Business Forum Lisbon 2018 – Wrap up report
The second edition of the SWIFT Business Forum Lisbon, which took place at the Pavilhão do Conhecimento on 11 September 2018, brought together over 150 members of the Portuguese financial community. The programme for this event focused on technology, regulation and cybersecurity.
Juan Carlos Botrán, Head of SWIFT Iberia and Fernando Rodrigues, SWIFT User Group Chairperson for Portugal welcomed the delegates and highlighted the great levels of attendance as well as he importance of the event for both SWIFT and the Portuguese financial community.
Referring back to the previous Business Forum, back in 2016, Botrán reminded the audience that while discussions at the time had focused on the changes that were coming up for the financial industry, now that the change has come, it is time for our communities to act fast and to create value: value for our clients, value for our companies, and value for the banking industry as a whole.
He gave two examples of the value that was created together: gpi, which has become the new norm for international payments and the CSP programme, which aims at making the financial ecosystem even more secure.
Botrán also stressed the importance of looking at new technologies. Because those technologies (APIs, artificial intelligence, distributed ledger technology), he explained, come with new opportunities and will change the way we operate in the near future. He highlighted the fact that “we need to be smart when adopting those new technologies. We need to put the business needs first, and then find the right technology to serve our clients, and the clients of our clients. And of course, we need to leverage the financial industry network.” As a strong believer of collaboration, Botrán concluded that the community is more important than ever.
Financial outlook for Portugal
José Luís Marques, Deputy Head of Markets and Reserve Management, Banco de Portugal, gave the audience an update on the financial outlook for Portugal.
In his economic outlook, Marques described the extraordinary growth of the tourism sector and of exports since 2010, well above the growth rates seen in other Southern European countries.
Looking at the fiscal outlook, while the general government debt level is still high, the process to reduce it is underway. In addition, Portuguese financial stability is increasing due to the reduction of indebtness.
In the banking sector, profitability is still under pressure due to the low interest rate environment and competition coming in financial services from unregulated non-financial institutions. Reducing vulnerabilities in the banking sector remains crucial for the economic stability of Portugal.
Lastly, Marques looked at uncertainty and risks. On the risk front, the protectionist threat poses a substantial risk to the world economy and reforms are still required to make sure the financial system remains stable. Ending on a positive note, he stressed the importance of the financial community working together to improve the resilience of the banking sector both in Portugal and worldwide.
Evolution of the European payments landscape
Saskia Devolder, Head of Central and Western Europe, SWIFT, led the discussion around the evolution of the European payments landscape. Before introducing her three panellists, she set the scene by running through the drivers for change in the payments landscape, including PSD2, the upcoming changes to the Eurosystem infrastructure and changes in the competitive landscape.
José Vicente, DMR Manager, Millennium bcp said that the topic of cryptocurrencies and blockchain has been one of the major topics in recent years, while Miguel Mauricio, Senior Product Manager, SIBS insisted on the pace of change, which is greater today than ever before. Duarte Ponte Correia, Head of Direct Channels, Novo Banco underlined the fact that there is a lot to explore today and certainly many opportunities to deliver value to customers.
On PSD2, Miguel Mauricio, SIBS, continued: “I think PSD2 will create a new ecosystem. We will open accounts to new players as a mandatory change one year from now. There will be far more players on the market in one to two years, with some of them having a pan-European service offering.”
Vicente was of the view that PSD2 is only one of four drivers pushing the market into disruption, with changing customer behaviour, coming at the top of the list.. Driver number two is technology, where APIs will allow banks to deliver new services that were unthinkable in the past. Driver number three is the predominance of the big technology platforms (GAAFAs), and finally comes regulation, which is now evolving. In conclusion, Vicente said that regulation is just an enabler for what is coming and that this is just the beginning of a long journey.
Correia explained that it is important to understand the lifecycle of the customer in order to develop new services. It is not only about complying with regulation but also about leveraging this evolution to make the most out of it and create value for customers. Mauricio added that banks have a long history of making use of data and that technology allows banks to do a lot more today, which represents a huge opportunity to develop new services for clients.
I think PSD2 will create a new ecosystem. We will open accounts to new players as a mandatory change one year from now. There will be far more players on the market in one to two years, with some of them having a pan-European service offering.
Miguel Mauricio, Senior Product Manager, SIBS
Changes in the Eurosystem: TARGET2 ISO20O22 migration delay - good or bad idea?
For Vicente, banks have a lot to do and time was required to accommodate all developments required by the Vision 2020 of the European Central Bank. Commenting on the benefits of the technical consolidation of the TARGET2 and T2S platforms, Mauricio estimated that the IT strategy of the Eurosystem is good as it makes sense to have one platform. He confirmed that SIBS is ready to exchange xml messages and that Portugal has a very good market infrastructure that is apt for the needs of the European market. Correia added that the infrastructure renewal brings many benefits for customers as too much legacy can be an issue and hinder innovation.
Mauricio offered the opinion that it is good for SWIFT to have competition, as it forces the cooperative to be nimble and innovative. Also, he said, banks should be able to choose from a range of different network providers as competition improves market dynamics and service levels. However, resilience, trust and confidence will continue to be true assets for SWIFT in the quest for market share.
Moving on to talk about TIPS, the Eurosystem’s pan-European instant payments service, the panellists were of the view that while other systems already exist on the market, such as EBA CLEARING’s RT1, TIPS will certainly be very attractive too. Overall, the panel was of the view that interoperability is the greatest imperative for instant payments in Europe and that because of this, there is a high change that pan-European solutions TIPS and RT1 will prevail in the long term.
Looking at the skills required in the sector, Mauricio urged his peers to hire the people who can develop mobile apps, APIs and master the technology that is transforming the payments industry.
Outlook in 5-10 years
All panellists agreed that banks will still be around in the future and that their focus will be on technology and on making sure that they deliver the best service possible to their customers. José Vicente concluded that there would be four pillars for the bank of the future: 1) build the right business model, 2) have a proper digital strategy in place, 3) attract talent and 4) be sustainable.
SWIFT gpi – Transforming the correspondent banking landscape with a new standard for cross-border payments
Lior Cohen, International Payments Expert, SWIFT, opened the session dedicated to cross-border payments with some key facts on SWIFT gpi. Live since January 2017, SWIFT gpi now has more than 200 financial institutions signed up to provide their customers with a faster service, transparency of fees, and end-to-end payments tracking. To date, 72 banks are already live.
The first part of the discussion was about the main drivers for institutions to join SWIFT gpi. According to Jorge Loureiro, Head of Financial Institutions Group (FIG), Banco Comercial Português (Millennium bcp), the way banks create value is changing. Correspondent banking is still the preferred way to settle B2B and cross-border payments but standing still is not an option. Competitors are moving into the cross-border payments space and banks must make sure they provide the highest level of service to their end customers.
Loureiro identified four important drivers in adopting SWIFT gpi:
- Clients request SWIFT gpi
- Banks want to remain competitive in the payments space, especially vs. fintechs
- SWIFT gpi delivers more transparency and better information, which helps the compliance process
- SWIFT gpi contributes to more efficiency which is a key driver in adopting the service.
Commenting on the benefits SWIFT gpi brings, Teresa Carrera Lourenço Montes, Deputy General Manager – International Relations Division, Caixa Geral de Depositos International said: “SWIFT gpi will allow us to make international payments much easier for customers. SWIFT gpi brings no surprises: we know what the cost will be and how long payments will take. Our business case for SWIFT gpi also involves an important cost reduction aspect. “
SWIFT gpi will allow us to make international payments much easier for customers. SWIFT gpi brings no surprises: we know what the cost will be and how long payments will take. Our business case for SWIFT gpi also involves an important cost reduction aspect.
Teresa Carrera Lourenço Montes
Damien Godderis, Head of Payment Networks – Payments and Receivables, Cash Management, BNP Paribas highlighted the fact that “SWIFT gpi was an easy case to sell. It solved a number of client issues. For me, it is already the new norm and everyone should be on board within two years at most.” Whilst for Pedro Jordão, Head of Operations, Banco ATLANTICO Europa, “real time is a game-changer that will allow us to take the client experience to another level.”
Loureiro also expressed the view that “SWIFT gpi should be passed on as a product for other segments like retail, smaller businesses, etc. It is very important for the ecosystem that everyone joins SWIFT gpi.”
SWIFT gpi was an easy case to sell. It solved a number of client issues. For me, it is already the new norm and everyone should be on board within two years at most.
Damien Godderis, Head of Payment Networks – Payments and Receivables, Cash Management, BNP Paribas
Saving costs and achieving greater efficiency with SWIFT gpi
According to Godderis, the business case for BNP Paribas was more related to cost-saving than charging customers for a new service. “I don’t think charging is an option as it closes a gap in our service offering. With SWIFT gpi, we receive fewer investigations from customers but also from other banks as they can track payments. In addition, we can better track the performance of our correspondents. The Tracker and the Observer are great tools and now, there is Observer Insights, which provides information that is even more granular. It really helps us renew our internal processes and be better prepared in case of investigations.” Despite the initial learning curve, the benefits are evident, also in terms of image.
Jordão referred to SWIFT gpi as a game-changer as the large majority of the gpi payments are settled within less than 30 minutes. “After we have got past the initial learning curve, we may find that we can build additional services that can deliver more value to our customers, which might have a positive impact on our revenue,” he said.
To close the panel, Cohen mentioned the fact that SWIFT will soon be asking for input from the whole community on the key elements to be included in the SWIFT gpi services in the near future.
Financial crime compliance: trends and challenges
Ben Zaug, Commercial Director Compliance, EMEA, SWIFT introduced his panellists and challenged them on their current compliance priorities.
Mario Neves, Head of Compliance, Millennium bcp explained that Portugese banks have invested a lot of money in new solutions as KYC processes are becoming more and more challenging. Catarina Pontes, Head of Compliance, Banco ATLANTICO Europa added that there are many different providers on the market. Large providers are expensive and smaller banks cannot afford them, so it is about assessing the risk appetite of your organisation and finding the best system for your institution. In this context, competing with major banks and unregulated fintechs is a massive challenge.
Looking at recent evolutions, Pontes explained that a huge challenge for the industry is how to deal with instant payments and make sure the screening of transactions remains very efficient in an instant payments environment. This is an issue not only for compliance departments at banks, but also for all stakeholders (banks, regulators, customers, etc.).
Pontes went on to talk about the importance of having a global company awareness of what compliance means, what the goals of each regulation are and how it impacts the bank’s activity. She explained that it is not always easy to understand what the regulator is trying to achieve and that education plays a key role in this. Responding to this, Neves added that due to different regulations in different countries, the compliance specialists jump from one implementation to another and it is essential to ensure that employees in compliance departments are trained on an ongoing basis.
Looking at new technologies and the use of artificial iIntelligence, both panellists agreed that there is a need to explain to regulators how the technology works and why it is a good idea to use it.
Evolution of compliance in the coming years?
For Neves, the evolution will be three-fold: 1) Evolution of the systems, 2) Introduction of new technologies and 3) Different ways of performing compliance checks. Pontes agreed with Neves, emphasising that in her view there will be a significant increase in the use of technology (AI, robots, etc.).
Dra. Elsa Costa Almeida Graça, CIO, Santander Totta went through some of the main trends that can be observed today:
- Customers expect everything today. Banks have to cater for the many different customer profiles you have. For instance, an 18-year old and a 60-year old have different needs and interact with a bank in a different way.
- Digital players think in terms of lifestyle, not industries.
- The digital revolution is ongoing and most banks are trying to deal with the fact that a myriad of fintechs have emerged.
- Both banks and fintechs must be humble and work out how to best cooperate. Banks have the scale and experience. Fintechs can help the banks.
- The roles in banks are changing and people need to be re-skilled. Working in silos is no longer an option.
In her presentation, she described some new ways of working today, citing agile delivery, design thinking and a new culture as key enablers. It is all about people and about how to break down the silos in banks. The orchestration of all this melting pot is a challenge, she explained, but banks have always faced challenges and they are resilient.
Drawing her presentation to a close, Dra. Graça said that she is convinced that “the way people work and live will change for the better. As hierarchies collapse and cross-functional teams assemble and disassemble leaders become co-creators and collaborators. We need to develop more agility, flexibility and talent. And we have no other option: the digital transformation will happen. Keep learning, keep working and do your part to make things better.”
Claire Josserand, R&D & Innovation Manager, SWIFT, gave the audience an overview of the research and development (R&D) work that the SWIFTLab is conducting. In her introduction, she explained that SWIFT innovates to stay relevant in the payments space. Starting with what SWIFT knows, the organisation brings together several stakeholders (fintechs, young academics via the SWIFT Institute, Innotribe and other external partners) to innovate. Around 40 innovative ideas are currently being processed.
In addition, Josserand shed some light on the hackathon initiative at SWIFT. The SWIFT hackathon is organised every year. In 2017, it gathered 215 participants from across the company over three days, with 48 teams developing 84 ideas. Ideas by people. Powered by technology.
She presented several R&D initiatives ranging from cyber to business initiatives (cyber, ISO20022 and APIs, Distributed Ledger Technology, Artificial Intelligence, Business Initiatives). At the end of her presentation, she invited the audience to reach out to her and her colleagues from the SWIFTLab if they have any suggestions (email@example.com).
The panel on innovation started with a discussion on how to put the customer at the centre of the digital transformation process. Victor Martins Ferreira, Deputy Head of Digital Division, Caixa Geral de Depósitos explained that the customer experience is at the root of digital transformation and this is leading to a shift of mindset in many organisations. If we look at major platform business such as GAAFA (Google, Apple, Amazon, Facebook, Alibaba), the customer experience is at the centre of their development process and these platforms are particularly good at anticipating and even creating new customer needs.
Ferreira expressed the view that “digitally born” companies have no legacy, which makes it easy for them to develop new solutions. Dra. Graça added: “We should try to leverage what we are good at and do that even better, rather than trying to diversify and moving into areas that are not into our core business.“
Both Dra.Graça and Ferreira highlighted the challenge of getting the workforce ready for what is coming. According to Ferreira, his organisation has reached over one million digital customers and there is a huge change in customer behaviour.
Talking about regulation, all panellists agreed that it is important that companies playing on the same field should operate according to the same rules and that this is not the case presently.
Concluding the session, the panellists looked at the impact of technology in the mid-term and expressed the view that innovation and digital transformation are certainly all about technology but it is essential that the customer experience is always the driving force behind any digital transformation project.
Cybersecurity – Top of mind more than ever
Opening the panel discussion on cyber-security, Luis Gonçalves, Head of Cybersecurity, Banco de Portugal stated: “We live in the era of Cyber-Insecurity”.
He explained that “the cyberspace poses a continuous threat to financial institutions. Cyber risks are continuously present and pose a highly ranked threat to the proper functioning of the financial system.
Cyber attacks are permanent, complex and becoming more sophisticated.” The same sophisticated attack targets banks in the same way, regardless of their size and the scale of their cyber protections.
Such attacks are evolving in nature, from disruptive attacks to destructive attacks. Furthermore, several attacks are being combined into several stages, in order to increase the chances of success.
As one of the most cyber-aware industries, the financial sector faces more advanced threats, especially given the levels of interconnection within the industry and third-party dependencies. Indirect attacks are becoming mainstream. Interconnection leads to new dimension of cyber risk which is still underestimated: the rise of systemic risk.
Direct losses due to cyber-attacks are generally unrelated to the size of the financial institution. This reality makes it necessary to have a common baseline for cybersecurity across the financial industry.
Focusing on the nature of cyber-attacks, Gonçalves said that the most common and impactful include:
- Attacks on money transfer operations and systems;
- Compromising ATM operations;
- Malicious software introduced into bank systems as well as ATMs;
- Malicious mobile applications posing as legitimate, but aiming to steal banking credentials;
- Ransom-based attacks, disrupting operations and loss of data.
As a consequence of a disclosed cyber-attack or breach, companies fear damage to their reputation and potential loss of business. In order to avoid such situations, withholding information is common.
Such behavior, however, leads companies to contribute to lack of context and once again, to the rise the level of system-wide cyber incidents.
“Globally, 1 out of 5 cyber-attacks targets the financial ecosystem. In EMEA, the financial sector is the one suffering the most cyber-attacks. There is no secret formula for holistic cybersecurity!” stated Gonçalves.
Despite being one of the best prepared, the financial sector is very prone to cyber-attacks. Financial institutions can become particularly vulnerable due to the existence of legacy and older systems that might not be able to face cyber-attacks. When considering the hyper-interconnected financial system, a single successful cyber-attack can be all that it takes to spread systemically.
On another dimension, (cyber) financial fraud is unprecedentedly increasing, driven by financial flows and techniques that take advantage of the cyberspace in order to bypass classic anti-fraud systems.
Reputational damage leads to indirect costs, which are added to financial losses, as a direct material consequence of a successful cyber-attack.
A transformation of financial services is underway. A new financial ecosystem is growing with new players. Financial business models are evolving, moving fast to a new Digital First World. Banks deploy new services, which become new entry points for cyber criminals. Cybersecurity should be in balance with the financial transformation and innovation.
Cyber security must allow digital financial services to keep running under adverse conditions. Cyber resiliency enables financial services to be elastic, and continue operating after a disruptive cyber event. Cyber resiliency is a goal all financial institutions share, given that the whole financial ecosystem is only ever as strong as its weakest link. Based on innovation, technology surfacing from the 4th industrial revolution and standards, cyber resiliency will fuel the financial digital first world.
We live in the era of Cyber-Insecurity. The cyberspace poses a continuous threat to financial institutions. Cyber risks are continuously present and pose a highly ranked threat to the proper functioning of the financial system.
Cyber-attacks are permanent, complex and becoming more sophisticated.
Luis Gonçalves, Head of Cybersecurity, Banco de Portugal
When it comes to cyber threats, no financial institution can survive or thrive on its own. Sharing insights among financial institutions either public or private, deepens global understanding of the threats facing the financial sector. Federated models are of utmost importance and institutions must come together and collaborate deeply.
As a conclusion, Luis Gonçalves stated that “Deep collaboration is the only way to enable sector-wide vulnerability understanding, thus minimizing cyber threats that would potentially disrupt critical economic functions, thus endangering financial stability.”
“In the increasingly hyper-interconnected financial systems, only strong and effective collaboration between all entities will allow the build-up of the future financial services“
Closing the day, Rubén González, Country Manager Portugal, SWIFT, shared business intelligence about the Portuguese market and global trends in an interactive way and thanked all delegates and speakers for their active participation inviting them to a closing cocktail.