For five decades now the great and the good of financial services industry have gathered towards the end of the year at Sibos to discuss the future of banking.
At this year’s event in Geneva, the mood was noticeably – and happily – different from recent years that have seen a fair amount of worry or panic. Instead people were looking at ways to move the industry forward and indeed forge new partnerships. There were five big themes that ran thorough a lot of the conversations.
Security is more important than ever: With the Bank of Bangladesh hack demonstrating how vulnerable networks – including trusted relationships – can be compromised and misused, the financial services industry is paying much more attention to the security of their networks and products.
Taking this one step further, SWIFT – the main global provider of secure financial messaging services and organizer of SIBOS – announced that it will engage BAE Systems to test the banks connected to the SWIFT network. Moreover, the big three federal banking watchdogs in the US (the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency) have just put forward a proposal to strengthen the US’ financial system to protect it from attack.
Data is more important than money: For as long as anyone can remember, the most important part of a payment message was the amount of the transaction, the account it was coming from, and the account it was going to.
Now, the ability to include invoice information in the payment message (rather than sending it after the fact) allows banks and their corporate customers to get far more value from the transaction. It also provides firms with the reason for the payment, helps them recognize trade terms and discounts, and even update accounting systems automatically.
Blockchain is now mainstream: Innotribe is the part of Sibos where new technologies are discussed, and blockchain was long the darling of past Innotribes.
Now that blockchain is receiving proper attention – and scrutiny – from banks and vendors, it has moved to the main stage where the merits and drawbacks of the technology are addressed in greater detail. For any emerging technology, this transition means that the industry is – finally – taking it seriously, but the challenge is for the technology to now live up to the hype.
Context matters: One of the most pleasing ideas or capabilities under discussion was the ability of banks to give customers product recommendations through a customer-facing application. And not just general recommendations (i.e., buy a long-term certificate of deposit today), but targeted recommendations that addressed both actual customer behavior and existing market conditions.
One example on show was for a corporate customer that was buying products overseas and paying for these products using spot-based foreign exchange rates, which are incredibly expensive. By recognizing the behavior and finding a less expensive – and longer term solution – the bank would be able to offer its client a currency hedge through the online banking portal with the click of a mouse.
In the longer-term, these kinds of capabilities will improve customer satisfaction and create additional, repeatable revenue for banks – a fair exchange for episodic and expensive transactions that could cause a customer to look elsewhere.
Open APIs will be the way of the world – soon: Application Programming Interfaces (APIs) will make it easier than ever for third parties to provide payment services that are better and/or cheaper than what the banks themselves could provide.
Although access to the required customer financial data to provide these services is mandated in Europe under the revised Payment Services Directive (known catchily as PSD2), the industry was already feeling pressure from offerings like Intuit’s Mint for years. The good news is that banks – and the vendors that work for them – are “open” to working with providers in the API space to bring these capabilities to corporate customers in the short term.