An Interview with Darryl Proctor, Product Director – Payments, Temenos
Q. The world of payments is moving very quickly, where do you see the market going and why?
A. The global network payment services market is expected to witness growth at a CAGR of 7.7% over the next five years. This is due to the widespread adoption of digital payment solutions by not just businesses and consumers, but also governments, banks, and financial institutions. However, adoption within Belgium is fairly low compared with other European countries, at only 21% compared against a European average of 25% . However, over the next five years , non-banking companies such as device manufacturers, technological firms, retailers, and e-commerce payment providers are set to create new and innovative payment platforms such as mobile wallets, integrated POS systems, wearables, and mobile applications. As a result, digital payments are expected to account for approximately 20% of all retail transactions by 2021 globally. It is therefore essential that Belgian banks have a strategy (and infrastructure) to encourage and boost take up of these channels to their customer base.
Real-time payments also will play an enormous role in the evolution of the payments market, particularly in Europe. We have recently seen the European Payments Council (EPC) include instant SEPA payments within the 2017 SCT Inst Rulebook. Although this refers to SEPA payments, it is surely only a matter before all the European countries follow from a local payments perspective, and Belgium is no exception. Back in April last year, a project to set-up Instant Payments was discussed at a Fabelfin session . This session highlighted that Febelfin WG Instant Payments came up with a vision note on instant payments claiming
momentum to start up a formal Belgian initiative; a few months prior the FPC had decided to set up a formal project on instant payments and by January 2016 the instant payments project had already been project started. This increased interest on real-time transactions is driven partly by the ubiquity of smartphones and other connected devices, which have catalyzed consumer expectation for immediacy. It also reflects the digitization of the supply chain in which real-time payments enable corporates to collect and analyze financial transaction data in real-time, derive financial insights immediately, and drastically reduce the effort involved in reconciliation. As well as meeting consumers' rising expectations around payments, the banking industry is facing rising pressure from governments to create ubiquitous nationwide and regional immediate payments systems that can be used by all financial institutions. However, regardless of whether Belgium moves to their own real-time payments scheme, to support SEPA real-time payments banks within the region must have the ability to process transactions according the rulebook (an average speed of 10 seconds and a maximum amount limit of €15,000 per transaction). However, with a low take up rate within the region from a digital banking perspective (21% ) and the associated benefits of banking through these channels , a move to real-time payments could boost this low rate and help pay for the associated payments hub solution to support real-time.
But it's not just digital and real-time in the traditional sense that banks need to be able to manage. Banks and other financial institutions have been active in investing (time and/or money) in the blockchain space. Blockchain technology allows everyone to hold and make transactions as strangers but in a completely transparent manner without a mediator. This concept can be applied to the entire digital world making any kind of exchange/ transactions secure (and not just cryptocurrencies such as Bitcoin). And Belgian banks have been no exception in realising the potential that blockchain offers. Very recently, Belgian Bank KBC announced the development of a blockchain-based app for cross-border SME trade and they are not alone within the region at recognising the potential.
Q. Bank needs can vary by region, what requirements does the Belgian banking market have?
A. Building on my last point around immediate payments, those banks from within certain regions where instant payments are planned or being discussed need to have the right infrastructure to be able to manage these payments according to the schemes rules. We have seen that historically, these rules change continually right up until their launch and regions will have their own particular needs as well. Banks need to be looking now at their payments systems and understanding if they are sufficiently agile and importantly what the cost is to adapt quickly to these changing requirements avoiding any impact on their service. Straight through processing is of course key here. Quite often the cost of adapting is greater than that of replacement.
From a digital perspective, payments requirements vary greatly by region, however, given that Belgium is within Europe the countries needs may not vary hugely from those of its neighbours. We have already seen the UK successfully using Faster Payments since 2008 and now we are seeing other European areas/countries committed to launching real-time payments in the near future (European Union, Finland, Netherlands, Norway, Portugal, Spain). When Belgium does move into this area then these will be great examples for regional banks to learn from. However, the needs of bank customers are sometimes very different at a granular level; the way customers bank in France (with still a reliance on cheques) for example is very different to those in the Netherlands (where digital banking is already very strong – 47% ). Regardless, it is essential for a banks payments system to be easily adaptable to the changing needs (and strategies) the bank, their customers and regulations (including schemes such as instant payments).
However, performance is also key. Real-time payments systems must meet SLAs, it must be resilient, and link seamlessly to the banks core banking platform for true, continual straight through processing (STP). And, let's not forget though, that in order to service real-time payments, you need to ensure that your foundational core banking software can cope too. Legacy, in house systems, must be able to cope; core transformation is as important as a modern payments platform in this space.
But real-time isn't just about processing. Remember that real-time payments are irrevocable, once sent to the clearing real -time accounting with the core back office and real time status tracking must be available. Plus, real time enquiries, will need to be managed, offering the ability to view unconfirmed Instant Payments with timeout expiry, for monitoring and remedial action. Real-time notification of payment status to payer (for outgoing payments) and payee (for incoming payments), must also be considered.
Q. So how can Temenos support these from a payments perspective?
A. In terms of how Temenos can support, to enable real-time payments, banks need to have the right infrastructure to be able to manage these payments according to the schemes rules. We have seen that historically, these rules change continually right up until their launch and regions will have their own particular needs as well. Belgian banks need to be looking now at their payments systems and understanding if they are sufficiently agile and importantly what the cost is to adapt quickly to these changing requirements avoiding any impact on their service. Straight through processing is of course key here.
Quite often the cost of adapting is greater than that of replacement, however, with the real-time payments for SEPA now committed it has never been more important to ensure banks have the right systems. It is therefore essential for a banks payments system to be easily adaptable to the changing needs (and strategies) the bank, their customers and regulations (including schemes such as instant payments).
Q. Payments Hub may offer something extra in the market, but Temenos is very new in the world of payments isn't it?
A. Temenos has actually been processing payments for well over 20 years through our Core Banking solution. We learnt through our core banking software which supports many millions of payments a day across the globe, that building a highly configurable, scalable, resilient, real-time 24/7 platform that supports innovation has to be at the foundation of a payment hub. Temenos built the Payments Hub from the ground up to support that. Instant payments is one such innovation that for a modern platform like ours allows us to easily and readily adapt it to the various types of instant payment schemes on offer, or being developed around the world. Most if not every transaction that is generated in our core banking solution results in a payment. With our Payments Hub solution, we take that one step further servicing a critical part of the bank in a way that no other software vendor can.
Q. So 2017 will be a key year in the world of payments, but what makes the Temenos Payments Hub solution so different?
A. We live in a digital world. Having a true real time digital core banking system with a payments hub designed by banks, for banks, offering excellent breadth and depth of functionality as well as flexibility through configuration is the only way banks can meet the demands of their customers. Our hub is sufficiently agile to work with any core banking solution, however, the additional value and uniqueness it brings is that it allows those banks with our core solution to have a complete, seamless banking system without complex integration associated with separate systems. Banks can now offer their customers a harmonized payment experience with true straight through processing, not available anywhere else today. In addition, the solution provides fully centralised control with a 360° view of all transactions in real-time and weight based processing enabling easy prioritization at customer level or according to payment volume or value.
Q. The digital bank of today / tomorrow needs a digital real time core, how does the payments hub support the world of tomorrow?
A. Being a truly digital bank is no longer a differentiator, it is essential to service delivery and banks are now realising this. To survive (and profit) banks must transform their customers' experience and offer innovative banking solutions:
- Offering the right customer insights at the right moment, via the right channel.
- Drive massive efficiencies in the back-office; ultimately, front office differentiation with back office automation.
- Draw insights in real-time and from multiple datasets; to ensure a quality, user experience.
- Speed of fulfilment is also critical; the digital solution must therefore be front-to-back.
- Stay ahead of market trends; with tools to design and deliver new banking products.
- Open API's must be accessible; ensuring that easy access to innovation and services from third parties using APIs is available.
- Other elements such as modularity, deployed in stages, allow for faster time-to-value and lower risk and upgradability (perhaps independently).
This ultimately comes down to using a single platform, a recent shift in banks decision making highlighted within the recent Ovum Decision Matrix: Selecting a Digital Banking Platform, 2017–18. The Temenos Payments Hub offers this seamless integration with the core banking platform to ensure this level of straight through processing that's needed for a truly harmonious, customer experience; one that is truly digital.