• Payment systems are changing the way banks interact with customers and vice versa.
• Information within ecosystems are critical for banks to offer better services.
• Consent management is important in addressing issues about data protection.

Foo Boon Ping (FBP): We are speaking with David Chance today about payment opportunities in Asia and beyond, in the Middle East. Tell us some of the opportunities and challenges that you see today. 

David Chance (DC): We're seeing a lot of movement in terms of the payments going around. The speed, the immediacy – that's driving a lot of the decision making. It's not just the speed of the transaction; it's the fact that I can initiate and I can see that transaction running at a time that suits my business process. I know that I've got finality on the payment as well, especially, if that's a cross-border type transaction. I think that's really changing the mindset of a lot of the banks. We're actually looking at what is the business process of my customer? How do I support that business process? How do I drive through efficiencies, and to make their business process easier? So, we're getting a lot of banks, financial institutions, not just looking at the payment element, but the elements before that and after it. I call those the conversational parts of the interaction.

We talk a lot about request to pay, notification of pay, confirmation of pay. It’s really understanding the business process, how that conversation needs to take place ahead of the actual payment. It's interesting what you can do with a lot of that information because you've got a lot of data, but data doesn't have a lot of value if you don't understand the context in which that data was generated. With this conversation, you’re now starting to say, “Ah, I understand why this is an amount” and how that relates back to the interaction, what’s the context of that generation of that data, and then I’ve got information. It’s that information that's driving a lot of business decisions.

That information is important to both the banks, the financial institutions, but probably more important to the two parties at the end of the file. That immediacy is driving a lot of new ways of thinking and it's changing the landscape because it's actually forcing us to work out how we provide the services to the end users and what they need from those services as well as the speed and finality of it.

FBP: In terms of key drivers, one has been big tech for payment, creating our own infrastructure and the national payment systems themselves. They are being reinvented, rejuvenated with new technology. Tell us more what a local, national payment system can do.

DC: When we talk about payment systems, they are evolving to becoming a way of authenticating and providing trust between two parties. As we've seen in the US with the clearing house, they’re adding these conversational messages onto what would be traditionally called a payment system, because you're actually getting the authentication of the two parties. You're building up the level of trust with things like request to pay. 

I, as a bank, am offering that to my customer to initiate a request for payment to the actual payer. In doing that, we're trying to drive out a lot of fraud by actually knowing our customer. As a payer, you're actually getting a message from a bank, who's authenticated their customer to you to pay it.

So rather than me sending a piece of paper, where I may have changed a digit on an account number to fool you into paying a fraudster, all of a sudden we've now had bank to bank communication. We’ve got bank to customer grade authentication, very strong authentication. Now you've got a level of trust that you are paying the right person. 

We'll start to see a lot more communication, a lot more conversation going across those payment rails and not related to a payment, in the end. We can use that to drive identity, to drive authentication to ensure that we have a very secure way of moving that information backwards and forwards. We're starting to see ways of that being used. One is through the traditional payments, market, but more in terms of those that are moving to instant because that conversation is instant. It’s also data-rich, it's information-rich. 

The traditional payment systems, whether they're sort of based on an 8583 or very simple file based, which are purely an account number, have a very small reference. We want to have a proper conversation that is data-rich. They include my invoice in it, I include my receipt information, I include all of the different parties, the fact that I want to pay somebody else.

If we start to build that around a request to pay, potentially side by side the payment system, you can start to drive inclusion, because I can send a request to pay to you, you could send it as an SMS – worst case scenario, a letter. You could go into a local merchant with cash and say, ‘Look, I want to fulfil this request to pay.’ 

You, Mr Merchant, have that capability of initiating an electronic transaction that can get sent to me as the receiving party. I'll have received back through response to the request to pay that says you're going to go into that merchant, deposit some cash. I'm going to get that payment to fulfil the request to pay through a very different channel to the one that we sent it through as well. So we've seen a lot of evolution, a lot of innovation that that then brings to the market. 

FBP: One thing there is that underlying infrastructure and you see infrastructure providers understanding the requirement to be rich in data.

DC: We’re seeing a lot of this as an enabler of innovation, enabler of improving the business process – not just from inside the bank, the financial institution, but really have that end user and customer interact with the bank themselves and builds up there, their supply chain transactions.

FBP: Tell us about opportunities as more and more of these real-time payment systems come out and be able to connect to each other. 

DC: We do have cross border, instant (payment systems) in pilot stage. We still have to solve some of those big questions that we've always had around settlement, around FX risk, around the fact that we have to move these transactions across country borders. Pushing out into a very simple character set is no longer suitable. We need to look at how we support local characters, how we can get that data move through, how do we do settlement in an environment where that transaction is final within seconds, and we potentially have some exposure risk around that.

We talked about managing some of that exposure risk by having some pre-funded accounts. But if we’re building that up in a currency that is quite variable during a working day, how much of that capital do I want to put into that settlement account and therefore reduce my exposure?

There's a lot happening. We can talk about fraud and sanctions checking. We're getting very, very good at machine learning around patterns. What's normal behaviour? What's abnormal behaviour? I do think we need to bring in those character sets because that's part of the decision process, being able not to look at just a translated name, address, but to actually look at the real native, localized information.

FBP: Data will be a real, very important part of payments, with technology and banks looking at other service providers, the fintech.

DC: That's right. Data is a critical part of it. I call it information because it's data within a context. But, that information is the cornerstone that's driving fintech. We're moving quite quickly away from “we build it ourselves” or “we get a supplier to build a solution and then we highly customise it” into “how do I build out an ecosystem?” How can I use that underlying information to drive different types of innovation in the relationship that the customer has? You talk to a customer, even a small enterprise, small corporate, they probably have one or two different banking relationships. Being able to use fintech can amalgamate some of that information, can do some consolidation of that information to make a better cash flow decision. 

The bank that puts that into their ecosystem to offer that to the customer actually then starts to see and feel more and more that information that’s flowing through and can offer better services. That customer is more likely to come back to that financial organisation for more business than the banking relationship. That ecosystem is becoming more and more important, as we see the amount of information that's available to them today.

Obviously, we do have some issues around data protection – what can I share and what can’t I share. We can manage that with proper consent management, having the consent of the customer to actually provide them a better level of service. 

We say that “I'm not allowed to do it” but actually, “did you ask to do it?” Because, the customer, if they see a value to allowing access to that data will then say, “Yes, I do give you consent to use that data in a controlled way”. We see a lot of that in Europe with the PSD to the open APIs, that if you give a proposition to a customer that improves, helps them, then you will instantly get consent. It's only when you go and enforce those rules, enforce adoption, that that you start to have problems because, yes, it makes your job easier, but it doesn't give any value to the users. 

FBP: It's all very exciting in terms of truly understanding and meeting the customers. 

DC: You can hear from me, this is an exciting time to be in the business.

FBP: Okay, thank you.

DC: Thank you.