For the vast majority of Sibos delegates, a similar experience will have marked the start of the conference week. Landing on the runway at Geneva airport, they will have switched on their mobile phones and been immediately able to call, text and use data services, albeit probably at a higher cost than at home.</p> This standard feature of modern travel is taken for granted because of seamless connectivity between telecommunications providers. Compare this with the processing of cross-border payments, and finance appears to be lagging well behind. This analogy was drawn by Anthony Brady, head of global product management at BNY Mellon Treasury Services</strong>, at one of several discussions dedicated to improving cross-border payments efficiency during Sibos 2016’s banking stream.</p> “In general, banks can’t tell their clients how long it will take to get the payment there, or how much it’s going to cost end-to-end; we can’t give them payment status information while the payment is in transit, and we can’t tell them when the beneficiary receives the funds. Compared with telecoms, I’m not proud of that experience,” said Brady.</p> Progress has been made towards real-time domestic payments in several countries, while the European Central Bank has set an ambitious deadline to implement a new scheme for instant payments within the Single Euro Payments Area by November 2017. There is widespread consensus on the need for such projects to bring payments services into line with other sectors. But the implementation of real-time cross-border payments requires banks to overcome a combination of technological, legal and cultural challenges.</p> Infrastructure investments</strong></p> One of the toughest issues is interoperability, as payment service providers and market infrastructures in different countries and regions need to be able to guarantee that cross-border transactions will indeed be settled without interruption or delay. Once interoperability is achieved, it could drive up competition and standards – and service levels – among providers.</p> “A lot of major investments by territories are focusing on modernising and opening up their payment systems, because connecting payment systems more efficiently improves user experiences for individuals and businesses,” said George Evers, director of immediate payment services at VocaLink</strong>.</p> Among the countries actively seeking to modernise their payments infrastructure is the UK, where the Bank of England’s Real- Time Gross Settlement (RTGS) system settles an average daily value of around £500 billion (US$615 billion) – nearly a third of the UK’s annual GDP.</p> The RTGS system itself is now 20 years old and suffered a major outage in October 2014, prompting the Bank to initiate an overhaul earlier this year. A consultation paper was published in September, with the aim of finalising a timetable next year and delivering a new system in 2020.</p> “We hear strong support for the risk mitigation characteristics of RTGS, but also recognition that rapid change in the external payments market requires a more flexible system, underpinned by a comprehensive technology refresh, and better access options for a wider range of entities,” said Andrew Hauser, executive director for banking, payments and financial resilience at the Bank of England</strong>.</p> The UK’s central bank plans to grant access to non-bank payment service providers, in recognition of their increasingly influential role. “The challenge is to ensure we are not taking in risk we don’t understand, so we have said we are open to non-bank providers getting accounts with us, enabling innovation and competition, but we won’t dilute our standards of stability to achieve that,” said Hauser.</p> </p> </div> </div> </div> Competitive forces</strong></p> The plans of central banks and other payments market infrastructure operators in Europe are informed both by increasing demand for real-time payments and the phased introduction of the revised Payment Services Directive (PSD2), which drives further harmonisation of the pan-European payments landscape and increases competition from non-bank providers of payment services.</p> PSD2 entered into force in January 2016 and will apply from January 2018. The European Banking Authority (EBA) is responsible for drafting 11 technical standards and guidelines in support of the implementation of the directive, in cooperation with the European Central Bank and the national supervisors in the 28 EU member states. A series of EBA consultation papers are being issued on these rules, with the aim of finalising them in 2017.</p> “PSD2 will be a paradigm shift in the European payments landscape that will introduce new types of payment services and increase competition between service providers,” Dirk Haubrich, the EBA’s head of consumer protection, financial innovation and payments</strong>, told Sibos delegates.</p> Haubrich admitted that the introduction of greater competition posed challenges for regulators as well as incumbents. “One of the challenges the EBA has been facing when developing the draft technical standard for the consultation paper on strong customer authentication and secure communication is that there are many new and small-sized providers in this space that may never have engaged with regulators and may never have responded to a consultation paper, but whose views the EBA is keen to hear before finalising the requirements.”</p> As banks and other service providers adjust to a more standardised, interconnected global payments system, the traditional means of effecting high-value, cross-border payments is also undergoing something of a makeover.</p> In a session on correspondent banking, Anurag Bajaj, head of banks at Standard Chartered’s transaction banking business</strong>, recognised the need for change in some core services, but also noted the level of trust and relationship knowledge that provides high barriers to entry for new service providers. Harnessed correctly, this could work positively for incumbent correspondent banks. Susan Skerritt, global head of institutional cash management and Americas regional head of Global Transaction Banking, Deutsche Bank</strong>, said correspondent banks’ expertise in fostering networks of long-standing cooperative relationships would prove valuable at a time of when collaborative networks of actors were defining the usefulness of new technologies.</p> On the collaborative front, panellists also saw significant potential for SWIFT’s global payments innovation (gpi) initiative to improve the user experience of crossborder payments customers through greater certainty and transparency on fees and schedules.</p> “The development of the SWIFT gpi initiative over the last year has demonstrated a high level of urgency and will give corporations the information they need to reconcile and forecast when they’re going to receive money,” said Skerritt.</p> Room for improvement</strong></p> Progress of this kind is likely to be welcomed by corporate treasurers, many of whom are struggling to adjust to the compliance obligations of their banking counterparts, and are feeling less benefit from technology-led innovation than retail customers. Know-your-customer (KYC) requirements have increased in scope over the past decade, but some corporate treasurers believe banks’ due diligence processes are placing unnecessary pressure on client resources.</p> “KYC is a significant issue for us, and I do have a problem when banks ask us for more information than they need because it’s ‘nice to have’, or they change their mind after three months or there is document creep. We fully intend to be compliant with KYC rules, but I have a fixed size of team and I am concerned that in the future it will be a team of administrators, lawyers and compliance experts that has nothing to do with getting our business done,” said Phil John, treasury director for Europe, the Middle East and Africa at Mars</strong>.</p> In a session on corporates’ needs from banks, similar concerns were raised by other treasurers, who suggested that basic processes were still in need of improvement. John’s call for banks to assume an advisory role with clients, rather than “classic” selling, was echoed by his peers.</p> “I want my banks to be consultative,” said Betsy Clark, treasury director at Alliance Data Corporation</strong>. “I want them to come to me with best-practice solutions, and to tell me lessons learned from other implementation projects. I would love to say we’re working with the banks on some really visionary corporate initiatives, but we’re still drowning in the basics of paperwork and KYC.”</p> The challenges of handling new regulatory requirements were also apparent in a discussion on intraday liquidity management, although panellists emphasised the need for banks to go beyond the rules. The Basel Committee on Banking Supervision has called for banks to implement monitoring tools for intraday liquidity management by January 2017. For many, however, the complexity of large banks means real-time liquidity management should be a matter of standard business practice rather than a regulatory mandate.</p> “We don’t manage intraday liquidity for regulatory reasons. We do it because it matters to how we run our organisation. When you process US$5 trillion of payments a day, you have to monitor liquidity on an intraday basis,” said Mark Trivedi, managing director of firm wide intraday liquidity at JP Morgan</strong>.</p> You can watch a number of recordings from this year’s Banking stream on sibos.com</a></strong></em></p> </p>