Real-Time Payments Aren’t Just Faster, They Are Change Agents
Real-time #payments may finally reduce the business use of checks, and #they will cut manual processing for reconciliation.
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The need for change in trade finance
The role of the bank in the #trade #finance industry has historically been to satisfy four main areas:
- facilitation of secure payment execution
- provision of finance
- management of data and information
- mitigation of risk
In today’s market all these services are available through non-bank service providers, posing a threat to the trade finance establishment.
The over-reliance on paper and manual checks means that the current processing of transactions is fraught with inefficiencies and risk, which ultimately leads to higher costs. #Banks often seek to protect their margins in traditional trade finance by passing these costs on to the corporate client, driving such clients towards open account trade that is riskier but cheaper.
This is a unique moment in our industry, when changing regulation, increased availability of emerging #technology and changing expectations from corporate clients are pushing banks to #change their business models beyond the simple digitization of current processes.
In a sector particularly vulnerable to fraud, letters of credit, standby-letters-of-credit and other trade finance instruments are used to ensure exporters are paid on time by importers. Meanwhile, banks guarantee that importers receive goods that match the terms of the letter of credit. Bank-intermediated trade provides confidence and fosters trade around the world while providing banks with a low-risk source of revenue that is capital efficient under Basel III.
However, this business is undergoing deep changes:
- Globalization of the economy has increased knowledge of international trade, helping corporates to better understand cultural and local market requirements in emerging markets. The ability of corporate clients to be self-sufficient in mitigating some of their transaction risk has fueled the shift to open account financing. Although this type of financing does not guarantee payment in the same way a letter of credit does, it is faster, cheaper and relatively frictionless in comparison to a LOC. The emergence of multiple solutions for clients is now calling for a client-centric approach.
- Digitalization tends to change corporates’ expectations. Corporate treasurers are younger than ever before, and their experiences in shopping and conducting other personal business lead them to expect the same kind of experience in their professional endeavors. They are increasingly looking for an end-to-end digital experience, encompassing communication and documents, advanced reporting and tailored product and service offers. In parallel to client experience, digitalization is a great way to improve employee experience and strengthen the bank’s compliance and risk monitoring.
- Particularly in emerging markets, there is a shortage of financing available for small to medium enterprises (SMEs); this is due to the retreat by global banks from these countries and a lack of liquidity and correspondent banking relationships for local banks. Over 60 percent of SMEs in emerging markets are rejected for financing and nearly 30 percent do not reapply according to the ICC. In the volatile and rapidly changing world of trade policy the #need to build shorter, more agile supply chains is even more pressing and the creation/participation in “marketplaces” becoming a real opportunity, in particular for SMEs.
Out of this mix of social, technological and regulatory change, next-generation trade platforms and processes are emerging. Distributed business models, which no longer rely on banks being central to the financial supply chain, mean that those institutions are looking at ways to retain their relevance to corporate clients. Traditional competitors are collaborating through consortia of ecosystem players, working for the benefit of the entire industry instead of being self-serving in their approach.
In the second part of this series, we will look at how #blockchain and other technologies are helping banks rethink and redesign their approach to trade finance.
Join me at Sibos 2018, as I moderate the “Delivering the trade environment of the future” roundtable. Register here.
The post The need for change in trade finance appeared first on Accenture Banking Blog.
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Will Automation Change Appraisals for the Better?
For as long as #appraisals have been necessary, #banks and credit unions have been asking the same question: How long will it take to get my appraisal? There are many factors that affect the timing of an appraisal: finding a certified appraiser, scheduling, research, and analysis, but with #automation tools, many of the more problematic […]
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To Prevent Breaches, Banks Must Change the Way They Face Threats
Security firms have evolved their techniques to meet mounting #threats on a digital front, as such #banks #must #change too. At NICE Actimize, a cybersecurity and compliance firm established in 1999, Mary Ann Miller, senior director and fraud executive advisor, told Bank Innovation that within banks, departments have merged to better address threats. “Banks are […]
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Payments: The first key battlefield signaling broader change in US banking
Fueled by innovation, the US #banking market is undergoing tectonic shifts. Many players are looking to #payments as a crucial #battlefield for #change. Incumbents—#banks and established fintechs, such as networks and card processors—have transformed the transactions environment over decades for the benefit of end users. New generations of #fintech players, both partners and competitors, have used digital business models to enhance the customer experience and open the door to new segments and revenue sources. Now, with the growing influence of Amazon, Apple, Google, Facebook and other similar big #technology (bigtech) firms, along with increasing customer sophistication and ongoing overseas disruption, the fundamental aspects of revenue drivers and share are in question.
The storm beneath the surface
Accenture examined potential trajectories of current trends, which could present revenue challenges for US banks in payments. Our analysis indicates that incremental revenues are projected to accrue primarily to non-banks over the next few years. The beneficiaries include players already in the value chain (those less exposed to customer demands, such as rewards, and with more direct access to key platform levers, like processing) and new forms of fintech, bigtech and other third parties phasing into the market.
Figure 1: US payments revenue ($ BN)
Source: Accenture research and analysis US disruption is anticipated to differ from that faced in Asia, Europe or other markets where the external impetus—competitive or regulatory—is accelerated and often direct. At least initially, established players may be situated to benefit financially; as evidenced by ApplePay, it can take years for new, disruptive platforms to scale. For those who are unprepared, gradual pricing pressure and value leakage may begin to erode many existing business models.
Open to change
Of course, a wide range of scenarios are possible for the future of US payments with several factors much #broader than payments (including artificial intelligence, #blockchain, cross-border transactions, major geopolitical movements, Open Banking, privacy, regulation and security) at play. Recognizing the range of potential outcomes, US payments players have the ability to position themselves for success.
Incumbents have already begun moving to protect their revenue base by introducing innovative solutions, such as Zelle. Going forward, technology deployment needs to happen faster with more agile adoption and monetization of technologies, such as data analytics, blockchain, and AI/machine learning, that can rewrite the payments equation. These new technologies offer a pathway to optimize the go-to-market model, breaking down silos to improve revenue and efficiencies internally and value chain orchestration externally.
Banks and other payments players can increase relevance by focusing on the customer journey and use cases to add value. Amazon Go, a new kind of technology-based retail store from Amazon, is just one example of looking in and beyond the existing value chain to rethink the customer experience. If incumbents view the customer as the North Star and are open to all that is possible, then they, too, can be disruptors, instead of the disrupted.
Change can be challenging. However, payments players are in the fortunate position to be able to write their own story. Now is the time to do so.
I invite you to read our report, Driving the Future of Payments
Special thanks to Tom Skomba, who contributed to this blog.
The post Payments: The first key battlefield signaling broader change in US banking appeared #first on Accenture Banking Blog.
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Will PSD2 APIs and instant payments change the game in European payments?
The EU’s Second Payment Services Directive (#PSD2)—and the #European Banking Authority’s related Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA) and Secure Open Standards of Communication—represent a turning point for existing business models in #payments in Europe. PSD2 and RTS open up #banks’ systems to third-party payments services providers (TPPs) for account information, payment initiation and confirmation of funds via an access interface such as application programming interfaces (#APIs).
The final RTS published on 13 March 2018 specifies only the technical framework conditions and not interface standards. To help fill this gap, the Berlin Group—consisting of almost 40 banks, associations and PSPs from across the EU—has defined a common API framework called “NextGenPSD2” (current version 1.1) for the use cases specified in PSD2.
The major impacts in this context include:
Payment initiation opens up: For payment initiation, the NextGenPSD2 framework offers, amongst others, SEPA #Instant Payments (SCTInst) as a payment instrument. The combination of PSD2 and SCTInst has huge potential to disrupt existing business models, depending on the level of API standardization and penetration of SCTinst in the EU.
Impacts on the cards business: TPPs such as merchants, #technology giants and PSPs could use the PSD2 APIs to make instant payments directly from customer accounts to the TPP bank account, bypassing card schemes and fees.
Frictionless instant payments with PSD2: Customer experience is key in payments. Friction and slowness can reduce acceptance of the payment instrument on both the customer and merchant sides, leading to higher cancellation rates in eCommerce checkout processes and longer queues in the store.
But there are issues with SCA—PSD2 APIs require banks to perform SCA on every transaction. This could lead to friction in the user experience at the point of sale (POS) and in eCommerce. PSD2 provides a convenient way to solve the issue of SCA through inherence and biometrics-based SCA methods. As innovation in this area continues, there will be a huge push towards creating RTS-compliant biometrics authentication methods.
How banks can innovate
TPPs such as tech giants and fintechs are not the only ones that could profit from PSD2 and instant payments—banks could also play an important role. Access to accounts and instant payments become commodity services with low or almost no margin for banks. New revenue opportunities will be in the value-added services and the platform ecosystems around these commodity services. “Going beyond PSD2” will include opportunities to monetize additional data and services combined with instant payments.
Read my complete article at InstaPay for more insights and share your views.
The post Will PSD2 APIs and instant payments change the game in European payments? appeared first on Accenture Banking Blog.
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How ‘Computer Vision’ May Change Banking
Chatbots are great for personal interactions with #banks, but the camera may soon provide an even more powerful tool for gauging customer sentiment. How? By reading the expression on a customer’s face, the way another human would. Seems unbelievable, right? Not according to Raghu Rajah, vice president of digital #banking, engineering and product management at […]
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Even £200 Bribes Don’t Lead Customers To Change Banks
Banking #customers may complain about their bank, but they rarely move.
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Culture change happens when organisations are transformed by people
POWER TO THE #PEOPLE
Last time we introduced some core ‘beliefs’ that are key to successful #culture #change. Now we’re going to look at these beliefs in a bit more detail: In particular, what’s the role of the individual in culture change?
To gauge how successfully their change programmes are progressing, #organisations need to understand what’s going on enterprise-wide. There are various ways they can do that, from tracking what people are actually doing—their day-to-day functions—through to in-depth behavioural analytics. All of that provides a good basis for benchmarking the maturity level of the organisation, deciding how to measure success and, of course, how to move the dial.
Those insights inform how organisations prioritise the design of change programmes around structure, people and behaviours. Crucially, it helps them think about designing the appropriate structure for driving the change the organisation needs.
It’s only with the right structure that people’s behaviours—including decision-making, empowerment and lowering the centre of gravity—will start to change. Once people have more empowerment through the new structure, they need to learn how to use this to behave more productively.
This is where small, incremental changes come into their own. As people begin to do things differently, this becomes a form of habit. And as that #happens, new behaviours start to permeate the enterprise and become embedded. Think about this as a cycle—from understanding to design to structures—all geared to enabling people to behave differently and make changes to how they operate.
To bring this to life, think about the incremental changes that an organisation might want to set in motion. A great example? The number of people that typically attend meetings. This can easily be changed so only people with the opportunity to make a decision actually go along.
If a staff member and their direct superior are both scheduled to attend, they need to make sure that only one of them goes. Otherwise, it sends out the signal that there’s a lack of delegation. It also shows that people are not sufficiently empowered.
The follow-on? Whoever does attend must make a decision. That’s more efficient for everyone. There’s no need for a follow-up meeting. Incremental changes like these help to encourage a culture where people have more confidence in their own judgement.
Other focuses for incremental change could be the time it takes to get new products or services to customers—or introducing greater customer-centricity. Whatever the objective, it’s all about being able to continuously rework an organisation’s structure in pursuit of a particular goal, rather than having to do a major restructuring once every five years.
One priority will be the creation of agile, multi-disciplinary teams formed to solve specific customer problems with a scrum-style approach. This too comes back to analytics, of course. For these teams to come together with the right capabilities, organisations need to know what’s going on enterprise-wide.
Using analytics, they can get those insights and use them to carry out the workforce planning that’ll ensure they get the right skills through the door for those teams and rapidly pivot the organisation to adapt to new situations.
Also, a connected point, individuals need to take more responsibility for their own skills so they can continue to be relevant. The emphasis is on people planning their own careers, rather than relying on management to do that for them. If employees have universal skills, then they’ve got applicability to a whole range of situations, not just a single role.
A good way forward is for the business to think about developing an internal consultancy function, which can be hired on a project-by-project basis. Designing in that kind of flexibility puts the emphasis on individuals to really understand their worth, short and long term. This new kind of enterprise is less paternalistic than what went before. And it’s much more dynamic.
Employees actively want a gig career, where they evolve a portfolio of skills and keep on learning new ones. And older people within the organisation are often, perhaps counterintuitively, more receptive to this new way of working. They acknowledge that they’re not digital natives, and as a result may feel disconnected, from their co-workers and quite possibly their children. The moral? Don’t make assumptions about the workforce.
Circling back to where we started, it’s all about setting the direction for change, making sure everyone in the organisation knows they have a role to play in that change, and crucially, continuously tracking progress towards clearly defined objectives.
Thanks for reading.
The post Culture change happens when organisations are transformed by people appeared first on Accenture Banking Blog.
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10 trends that could change the shape of banking in 2018
“It’s tough to make predictions, especially about the future.”
Read the report Yogi Berra had it right.
Nevertheless, I would like to share some of my impressions about the issues that will be top-of-mind for #banking executives this year.
Originally posted to my Forbes.com blog, these thoughts came together as a result of the various experiences and conversations I’ve had with clients over the past 12 months.
People will have their own opinions and in the end, I may be proven wrong. Regardless, I welcome lively discussion and discourse. Here are 10 trends to keep an eye on in 2018.
The post 10 trends that could change the shape of banking in 2018 appeared first on Accenture Banking Blog.
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