70% in other parts of the world.
Ole Matthiessen, Deutsche Bank’s Global Head of Cash Management said that Covid-19 has, through necessity, driven a move from open banking to more local but connected banking. Turning to the issue of central bank digital currencies (CBDCs), which aim to provide greater financial inclusivity, he believes these will largely replace cash although with regulation applied to the amount of value that can be stored. He added that as the digital representation of a banknote backed by a central bank, CBDCs are very different from bitcoin and other cryptocurrencies, which are decentralised and anonymous digital storages of value. Bitcoin’s recent return to near-record levels has been fuelled by the uncertainty generated by the pandemic, he added.1 A third category, stablecoins, lie somewhere between the two and generally enjoy a greater degree of trust in the issuer than cryptocurrencies.
Discussion topics also touched on operational resilience; Skinner referencing the 23 October power outage that temporarily shut down the TARGET2 system, which the Bundesbank and ECB are investigating, as well as a four-hour interruption suffered on 24 November by Bank of America’s Merrill Lynch Wealth Management platform2. Moinian agreed that “operational resilience” will be crucial in future and J P Morgan is liaising with regulators on identifying key services, the key threats to smooth functioning and what back-up and contingency plans are available in the event of an interruption.
Request to Pay (RtP)
An audience poll also came early in the session ‘Request to Pay – what’s possible?’ which posed the question ‘Which market segments are most likely to adopt RtP?’ The most popular choices by some distance were B2C and also C2B for bill payments, each attracting around 28-29% of votes. Both C2B for e-commerce (16%) and B2B (15%) were some way behind. Session moderator Leo Lipis noted that RtP has been one of the year’s hottest topics, with Pay UK launching a RtP framework at the end of May and the European Payments Council (EPC) about to launch its SEPA RtP scheme.
Session panellist Christof Hofmann, Deutsche Bank’s Global Head of Corporate Payment Solutions, noted there is likely to be considerable variation country to country; for example RtP for e-commerce is already well-established in the Netherlands and has great potential in the sector, as an attractive option for merchants who can use it to be free of credit card charges.
Chantal Fokke, product area lead for ING, suggested that RtPs are likely to displace many cash payments and also direct debits. “For corporates it’s good to have greater confidence on their cash flow and for consumers they are more transparent that direct debits,” she noted although Natixis Payments’ CEO Pierre-Antione Vacheron believes it may take some time for European consumers to become fully comfortable with RtPs.
“Merchants can also have greater control of incoming payments and also better finality of payments,” said Hofmann. “But we need to complement the existing RtP infrastructure with improved protection, so that more want to use it and it becomes even more of an attractive option to direct debits.” ABN AMRO’s business developer for SEPA, Sandra Peute, believes that younger consumers in particular, who don’t want to give away control of their money, find RtPs an easy, user-friendly solution that gives them more control as they can see details of each payment before authorisation. Hofmann agreed that RtP is a much safer method of payment; the one potential threat to its increasing popularity being the risk of fraudulent request, which the industry needs to identify and prevent.
"We need to complement the existing RtP infrastructure with improved protection, so that more want to use it"
ISO20022’s moving targets
A session on the fast-approaching implementation of ISO20022 was opened by moderator Sulabh Agarwal, MD and Global Payments Lead for Accenture who asked panellists what the new payments architecture means to them.
For Daniel Schwefer, Director, Product Management at Deutsche Bank, the initiative is a global challenge of great complexity for multiple stakeholders, all aiming for the go-live but with different levels of involvement. It provides an opportunity to rectify past mistakes and short cuts, but these will not be easy wins. ISO20022 extends beyond the clearing of payments to involve control functions and all those in the value chain and goes beyond the technology department to include those in operations, treasury and sales.
Volker Heinz, Head of Business Development at Unifits said that as a software provider, his company was expected to deliver ahead of deadlines, but news of updates typically arrived late and at short notice. “We’re aiming at moving targets, so we need to be flexible,” he added.
The audience poll for this session was particularly revealing. Asked “where do you see the most complexity in the implementation of ISO20022?” the response was an almost identical split between the four available options. Too many overlapping scheme scheduled; extensive technology change; and extensive business/operations change each got 25.7% of votes, while varying ISO implementations followed closely with 22.9%.
A second question, “where do you see opportunities in ISO20022?” produced greater consensus: 58% chose operational processes, such as reconciliation; 32% thought the customer proposition and experience; while only 10% opted for financial crime/fraud prevention. For Stephen Lindsay, SWIFT’s Head of Standards, around 10% of international payments are still delayed by incomplete or inconsistent data and “having the right data in the right formats, based on ISO20022” is a “once-in-a-lifetime” opportunity to benefit.
"Having the right data in the right formats, based on ISO20022 is a “once-in-a-lifetime” opportunity to benefit"
Correspondent banking and meagre returns
The third and final day on EBAday 2020 saw Deutsche Bank’s head of clearing products Marc Recker as a panellist in the session ‘The role of correspondent banking in the evolving payments ecosystem’, where he stressed that the challenges and delivering value-added services need to be based on industry-wide solutions and can’t be met through any single bank initiative. For its providers, correspondent banking is about more than simply cross-border payments and is about the efficiency of the entire network.
Session moderator Harry Newman, SWIFT’s head of payment strategy, questioned whether there is still money to be made in correspondent banking. Pressure on revenue streams and liquidity were already high before this year and had intensified during the pandemic. ING Bank liquidity manager Michiel Ranke believes that there is, despite low fees and the need to invest in what has become a highly competitive environment, as the network is critical to the economy. He is encouraged to see that the sector is still able to attract new entrants as this keeps the existing players sharp, although it is unlikely that all the newcomers can survive.
Veerle Damen, MD and Global Head of Network Management for NatWest thought it was impressive how well the correspondent banking industry had coped in a challenging year. People had quickly and learned to live with what was available, such as e-signatories. J P Morgan’s Jon Lloyd agreed that the industry has shown amazing resilience and the crisis has shown that it remains a business where relationships still matter. He added that the future of correspondent banking lies creating the appropriate channel for the appropriate payment, which requires banks to be adept in managing multiple payment rails.
Despite its challenges, all the panellists unanimous that correspondent banking has a bright – rather than dull – future although one contingent on continuing to collaborate, keep developing and listen to its customers.
A powerful concept
Day three also featured a session on virtual accounts and in-house banks. Moderator Joost Bergen of Cash Dynamics said that virtual accounts improve the way data is combined, utilised and recognised and so offer great benefits, but questioned the rationale for banks to offer them to clients.
For JP Morgan’s Head of EMEA Liquidity, Priyanka Rath, organisations and their treasury functions are constantly evolving, including the way in which they manage cash. The virtual account – or virtual cash management – is a powerful concept and the more holistic offerings provide fluid end-to-end solutions for payables, receivables and managing liquidity. She sees virtual accounts as providing the framework for in-house banks allowing the segregation of different activities under a centralised bank account.
Deutsche Bank’s Global Head of Collection Products Dirk Kronshage suggested that smartly designed virtual accounts have three main, although not mutually exclusive drivers: rationalising treasury’s bank accounts structure; giving cash visibility and full insights on where liquidity sits – particularly valuable in 2020; and helping treasury move into the new age of instant payments.
So EBAday 2020 brings the curtain down on a conference season unlike any before, with empty podiums and both presentations and panel sessions accessed by clicking a link instead of travelling to a conference centre. While the roll-out of vaccines to combat coronavirus appears imminent,3 a return to normal is likely to happen in stages with the ‘temporary blip’ of the past nine months extending into 2021.
1 See Digital currencies, differing motives at flow.db.com
2 See https://bit.ly/2VkUafK at advisorhub.com
3 See Climbing out of Covid: Nearly there? at flow.db.com
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