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Great Payments Transformation

What we took from Sibos – Five trends for the payments industry 

As 6,000 of the world’s payments and transaction participants gathered in Osaka, Japan for this year’s Sibos conference, KPMG was there to share best practices, debate emerging issues and – ultimately – to help participants make the most of the changes underway in the market.


It is easy to underestimate how important payments are to financial institutions; however it represents some 25 percent of bank revenues and 35 percent of the cost base of banks. “Transaction banking drives many of the key value drivers of a bank in terms of liquidity, customer service and compliance. Every economic transaction involves a payment, it’s synonymous with banking, “says Mark Hale, Head of Payments, KPMG in the UK.

What we took


The whole payments sector is now in the midst of a transformation, the likes of which will change the fundamental rules of the game. Through the course of our presentations, discussions and participation, we identified five key themes that – whether they were on the Sibos agenda or not – dominated the discussion at this year’s conference.


On their own, each of these issues creates new and challenging complexities for payments participants; taken together, they signal an undeniable transformation agenda that cannot be ignored.


  1. Coping with unrelenting regulatory change

    Regulation was – once again – the linchpin that connected almost every conversation at this year’s Sibos conference. Few (if any) participants were bold enough to suggest that they were coping with the pace of regulatory change; most admitted they were struggling – or worse, failing – to keep up.


    That being said, there were very positive signals that many of the participating organizations were now starting to recognize the need to develop a more strategic approach to managing regulatory change, particularly its impact on technology systems and infrastructure.


    “People are deeply interested in understanding how they can apply a portfolio approach to their regulation-driven technology challenges,” noted Simon Topping, Leader of KPMG’s FS Regulatory Center of Excellence in Asia Pacific, who moderated the regulatory sessions at Sibos. “They want to understand the future direction of regulatory changes so that they can get out ahead of it and build systems and processes that will help them ensure compliance around the world and across their lines of business.”


    “Many of the attendees were uncertain about the impact of existing regulation on their international business,” noted Liz Oakes, KPMG in the UK. “For example, few were aware of the potential impact of US Dodd Frank rule 1073, which will by extrapolation require payment service providers to give detailed data to a US-originating bank on timing, charges and local taxes applied to a transaction in advance, so that full and final information can be provided to a customer at the initiation point for remittance transactions originating from the US; the rule comes into force in February 2013, so there is no time to waste.”

  2. Move towards faster payments picks up pace

    “One of the hottest topics at Sibos and around the industry globally is the move towards executing immediate payments,” said David Sayer, KPMG’s Global Head of Banking. “Following in the footsteps of the UK, we will soon see Singapore and Australia move forward quickly on this and – before long – I suspect that all major markets will be implementing rules to bring about instant payment services driven by a move to mobile. The expertise which KPMG acquired through leading this change in the UK is now very relevant to other jurisdictions.”


    For most banks, this move towards instant payments will require a significant transformation in their technology systems and processes. “Banks will need to do a lot of preparation work to be able to make and accept real-time payments and this will demand significant investment from the banks,” noted Daniel Houseman, KPMG in Australia. “The challenge is how to develop a business case for investment that quantifies and articulates the benefits to the bank and its customers.”


    “A faster payment capability is an absolute pre-requisite to creating a successful mobile payments platform; people won’t wait for days to receive their payments in the mobile world,” noted Edge Zarrella, KPMG China. “We are also seeing greater adoption of international standards such as ISO20022, which will be critical to supporting the settlement of instant payments in cross-border transactions.”

  3. The rise of Asia

    If there was an unofficial theme at Sibos, it was the shift towards the East. Indeed, Asia’s growing dominance underlined almost every session and permeated into everything from plenary sessions though to networking events.


    For Asian banks, the focus was on identifying new strategies to grow their business and leverage lessons from the West. Those from outside of Asia, however, took the opportunity to learn more about the region and will undoubtedly be going home to assess their capabilities and presence in the market.


    “Everyone knows that Asia is where the real growth is occurring in today’s market,” noted Chris Hadorn, KPMG in the US. “But while the broader industry seems to recognize the trends, many organizations are still trying to work out what the impact will be on their business and, once they figure that out, what they should do about it.”


    “The Asian market is going to be bigger than the European and US markets combined and banks – particularly the big global guys – simply can’t ignore that this is where the volume is going,” added Edge Zarrella. “Those banks that don’t already have a plan for how they are going to address this shift towards Asia will almost certainly find themselves cut out of the opportunity before too long.”

  4. Competitive threats change the rules of the game

    Right across Asia and around the world, banks are increasingly recognizing that their payments revenue is slowly being eroded by new and nontraditional competitors in the marketplace. From massively successful payments organizations such as China’s AliPay or TenPay through to telecom and mobile service providers, banks are starting to feel pressure on their transactions margins.


    “In some cases, the regulatory landscape is leading to a competitive imbalance between the banking industry – which is heavily regulated – and the new market entrants which are generally less regulated when it comes to payments,” noted Chris Hadorn. “But banks must also recognize that these non-legacy players tend to be much more agile, more innovative and are often quicker in the marketplace, meaning that banks will need to work hard to protect and defend their existing markets.”


    “Those that attended the KPMG dinner at Sibos heard from Matthias Kroener at Fidor Bank, one of the first truly social networking banks,” added Mark Hale. “Whether Fidor Bank is ultimately successful or not, it has already turned the rules of banking on their head and forced the payments industry to think differently about innovation in this sector.”

  5. Transformation takes center stage

    Given the prevailing currents within the payments sector, many attendees and speakers at this year’s Sibos conference were focused on developing transformation strategies to help banks and payment providers adapt to the realities of the new market environment.


    “There was a general agreement that agility and flexibility would need to be core characteristics for the industry going forward,” added Daniel Houseman. “The old days of implementing massive legacy systems across the organization in three or four year cycles are clearly gone; to survive in today’s environment, banks must be able to make changes and adjustments on an ‘as needed’ basis.”


    “Particularly for those banks that have grown through acquisition, a major challenge will be in unpicking the mess of overlapping and inter-related IT systems to create a more flexible and adaptive system,” added Chris Hadorn. “Organizations are now focused on creating services and applications that cross the organization horizontally rather than creating several vertical solutions that support a limited number of business needs.”

All about the customer

At the heart of the majority of the changes that are now buffeting the market is the customer. Regulation is meant to provide security and transparency to customers and stakeholders; immediate payments is focused on delivering real-time value for customers (particularly those moving towards mobile solutions); competition is being driven by new customer preferences and a desire for value.


“All of this is really tied around one over-arching question: how are you supporting the consumer who actually buys your services? added Edge Zarrella. “Ultimately, this will require banks and payment participants to look at the market from a variety of different viewpoints including the regulators’, the customers’ and then the banks’.”

Final word on Sibos

Those who attended Sibos this year will no doubt have left the conference with a pervasive feeling that the payments industry is in the midst of a dramatic and evolutionary change. Some found solace in the fact that they were not alone in their struggle. Others developed relationships with key suppliers and service providers that could bring new solutions and innovative thinking to bear on their complex challenges.


And, while it remains to be seen how the payments sector will evolve by the next Sibos conference in 2013, one thing is sure: banks and payments providers simply cannot afford to wait to respond to the deep need for transformation in the industry.

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