While day one discussions centred around how open banking needs to reach a point where it is just accepted as a conventional way that consumers, corporates and banks can manage their accounts and make payments, panel sessions on the second day of EBAday 2020 focused on how the cloud and Payments as a Service (PaaS) can also act as an enabler for open banking, potentially cutting out rails that are currently acting as intermediaries.
Following the implementation of PSD2, banks are now shifting gears and going beyond regulatory requirements and leveraging the benefits of open APIs to cater to customer needs and innovate open banking business models, rather than merely focusing on point solutions and use cases.
Cloud technology for payments processing
Kevin Brown, independent non-executive director and advisor, Payment Industry Insights, kicks off the session with a polling question, revealing that nearly 50% of the audience are already utilising cloud technology for payments processing.
Offering insight into conversations he has had with a number of bank CEOs, Brown adds that “cloud is an essential technology play going forward due to the benefits for cost, speed to market and resilience. But are the biggest players moving quick enough to reap the rewards?” he asks.
Vincent Brennan, head of group payments, Bank of Ireland agrees with Brown’s perspective at an industry level but elucidates that “cloud has only been with us four or five years and in the payments and core payments space, it is even newer.” Brennan explains that while this has been the case, players such as Stripe, Square and TransferWise have been processing vast volumes of payments through the cloud.
“Banks are paralysed by three fears when it comes to cloud: the fear of the unknown, complexity and the regulator,” Brennan says and states that on occasion, banks are also caught in a cycle of reactive investments, regulatory compliance and considering ISO 20022: investment in short-sighted point solutions is prioritised rather than a technology overhaul.
Banks need to break out of legacy constraints and take a page out of Google’s book, where the cloud has been normalised and is helping to add value from data. Fintech firms have already jumped on this bandwagon and those that are digital, and cloud-native, are arguably successfully innovative. Lance Homer, global business development director - digital payments, Equinix adds that cloud is being used by incumbent banks, but mostly for back office functionality.
However, Homer has also seen greater adoption of niche BaaS or PaaS service providers, but very few are leading the charge for full core migration to the cloud. “In the banking industry, there is not a level playing field for being able to embrace cloud. Smaller banks with a lack of resources outsource service providers to bring them towards cloud and do everything in-house. Others do not have the cultural capabilities to do that.”
Is there ever such a thing as a ‘stable trend’?
Simon Callan, head of product architecture, Icon Solutions, chimes in at this point and expresses his surprise at the poll results, explaining that “banks have been a little bit behind and have been waiting for trends to stabilise before adopting them. […] Cloud is an essential part of any competitive strategy, we are seeing cloud use increase but there are lots of untapped solutions,” Callan says.
Returning to Homer’s point on cultural differences within legacy banks and fintech firms and the impact this has on the adoption of emerging technology, Monica Sasso, EMEA FSI chief technologist, Red Hat, says that “around 150 to 200 years ago, banks were fortresses of society. They never deleted anything, and it was hard to get stuff out. The cloud goes against that and banks haven’t shifted as quickly as technology has shifted.”
Sasso goes on to say that ways of working must be adapted in order to capitalise on the speed that cloud, or containers offer. However, while banks are taking the slow road and will not migrate as fast as those in the fintech space, new players do not have the benefit of heritage. Brown takes this conversation further and posits that while banks are establishing partnerships with large cloud service providers, new entrants are “disintermediating existing players," even in the card network space.
Referencing the US Department of Justice’s recent move to block the $5.3 billion Visa Plaid deal, Homer explains this was due to the DOJ alleging that Visa’s sole intention was to take out a potential future competitor in fear of disintermediation, rather than taking the opportunity to embrace a successful fintech aggregator. However, with open banking and real-time payments, it is evident that plays and counter plays are occurring, according to Brennan.
Brennan says that while there is disintermediation on one side, there is reintermediation on the other side. “New players do well because they don’t invent things but make use of the building blocks already there.”
With Request to Pay and EBA Clearing’s plans for RT1, banks are kept at the heart of payments processing. On the other hand, fintech firms are leveraging open banking, open APIs, PSD2, SCA and have essentially built a Request to Pay solution in parallel - Brennan highlights.
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