• Many banks and service providers are facing challenges in managing the growing volumes of contactless payments and have yet to develop controls around them
• Real time cross border payment faces complications as various systems are changing messaging formats at different rates
• AI-based data verification is finding multiple new use cases in banks

SmartStream is a technology company that focuses on operational control within financial institutions.  Brandli shares key industry trends as well as various challenges faced by financial institutions in digital payments which require them to rethink their technology proposition and how artificial intelligence is finding new application in data verification.

Below is the edited and abridged transcript of the interview:

Banks  and service providers are facing challenges in managing the growing volumes of contactless payments and have yet to develop controls around them

Neeti Aggarwal (NA): What do you see as the top emerging trends in technology innovation among financial institutions this year especially as a result of the pandemic?

Roland Brandli (RB): Specifically, something that has been growing over the last few years but that has obviously boomed exponentially since COVID-19 is digital payments. With everyone moving to contactless payments, behind which normally sits a credit card or debit card or a mobile wallet, those volumes have increased significantly. A lot of banks and service providers are now struggling to manage those volumes plus there is a lot of costs associated with them. Typically, something financial institutions talk about revenue leakage, that's mainly because the controls around them in many organisations still have to be developed further. Previously, it was a minority part of the business. Predominantly and globally cash was king but now that has completely changed. To a certain extent, costs that previously could be incurred with those high volumes that are now involved are no longer justifiable.

In lot of countries, there is also a certain amount of regulatory pressure around managing disputes within a certain time frame. There is a lot of in-transparency around the billing. These are all areas that we have been working for a long time, but we've now seen some really big uptake in interest. On the other side adding to that are a lot of newcomers in the industry. There are a lot of fintech companies offering services which are just building their operations and need to make sure they have the right controls in place as well. And what better time to do that at the beginning then by the time it has run out of control.

If we look at COVID-19, specifically, then it's a slightly different picture. What we have definitely noticed is a huge uptake in the interest in our ‘on demand’ offerings. Banks were always prepared to do in a disaster recovery, or in a disaster scenario to change their office location or change the office of their data centres, and everyone was set up to handle that. Nobody was really set up that people will be working from home, and potentially didn't even have access to those data centres.

NA:  Making cross border payments, real time transparent and more secure, what are you seeing as the biggest challenges here?

Real time cross border payment faces complications as various systems are changing messaging formats at different rates

RB: I would differentiate between types of payments. One is the digital payment space, which is everything around us such as debit cards, credit card wallets, mobile banking and many more. And the other thing you talked about, quite rightly, is cross border payment area, which is very much bank to bank.

That is undergoing a fundamental change with, first of all, the move to ISO 20022 which COVID has delayed. SWIFT (Society for Worldwide Interbank Financial Telecommunication) and the European Central Bank (ECB) as examples have delayed their transition projects. Going hand in hand with that is the instant payments. Cross border payments or local payments are moving to instant payment systems. That is very interesting because I think that makes a fundamental change of the mindset and a fundamental change also in the mindset of their customers. And I always talk to banks about this is literally like taking the suspension out of the car.

Up until now, cross border payments typically took two to three days. If it was a problem with AML (anti money laundering), KYC (know your customer), or things like that they probably have another two, three days to fix it and everyone was still happy. With the advent of instant payments, customers are getting used to payments being done in 1-15 minutes. Now how to explain to him it takes six days to solve a problem. And all of this has a direct impact on the bank not only in terms of cost but also reputation.

SWIFT gpi, that's a story for itself and that is laying the fundamentals for better exception management for faster turnaround of payments. But it also brings in this added complication, that all of these systems are changing their messaging formats at different rates. They all still need to be at one point consolidated. There is a lot of cost that banks are going through. Standardisation is going at different paces which we all need to accommodate for.

NA: What are the main use cases where you are seeing application of artificial intelligence?  

AI-based data verification is finding multiple new use cases in banks

RB: The nice thing about it is across the board and not even just limited to financial institutions. There is a grey area that has never really been addressed very well by vendors before and that is around data quality, data verification. It could be for a financial transaction but it could just as well be for any type of transaction.

It is literally where you want to take data and you want to compare it against each other and there are so many use cases. It could be someone checking static data or it could be someone checking transactions against each other or financial transactions. There are literally hundreds of use cases.

NA: Thank you very much.