Portuguese SWIFT community gathers for first Business Forum in Lisbon
The first SWIFT Business Forum Lisbon took place at the Pavilhão do Conhecimento on 20 October 2016 and brought together over 150 members of the Portuguese financial community. Under the theme “Build the future: Innovation, compliance and the transformation of banking,” the programme for the event focused on the disruption and rejuvenation of correspondent banking, financial crime compliance, the rise of real-time payments and the post-T2S securities landscape.
Gema Montoya, Head of SWIFT Iberia and Fernando Rodrigues, SWIFT User Group Chairperson for Portugal welcomed the delegates and stressed the importance of the event for both SWIFT and the Portuguese financial community.
The outlook for Portugal’s payments systems
Jorge Francisco, Head of Payment Systems Department, Banco de Portugal gave the audience an update on the Portuguese payment system landscape and opportunities and challenges for the near future. Francisco outlined the central role that Banco de Portugal plays in the country’s economy and ran through its various functions, as operator, catalyst, regulator and overseer. Giving an overview of the structure of Portugal’s payments systems, he explained that the country has two main payments systems – Target2-PT, the national system for Target2 and SICOI, the retail payments system. “Whilst 99.9% of payments in 2015 were processed in SICOI,” he said, “this represented only 11% of the total value, therefore 89% of the value was processed by Target2-PT.” Looking at the main payment instruments for retail payments, Francisco stated that 70% of non-cash payments in Portugal are card payments. The high popularity of cards in Portugal can be attributed primarily to the fact that Portugal has the highest number of ATMs per inhabitant in the EU.
Moving on to talk about the opportunities and challenges that lie ahead, he touched on a number of trends that will impact the Portuguese market in the years to come: technology innovation, regulation, cybersecurity and the Eurosystem’s Vision 2020. “Regulatory compliance and cybersecurity are real challenges for the market, and we must work together,” he said to the audience. Francisco closed his presentation with an appeal to the market for collaboration, active user involvement in central bank and Eurosystem driven projects, and a commitment to move forward together.
Regulatory compliance and cybersecurity are real challenges for the market, and we must work together.
Jorge Francisco, Head of Payment Systems Department, Banco de Portugal
Innovation in the payments market
Thierry Chilosi, Head of Market Initiatives EMEA, SWIFT, led the discussion around innovation in the payments market. Before introducing his two panellists, he set the scene by setting out the drivers for change in the payments landscape. Amongst these, he mentioned a changing economic backdrop, evolving consumer and customer expectations, rising cyber threats, competition from new entrants, growing regulation and rapid technology innovation. In this context, with so much change happening on both a European and global level, banks need to adapt, to collaborate and to keep moving forward, he said.
Panellists Paiva de Brito, Head of Payments Operations, Santander Totta and Leonor Machado, CGD commented on these challenges and the approach that each of their institutions is taking. Both agreed that evolving demands from consumers are taking up a lot of time and resources, but that it is difficult to innovate in a context where budgets are used up by the need to comply with ever increasing regulation. A balance, however, must be found, said de Brito. Machado commented that most innovative payments solutions are digital but don’t seem to replacing cash. De Brito stated that in his view the two main areas for focus are real-time payments and new regulations such as PSD2. “With third party providers coming onto the scene,” he explained, “banks will have to adapt, clients will need to be shared and things will change.” Machado added that when it comes to competition with third party providers, “we should have the same rules. The regulations that apply to banks should also apply to other players operating in the same place. If not it’s unfair competition.”
With third party providers coming onto the scene, banks will have to adapt, clients will need to be shared and things will change.
Paiva de Brito, Head of Payments Operations, Santander Totta
We should have the same rules. The regulations that apply to banks should also apply to other players operating in the same place. If not it’s unfair competition.
Leonor Machado, CGD
Talking about how each bank is organised for innovation, de Brito explained that his organisation makes both global and local plans, ensuring that all changes can be adapted to a local reality. Moving on to SWIFT’s global payments innovation (gpi) initiative, he said: “We are very committed to gpi. Real-time isn’t a priority for corporates, but same-day, trackable and predictable is important. Portuguese banks should make sure that they are aware of the initiative and on board.” Machado mentioned the constant tension between what has to be done (regulatory compliance, cybersecurity etc) and what the bank would like to do. “When it comes to new technologies, it is vital for our business that we are able to compete, but it is a challenge. We are stretched for both financial and human resources,” she stated.
We are very committed to gpi. Real-time isn’t a priority for corporates, but same-day, trackable and predictable is important. Portuguese banks should make sure that they are aware of the initiative and on board.
Paiva de Brito, Head of Payments Operations, Santander Totta
Another challenge debated by the panellists was that of how to strike the right balance between security and convenience for the user. De Brito used the example of stronger customer authentication taking us away from the convenience of “one click,” and Machado expressed the view that the only way of solving the matter is to involve customers in the decision making process to get a much clearer understanding of what sort of risks they are willing to take. Machado also touched on the use of big data, saying that to better serve customers, new entrants are combining the payments part of a transaction with the intelligence of knowing what it is for. “For data privacy reasons though, we can’t do the same things as the new entrants for now. Regulation will not let us. The playing field is not level,” she said. The session closed with a discussion on the relationship with fintechs. Both panellists confirmed that their banks are working with fintechs, support some of them and plan to collaborate more closely with them in the future.
Fighting financial crime – what lies ahead?
The next session looked at how banks are tackling the compliance challenge whilst keeping control of costs and continuing to deliver unparalleled customer service. To introduce the topic, was Saskia Devolder, Head of Western Europe, SWIFT, who started by giving an overview of the various steps in the compliance and financial crime control process and then, with supporting data, gave an indication of the scale of the compliance challenge for banks. “According to research done by the Boston Consulting Group, banks paid $279bn in litigation between 2009 and 2015, and the share of this paid by European banks is on the increase,” she reported. In the same period, regulatory fees have increased dramatically relative to banks’ earnings and credit losses and 76% of banks have had to increase their compliance budgets just to be able to stay in business. Against this challenging backdrop, SWIFT has developed a growing portfolio of products and services to help banks with their compliance challenges.
According to research done by the Boston Consulting Group, banks paid $279bn in litigation between 2009 and 2015, and the share of this paid by European banks is on the increase.
Saskia Devolder, Head of Western Europe, SWIFT
After giving an overview of the main challenges that banks face in the areas of sanctions, KYC and PSD2, Devolder welcomed Chilosi back onto the stage to talk about how SWIFT helping the financial industry to increase efficiency and decrease costs by developing shared services for financial crime compliance. One of the challenges that banks face, explained Chilosi, is that whilst regulation used to explicitly state what a bank had to do, today’s regulation is far more based on a risk-based approach,. “Conceptually the risk-based approach is good,” he said, “but the problem are the fines, and the consequence is that de-risking is happening everywhere. For zero risk, we end up screening everything, but there are challenges with standardisation across the board, and this is an area where SWIFT can definitely help,” he went on to say. Shared and standardised solutions represent a major step forward, drastically reduce the time that it takes for customers to collect KYC data, for example, and greatly reduce the cost related to doing so.
The biggest challenge, said Chilosi, lies in the need to find efficiency gains in an environment that requires banks to screen everything. “Given that it is not sustainable to constantly increase budget and resources, it is necessary to find a different way of doing things. Everyone has to equip themselves and if you don’t have the skill to do it well, it’s a big challenge. That’s where a utility can help,” he stated. Moving on to de-risking, Chilosi explained that banks are increasingly deciding not to do business with high risk countries. Some global banks have also reassessed the profitability of some of their business lines and made decisions based on whether business lines are profitable enough to take risks and what the reputational risk is of getting things wrong. “The challenge is that if we keep doing things as we are today, it won’t work and the global economy will suffer. So we need to share solutions and banks need to use utilities that offer standardised solutions for compliance,” he stressed. The objective is to reequip the community with the tools necessary to implement the controls that are needed, to have the necessary levels of transparency and be able to demonstrate what it is that you are doing. “With finite compliance resources, you need to prioritise where you do due diligence first. Know where your highest risk is and put your resources there. It’s all about making sure that you have the right data to make the right decision,” concluded Chilosi.
Know where your highest risk is and put your resources there. It’s all about making sure that you have the right data to make the right decision.
Thierry Chilosi, Head of Market Initiatives EMEA, SWIFT
Transforming correspondent banking
The vision of SWIFT's global payments innovation initiative (gpi) is to enhance cross border transactions by leveraging SWIFT’s proven messaging platform and global reach. Together with the industry, SWIFT has created a new service level agreement (SLA) rulebook, providing an opportunity for smart collaboration between banks. In its first phase, the new service will focus on business-to-business payments. Designed to help corporates grow their international business, improve supplier relationships, and achieve greater treasury efficiencies; the initiative will enable corporates to receive an enhanced payments service directly from their banks, with the following key features: same day use of funds, transparency and predictability of fees, end-to-end payments tracking and transfer of rich payment information.
Marjan Delatinne, Business Development Director gpi, SWIFT gave the audience a comprehensive overview of the initiative, as well as explaining the benefits for participating banks and corporates. Corporates will be able to grow their international business, enhance supplier relationships and increase treasury efficiencies, whilst banks will be able to increase their cross-border payment volumes, reduce costs and lead innovation in the sector. “Gpi will deliver a dramatic change in experience in cross-border payments,” said Delatinne, then going on to explain that the main objective is to bring in a new standard for correspondent banking, starting with a pragmatic and practical solution, that can be easily adopted and implemented. “2016 is about implementation and delivering early results,” she said. “At the same time, SWIFT is in dialogue with the community to establish a mid-term and long-term vision for gpi. The world is moving on and we cannot remain indifferent to new technologies. We are open to adopting and embracing new technologies if this is what we decide to do with our community.”
SWIFT is in dialogue with the community to establish a mid-term and long-term vision for gpi. The world is moving on and we cannot remain indifferent to new technologies.
Marjan Delatinne, Business Development Director gpi, SWIFT
To explain the benefits that banks see in gpi and her own institution’s reasons for joining the initiative, was Stéphanie Rodriguez, Head GTB Products, Financial Institutions, Banco Santander. Rodriguez explained that the banks are aware that they are facing very challenging and quite exciting times in a payments landscape that is undergoing massive change. “We are open to options,” she said, “but very committed to gpi. The momentum is great and there are many major banks endorsing the initiative. Gpi is not just a proof of concept – it exists, it works and we think that with gpi, the banking community can rejuvenate the corresponding banking environment.” She went on to say that gpi is about improving the customer experience and the end to end journey for cross-border payments. It’s about delivering on the critical demands of clients: speed, transparency, efficiency and traceability. “The gpi tracker gives that transparency – the client will see the fees and this will bring competition, make us lower interbank fees and deliver further benefits to clients. It’s also a magic tool for traceability and will deliver great benefits in the reconciliation process, reducing friction between sellers and buyers.” Rodriguez also made the point that gpi will address the main pain points for banks in international payments, namely operational cost and claim management. Asked what her closing recommendations were for the audience, Rodriguez told them: “Gpi is not rocket science. We understand it because it is based on what we do now. It is tangible, tested and trusted. The more banks join, the more successful it will be. We need critical mass and it needs to become business as usual.”
Gpi is not just a proof of concept – it exists, it works and we think that with gpi, the banking community can rejuvenate the corresponding banking environment.
Stéphanie Rodriguez, Head GTB Products, Financial Institutions, Banco Santander
Gpi is not rocket science. We understand it because it is based on what we do now. It is tangible, tested and trusted. The more banks join, the more successful it will be. We need critical mass and it needs to become business as usual.
Stéphanie Rodriguez, Head GTB Products, Financial Institutions, Banco Santander
Beyond T2S: Evolution or Revolution in the Securities Industry?
In a panel discussion moderated by Jose Nunes, Business Advisory Services, EMEA, SWIFT, Alvaro Camuñas, Global Head of Sales, BNP Paribas Securities Services, Dr. Rui de Matos, Board member Interbolsa and Carlos Machado, Head of Securities, BPI discussed the impacts of T2S on the European and Portuguese securities industries. The first subject on the table was the successful migration of Interbolsa to T2S at the end of March 2016. The two banks congratulated Matos on the way in which Interbolsa had run its T2S project and the smooth and timely migration. In turn, Matos said that “the successful migration to T2S was not only the merit of Interbolsa but of the Portuguese securities community as a whole. Without the participation and contribution of each and every participant, this success would not have been possible.” Machado highlighted that for a local custodian such as BPI, it was good to being able to rely on the CSD for the bulk of the IT development and investment. BNP Paribas Securities Services, on the other hand, opted for a different approach and made significant investments, with the aim to bring in new business.
The discussion them moved on to cover the potential for new products and services in a T2S world, the rise of new competitors, possible new business models that are emerging for CSDs and CSD-R, the European CSD Regulation. The panel also looked at the direct impacts that T2S has on local and regional custodians and the new relationships that may develop in the future between custodians and CSDs. All of the panellists were apprehensive about the final text of the CSD Regulation and the potential consequences that it may have. Machado mentioned that in addition to T2S settlement, BPI is likely to focus its efforts on specializing in asset servicing and tax processes, whereas Camuñas expressed concern about CSDs being considered risk-free and being able to compete with lower prices. For Interbolsa, this represents an opportunity to attract new issuers and establish new relationships with institutions that are currently not covered by the CSD.
the successful migration to T2S was not only the merit of Interbolsa but of the Portuguese securities community as a whole. Without the participation and contribution of each and every participant, this success would not have been possible.
Dr. Rui de Matos, Board member Interbolsa
Harnessing technology change to build the future
Under the title “Innovation as a culture – experimentation as a strategy,” Damien Vanderveken, Head of R&D, SWIFTLab and UX at SWIFT, gave an update on the work that SWIFT is doing in the R&D space. He started by explaining that innovation at SWIFT is focused and closely aligned with the company’s business and strategy. In addition to innovation work done internally, SWIFT also works with academics and fintechs. “The fintech ecosystem has a lot that it can bring to the industry, via Innotribe,” he stated. In the area of distributed ledger technology (DLT), SWIFT is working on a number of fronts. One of these is standards work that is being done for the use of business information on DLT. SWIFT is also a member of Hyperledger, a consortium of financial institutions and technology providers that has brought together over 80 members to progress the technology so that it’s mature enough to be used by the financial industry. “Work is also being done to assess where it actually makes sense to use DLT within our industry,” explained Vanderveken. In this context, there is work underway to see whether it could be used in the longer term for gpi.
To share the outcomes of its work on DLT, SWIFT issued a white paper earlier in 2016, in which it gives a very factual and neutral assessment of the technology – what is good, what still needs to be improved, what its strengths and weaknesses are. The main conclusion of the paper is that the technology is not yet mature enough to fulfil the financial industry’s requirements, but that things are progressing very quickly in a number of areas and the expectation is that it will get there. “SWIFT will be investing more time and resources in blockchain and wants to be able to expand its platform to enable DLT based services in the future. But this will only happen when the technology is deemed to be mature enough to deliver all the things that the community expects from SWIFT,” he said.
SWIFT will be investing more time and resources in blockchain and wants to be able to expand its platform to enable DLT based services in the future. But this will only happen when the technology is deemed to be mature enough to deliver all the things that the community expects from SWIFT.
Damien Vanderveken, Head of R&D, SWIFTLab and UX at SWIFT
Following his presentation, Vanderveken introduced Dra. Elsa Costa Almeida Graça, CIO, Santander Totta, who explained the approach that Santander Totta is taking and how it is preparing for the future. In a context where alternative players are entering the space traditionally occupied by banks, where the next generation will do everything differently, and where there will be 50 billion handheld devices connected to the internet by 2020, we have to think differently and do things differently, she stated. “If we do not adapt and do not keep up, we will be left behind and the title of the book “Bye Bye Banks” will become a reality,” she added. It is imperative that banks move to digitally enabled accounts – like an internet of payments that is really secure. If we stop thinking and stop moving ahead, the accounts that our customers have with us will become dumb funding accounts that are operated by third parties. Building on this statement, she talked about PSD2, stating that it is a key driver for banks to choose which strategic options to follow, and whether they want to be “utility banks” or “everyday banks,” plain service providers or providers that are central to the everyday lives of their customers.
If we do not adapt and do not keep up, we will be left behind and the title of the book “Bye Bye Banks” will become a reality.
Dra. Elsa Costa Almeida Graça, CIO, Santander Totta
After explaining the strengths and weaknesses of blockchain according to her institution, which were very closely aligned with the outcomes of SWIFT’s research, Graça told the audience that Santander is also pushing the development of DLT, running proofs of concept (PoC), trying use cases and investing in a number of initiatives. “Blockchain has potential disruptive value in many areas of the economy,” she went on to say, “and since IT always moves faster than regulation, we need to work together more closely to ensure our survival. Technologies that have disrupted other industries are coming to financial services and leading to happy customers. Margins are coming down and there will be pressure on banks’ core business. We have to find different ways of doing things. We can’t ignore the problem because we want to keep doing business.” As a result of all of this, banks are future-proofing their strategies. They are evolving their innovation culture and workforce, partnering with labs and participating in consortiums to integrate new technologies, collaborating with fintechs and integrating them in the business and finally, experimenting, learning and rapidly prototyping to build hands-on experience. “For it is only with labs and use cases that you can create something different,” concluded Graça.
Margins are coming down and there will be pressure on banks’ core business. We have to find different ways of doing things. We can’t ignore the problem because we want to keep doing business.
Dra. Elsa Costa Almeida Graça, CIO, Santander Totta
SWIFT business insights for Portugal
The last presentation of the day was given by Henrique Teixeira, Market Manager, Business Intelligence, SWIFT, who shared business intelligence about the Portuguese market and global trends. He explored different markets as Payments, Trade and Securities analysing the evolution of their traffic and sharing insights related to the main counterparty countries and currencies. “The number of Correspondent Banks in the Portuguese marketing is reducing,” he explained, “following the global trends of de-risking but as well related to consolidations and merges in the market has being through recently.”
Closing the day, Gema Montoya, Head of SWIFT Iberia, thanked all delegates and speakers for their active participation and invited them to a closing cocktail.