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What Sibos tells us about payments in 2019

How will the payments landscape change during 2019? In fact, tomorrow’s payments innovation is taking shape today, from real-time cross-border transfers to new applications for blockchain and a global expansion of open banking. At the annual Sibos conference, held in in October, more than 40 KPMG professionals from 10 countries took part in a wide-ranging debate about where payments technologies and systems are now heading. Based on their insights, we expect another year of transformation – and we’re looking forward to Sibos coming to London in September. In the meantime, here are seven payments trends to look out for in 2019. Please contact your local KPMG member firm representative to discuss how these insights may impact your business, or if you’d like more information about KPMG’s activities at Sibos London.

Payments

1. The business case for real-time payments will build

The debate about how to move forward with real-time A cohesive customer experience would co-ordinate all payments has widened, with Sibos delegates now these steps, supporting the process with RTP and a rich focused on the long-term commercial opportunities that data transfer. In our experience, the most successful new functionality could enable, rather than the business initiatives in commercializing RTP have been those case for RTP on a standalone basis. This changes the that deeply engaged the customer right from the start. game for 2019: different jurisdictions have made varying Working with customers to create ideas, develop amounts of progress on modernizing their payments prototypes and even co-build new systems, it is much systems, but the broader discussion requires us all to more straightforward to build capabilities that are fit for start thinking about RTP as an enabler for improving the purpose. Real customers provide crucial insight on the entire customer experience; that will require partnerships commercial opportunity of RTP. across the payments ecosystem and beyond. Take, say, a used car sale, involving dozens of interconnected steps, from vehicle history checks to arranging credit finance.

© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 2. Cross-border transfers are the next solution. We are now beginning to see a focus on deep frontier for RTPs know-your-customer functionality and dynamic customer risk assessment, which will help financial institutions With 40 countries around the world now operating develop financial crime controls for better functioning faster payment schemes successfully, there is growing sanctions screening systems, even in a real-time ambition to link up domestic systems to deliver cross- payments environment. Two Sibos presentations – from border real-time payments. From smoothing the path for Andrew Husband and Victoria Brown on customer due tourist spending to designing better remittance systems diligence, and from Robert Dean and Jennifer Page on for foreign workers, cross-border RTP offers so much. machine learning for alert classification – showcased Ultimately, it will underpin international trade and global market-leading solutions to the problems posed by supply chains that operate with far less friction. Different financial crime. models for delivering cross-border RTP are already making significant progress. For example, SWIFT used Still, work in this area needs to accelerate. As the Sibos as on opportunity to give a live demonstration of payments landscape evolves, so too must the its global payments innovation (gpi) model; it has joined sophistication of financial institutions’ approach to forces with banks from , China, Singapore and managing anti-money laundering and other regulatory Thailand to develop a cross-border real-time service risk. Financial fraud, too, though not a regulated area, will for the Pacific region. This model has the potential be part of the challenge. to incorporate non-SWIFT gpi banks too. Such an . organization would use a domestic payment network to first route a cross-border payment via to a bank in its Learn more about payments own country that is part of the SWIFT gpi model; this bank would then make payment to a SWIFT gpi bank in the destination country. This overseas bank might be Learn more about financial crime the end beneficiary or it could pass the payment on to a non-SWIFT gip bank in its own country via its domestic network. Joining up regional faster payment schemes represents an alternative model for cross-border payments, with the link between PayNow in Singapore and PromptPay in Thailand providing an example of Open banking what is possible. Regional banks provide customers making a cross-border payment with a gateway into their networks, with these networks then developing 4. Compelling stories of open banking the connections required to facilitate the cross-border commercialization will continue to emerge transfer. Thailand and Singapore have been able to provide real-time payment functionality between each Many Sibos delegates were enthused about the other’s banks in this way. Each model for cross-border possibilities of open banking reforms; interest in the UK, RTP will need to be assessed on a range of criteria. the most developed market, was therefore high. KPMG These include network usage and acceptability, inter- UK presented the headline findings of research conducted operability with payment networks, real time processing into small and medium-sized enterprises’ view on open capability, payment transmission mechanism, regulation, banking: our conclusion is that the initiative’s success the cost of implementation and operation and inclusivity. so far has been partial. SMEs have more complicated financial affairs and more challenging requirements 3. Payments innovation requires new than most retail banking customers so should be major tools to combat financial crime beneficiaries of open banking. But KPMG’s research Faster payments systems and improving cross-border suggests many are sceptical – almost half said they were payments infrastructure are an opportunity for financial not prepared to share their data or engage with open criminals. Without simultaneous innovation in the banking in any way. More positively, the research also detection of financial crime, it will become even more identified almost a third of SMEs as receptive to open challenging to comply with anti-money laundering banking – and highly likely to embrace the majority of value regulation and sanctions regimes – just as regulators propositions put to them. These businesses tended to are taking an increasingly tough line on breaches, be more sophisticated, larger and achieving higher rates levying huge fines on transgressors that cause serious of growth. Nevertheless, there is work to be done to reputational damage. Robotic process automation tools convince many SMEs of the benefits of open banking – let can speed up payments processing and manage higher alone to commercialize the tools it enables. Even the more volumes, but smart decision-making from a financial receptive SMEs do not yet have many such solutions crime perspective will require a human element. available to them. Supervised machine learning and artificial intelligence Read our research report on open banking and SMEs. technologies will therefore need to be part of the

© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 5. The case for global open banking —— A focus on platforms and ecosystems – fintechs standards will strengthen further engage with a networked ecosystem of customer- focused value propositions. Consider Grab, a Open banking is more than just a regulatory shake-up payments platform incorporating services such or a technology overhaul – it requires financial services as peer-to-peer transfers, merchant transactions, institutions to rethink the business and operating models insurance, micro lending and even ride hailing. they have employed for decades. But with fragmented —— An embrace of partnership – fintechs are as focused initiatives now cropping up all around the world, from as much on collaboration as competition, offering the Payment Services Directive II in to Open incumbents an opportunity to develop an ecosystem Banking in Australia, we may be missing a trick by failing of partnerships enabling, for example, white-labelling. to develop global standards. BBVA, for example, has invested $1bn in fintech The current lack of standardization increases cost and M&A and is a major shareholder in Atom Bank and complexity for everyone in the ecosystem. And for users, SolarisBank. the inconsistencies make for confusion and anxiety —— Technological agility – fintechs use a modular, micro- about accountability. In our view, developing common services architecture that enables them to use data standards in areas such as data models, message to drive actionable customer insight. They have much structures, connectivity and patterns of interaction would greater transparency over what, how and where accelerate the adoption of open banking. However, we customers are buying; customers’ financial posture, recognise potential barriers: credit scores and serviceability; and customers’ —— There are multiple standards-setting bodies, often preferences and their propensity to spend. regional, currently creating standards, including the Group and ISO in collaboration with SWIFT. We need to tread carefully – for example, the ISO20022, Learn more about fintech a starting point, will be complex to embed in lightweight APIs;

—— Standardization is often applied at the level of messaging, but lacks a broader view encompassing Blockchain other features to fit specific use cases.

At the very least, the lack of a global standard – or one that is scoped too narrowly – will create room for integrators to 7. Blockchain – we’ll hear less talk and see fill the gap and reap the benefits of open banking. more action Blockchain technologies are sometimes accused of being Learn more about open banking a solution in search of a problem – and SWIFT’s gpi cross-border payments system is another example of a more straightforward answer in an area where blockchain has been mooted as having much to offer. Nevertheless, 6. Fintechs are levelling the playing field it would be a mistake to write off distributed ledger technology (DLT) as irrelevant to the payments space. The business model for incumbent financial services institutions is changing rapidly, partly driven by regulatory Several Sibos sessions featured new ideas for where reform, from the Payment Services Directive II in Europe blockchain really might have something to offer. HSBC to the introduction of a consumer data right in Australia. made the case for the use of blockchain in central Changing consumer preferences are crucial too, with bank digital currencies (CBDCs) while IBM unveiled its customers now demanding services that are more Blockchain Payments Network, which it believes can be personalized and needs-focused – the experience they a game changer for the global payments system. get with digital giants such as Amazon and Netflix. The Moreover, we are now moving past the early hype fintechs now coming to market have these attributes around blockchain and focusing on genuine applications. hard-wired into their value propositions. In our view this This year’s Sibos may have been less dominated by is the start of a rebalancing of the financial services chatter around blockchain than previous events, but we ecosystem, with successful fintechs sharing several saw more evidence of mature DLT propositions. For key characteristics: example, the Australian Stock Exchange is moving closer —— Customized and personalized products and services to migrating equities settlement to a DLT solution while – fintechs use advanced data analytics to curate Synechron showcased its know-your-customer solution. products that are more relevant to each individual And let’s not forget KPMG Australia, which wowed Sibos customer. See, for example, Trov, a US insurer with is provenance platform for wine. that enables customers to switch cover on and off instantly for electronic items. Learn more about blockchain

© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Contact us Ian Pollari Anton Ruddenklau KPMG International Global KPMG International Global Co-Head of Fintech Co-Head of Fintech [email protected] [email protected] +61 2 9335 8408 +44 207 694 2224

Chris Hadorn Daniel Houseman KPMG International and KPMG KPMG in Australia Partner, Global Head of Payments Partner, Management Consulting [email protected] [email protected] +1 404 979 2317 +61 3 9288 6820

Oliver Kirby-Johnson KPMG in the UK Partner, Financial Services [email protected] +44 207 311 4005

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. CREATE | CRT107046 | December 2018