With customers demanding instant and frictionless financial interactions, the emphasis is on the banking world to utilise cutting edge technologies to enhance their services.
With the already rapid change in customer expectations accelerated by the pandemic, banks are having to interrogate the technology that they use to ensure they have the right tools in place to be able to cope with these evolving business needs.
One question that this poses, which was explored at SWIFT's recent event 'Towards instant, frictionless payments: Focus on Africa', is whether banks should focus on in-house innovation or invest in external sources. For Blessing Ehize, Head, Group Technology Operations at Ecobank, the answer is to explore both options.
"You need to look in-house for agility in terms of speed to market," Ehize noted. "Tools such as APIs can help you respond quickly to customer demands. But then you also have the big ticket items like having a data centre or servers, outsourcing can be more effective and less costly, and you get to tap the expertise of those providers. It's not a cost/security decision, it's an agility/efficiency decision."
Jack Ngare, Managing Director of the Microsoft African Development Centre, agreed that the 'buy versus build' debate for banks is not a binary decision, but more a spectrum for individual decisions.
"You take it as a case by case basis, and you look at what you're trying to achieve and your internal capabilities," Ngare commented. Then you decide whether you're going to hand it off to the fintechs and big technology firms outside to build and develop, or you identify that you are on to something that is going to really revolutionise your internal payments capabilities, so you keep it."
Cloud capabilities considered
For those third party providers, technology development can take a two-speed approach. There are innovations where they try to build things for the future that may not even have use cases today but they believe the future may head towards that direction, as well as innovations that are being built for right now in order to address customer needs.
"A good example of this approach is cloud," said Ngare. "Cloud existed way back in the 1990s, it was called grid computing but it simply didn't have the adoption that it needed. Now more companies are deciding that instead of buying hardware, they want a cheaper source of augmenting our computing power and storage, so more banks are moving towards the cloud."
This point was echoed on a French-language panel, where Ollo Anatole Noufe, Directorate of Information Systems at BNI Cote d’Ivoire said that as technology evolves quickly it is important to combine the right tools with the right methodology to satisfy customer needs. He noted that cloud is one of the enablers to achieve it. Brice Jean Letutour, Director of IT Systems and Technology at BC PME S.A. commented that: "externalising services on the cloud is a growing trend, it helps to reduce costs and requirements for infrastructure."
Interoperability is key
With third parties such as BigTechs and fintechs developing and offering technology solutions to banks, it is of course vital that banks are able to integrate these tools. As such, interoperability is a key challenge for banks, as Blessing Ehize explained.
The biggest headache right now for anybody running banking technology operations is integration.
"The biggest headache right now for anybody running banking technology operations is integration," Ehize explained. "Fintechs can have a silo mentality, focussed on their API. We have a sandbox where they can come in and test their API, until we are happy with it and it is approved. That's good for their API, but it's not the only API I'm consuming, there are a lot of things happening in the ecosystem to make a transaction for the customer. We bring in an API for the core banking, for the audit system, for the anti-money laundering system, I've got SWIFT and I've got sanctioning systems... all of these are connected for that one transaction to happen. The fintech goes away happy that their API works, but we are left to ensure that all of these systems work."
The issue of legacy systems also came up a major challenge for banks to contend with in a time of accelerating digital transformation.
"Legacy systems create an inertia for people to partner or even build internal systems that talk to each other, and it is costly to change this" said Ngare. "Having said that, banks can prioritise areas where they think they can get quick wins. Rather than rejigging their whole core banking system to work with rest API's or ISO 20022, they can pick small bits and pieces and make those work, while working on a long tail project to make all the standards conform to each other, and all protocols work and speak to one another."
Deep dive into SWIFT's transaction management platform
Underpinning SWIFT's strategy for frictionless, instant account to account payments is its new platform that is due to see its first release in November 2022. Tanja Haase, Transaction Management, Customer Engagement Lead at SWIFT, spoke about how the platform will work and how it will enable frictionless payments.
"The first thing we want to implement is a pre-processing step, to remove some of that friction upfront by validating some of the payment rules and also, for example, validating the existence of the beneficiary account," Haase explained. "We're looking really at the pain points that have been identified and where we as SWIFT and as a platform can tackle these."
Another important step of the journey to frictionless and instant payments is with the execution of the transaction. With the new SWIFT platform, the objective is to settle the payment as quickly as possible, targeting instant settlement.
The payment execution of the platform will build on the successful gpi rules, but also move beyond that. It's not a revolution, it's an evolution built on previous success.
"The payment execution of the platform will build on the successful gpi rules, but also move beyond that," Haase explained. "It's not a revolution, it's an evolution built on previous success."
The whole concept of the platform is based upon the idea of a central platform with a central transaction copy. By putting the business transaction at the centre, the complete up-to-date data is available to all transaction participants, as well as for processing by the platform's value added services. Importantly, rich data is maintained on the platform even if one or more of the transaction participants is using a less rich format.
"This is going to move beyond the existing channels and including native support for APIs, but it's also going to enable support for both the current and the new standards," said Haase. "We're looking at something where we can have different formats and different channels coexist and be used at the same time."
The ISO 20022 standard that underpins the transaction management platform supports data rich transaction information also enables embedded value added services on the platform, offering mutualised services that up to this point banks have had to develop and invest in individually themselves.
"The rich data will also help reduce friction through these embedded value added services," confirmed Haase. "Obviously this includes the validation of payment data upfront. But it could also go up to the level of fraud control services and screening, if customers want to subscribe to that as part of the central solution."
Deep dive: The SWIFT platform
Talking to the role of SWIFT’s new strategy and how it will benefit the payments industry, Sido Bestani, Regional Director, Middle East, Turkey & Africa at SWIFT noted that ‘To achieve interoperability, all market players must speak the same language. This is why ISO 20022 is so important. It will allow for greater reach and structured payment data."
In terms of technology and innovation, the event highlighted that even though banks face a number of challenges, there are opportunities to be grasped as well. As Brice Jean Letutour from BC PME S.A. commented: "Digital transformation is an opportunity for banks to be closer to their customers and to provide end-to-end integration of services."