Looking back at 2017, it was all about real-time payments, with the global move toward instant payments gaining momentum. In Europe, SEPA instant credits went live, and the European Payments Council announced that nearly 600 payment service providers from 8 countries are now signed up to offer SEPA instant credits. In the U.S. and Canada, programs to introduce new instant payments infrastructures moved forward.
More fundamentally, thanks to open banking initiatives in 2017, banks are under pressure to radically change their business models. This is true whether those initiatives are driven by politicians, as in Europe with PSD2, or by a competitive marketplace. Inevitably, open banking will drive down margins while stimulating new competitors in traditional bank markets such as payments.
All of this represents great opportunities for banks, with many beginning to respond well to these changes. True digital transformation is taking place across the industry. However, our research suggests that, while banks are transforming, there is opportunity to better align with customer expectations. For instance, corporates are looking for simpler and deeper integration of bank services with their supply chains, or new services such as support and advice on regulations. However, more than 50% of the corporates surveyed as part of the CGI Global Payments Research 2017 felt that their banks were not delivering on this.
It is clear that real-time payments are a fundamental building block for digital transformation, and banks are challenged to deliver new services and products, either directly or through open banking , to enhance customer relationships and create new revenue streams. Otherwise, they’ll end up on a path to “manufacturing” style services where volume and price are the only winners.
2018 payment trends
New regulations such as PSD2 and GDPR will come into force in 2018. During the year, other regulatory changes, such as the European Central Bank’s plans to build its new TARGET instant payment settlement (TIPS) system, will be well on the path to implementation. It’ll be interesting to see how TIPS comes to market. Will the ECB look to position itself as the European clearing and settlement provider for SEPA instant credits? And, how will SWIFT react to these market changes?
And, of course, one of the ever present challenges for banks this year is protecting their customer data and networks from the threat of financial crime and cyber attack, while, at the same time, complying with new regulations such as GDPR. As more services go real time, controlling the movement of money will be increasingly complex, difficult and costly, as will the management of customers’ personal data. The introduction of artificial intelligence and machine learning will help drive efficiencies and protection, and ever-evolving data management practices and solutions can help banks better comply with data handling requirements. This will be pivotal as the cyber and data privacy landscape becomes broader, with open banking paving the way for new providers to access bank customer data, raising further questions around liability and customer care.
Finally, the big conundrum for this year will be blockchain and distributed ledger technologies. The potential of these technologies is undisputed, and there will be continued investment and announcements of consortia and new pilot applications. If new solutions based on these technologies and their derivatives enter production, we’ll see seismic changes in the way services such as trade finance and payments are delivered. But, these technologies are still maturing and, with remaining governance, legal and management issues to be resolved, the key question will be, “Is this the year of production distributed ledger technology?”
CGI continues to work closely with clients across the globe in responding to payment trends and issues and implementing innovative payment solutions. For more details on our research, insights and work, feel free to contact me.