Bank-led collaboration is driving payments transformation

By Fred DiCocco, Global Head of Cash Management Business Development, Treasury Services, BNY Mellon

Through industry cooperation – with banks at the fore – new technology can be channeled for a revolutionised payments space. Fred DiCocco, Global Head of Cash Management Business Development, Treasury Services, BNY Mellon, explains.

The rapid growth of fintech influence, increasingly sophisticated technology capabilities, growing client expectations, as well as new regulatory requirements, are fuelling the need for modernised payment systems and the development of cutting-edge digital solutions. Undoubtedly, the payments space is experiencing a period of rapid evolution, with technology presenting opportunities for the industry to transform how transactions are processed.

One area of development is the advancement of real-time settlement.  Over recent years, 30 countries have introduced – or have made plans to introduce – real-time domestic payment schemes. The US Real-Time Payment (RTP) initiative – the first significant change to US payment platforms since the Automated Clearing House (ACH) was introduced in the 1970s – is due to launch during Q4. Meanwhile, Australia’s own New Payments Platform (NPP) is also set to be implemented by the end of this year.

With RTP settlement the restriction of business hours is becoming somewhat redundant. Domestic schemes are creating a 24/7/365 instant payment service and allow both the payment beneficiary and originator to have real-time access to payment information. In terms of cash management, transparency and reconciliation, the benefits are immense. Not only can immediate payments save time and costs with respect to tracking and reconciling payments, such transparency can also speed up value and supply chains by enabling the more efficient settlement of commercial transactions including expediting the shipment of goods.

Real-time systems are increasingly becoming the norm for domestic payments – changing the culture of how and when customers and businesses perform transactions.

The next step: cross-border payments

While substantial progress has been made when it comes to domestic payments systems, cross-border payments are yet to fully experience the benefits that improved technology could bring. Certainly, there is room for improvement in the cross-border infrastructure, with payments taking up to three to five days to clear. As the volume of cross-border payments grows at a rapid pace, banks will need to apply the same improved speed, efficiency and transparency to international payments.

This is no small feat, and the payments industry is working hard to make real-time global payments a reality. It’s clear that collaboration across the industry will be crucial if change of such scale is to be successfully implemented, and if technology is to be leveraged in full.

Harnessing technology for cross-border payments

SWIFT’s global payments innovation (gpi) initiative is a prime example of industry collaboration – and could potentially transform international transactions. SWIFT gpi, which seeks to streamline and increase the transparency of cross-border payments, has so far attracted support from over 110 banks, with the capability to channel payments into more than 224 countries – representing approximately 75% of cross-border traffic .

SWIFT’s established regulatory structure, technology and standards (that are recognised by over 11,000 banks) are playing a fundamental role in the programme’s broad acceptance. And it is this cross industry collaboration that will allow new developments – including SWIFT gpi’s cross-border payments Tracker – to be absorbed and applied to the mainstream more rapidly in the future. Moreover, SWIFT gpi’s cross-border payments Tracker will enable gpi banks and their clients to view the status of a payment, and any fee deductions, at any stage in the payment process, throughout the correspondent banking model.

Another current topic in the payments industry is “blockchain” – distributed ledger technology that has the potential to enable a cross-border payment to be processed within minutes . Blockchain’s ability to streamline the payments process could not only help to enhance transparency, speed of settlement, trust and security; the technology could potentially improve efficiency by cutting the number of stages involved in processing a payment.

Unlike SWIFT gpi, however, blockchain is starting from scratch. And substantial development is needed before it can play a larger role in global payment schemes, as well as gain the trust of regulators. Currently, SWIFT and a number of banks – including BNY Mellon – are collaborating to establish proofs of concepts (PoCs) and explore how blockchain could complement existing processes, such as nostro account reconciliation.

An industry aligned

Industry collaboration is undoubtedly playing a key role in shaping the future of payments. Banks, clients and fintechs are increasingly working together to develop new solutions, which can enable them to potentially be put into practice far more quickly.

Neither banks nor fintechs can address global payment market needs alone. Although fintechs have proven aptitude for technological development, they often lack the industry expertise, working capital and established client trust that banks have acquired over decades. It is through partnerships – banks and fintechs leveraging each other’s strengths – that payments can be optimised through digitalisation.

Moreover, collaborating with clients from an early stage is of great importance when developing innovative solutions. Given this, innovation centres – physical hubs where banks, fintechs and clients can work together to identify and develop transformative solutions – are pivotal to fostering client-centred collaboration.

Close collaboration with clients is important for delivering digital solutions with real added value. APIs (application programming interfaces), for instance, help clients connect and integrate with banks’ products and services in a far more efficient and streamlined manner. A key enabler for digital transformation, APIs contribute to changes in infrastructure and act as seamless, interoperable interfaces.

BNY Mellon’s new NEXENSM technology ecosystem, for instance, is a digital platform that integrates solutions and data from BNY Mellon, clients and select third-parties in one place. Currently, over 100 APIs are available in the API store for clients to choose from – with many more under development. Through customising APIs, clients are able to build their own services and systems – all the time enhancing their experiences and offerings.

Certainly, payments innovation should centre on the client. And by leading from the front, banks are initiating an industry-wide push for digitalisation, creating a chain reaction for fuller transparency and efficiency for payments.

The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.