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  • 1

    Latest Trends In Payments Industry

    Ramanan JagannathanJuly 2017http://mysicmundane.blogspot.in

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    Agenda

    Why the interest in Payments Industry

    Payment Trends

    Challenges Ahead

    Resources to Dig Deeper

  • 3

    Agenda

    Why the interest in Payments Industry

    Trends

    Challenges Ahead

    Resources to Dig Deeper

  • 4

    Why the Interest In Payments Industry

    Technology has enabled FinTechs to make an entry

    Customer adoption of Mobile technology

    Governments look at Digital Payments to increase growth

    It is too Huge in size for Anybody to Not-Care about it

    Banks are forced to Innovate to Survive

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    Why the interest in Payments Industry

    Trends

    Challenges Ahead

    Resources to Dig Deeper

  • 6

    Adoption of Digital Payments is on the Rise

    Overview Digital Payments (Online, Mobile, and contactless Cards) are expected to hit $3.6

    trillion in transaction globally in 2017 This is a 20 % growth from 3 trillion $ in 2015 60% growth is attributed to the contactless cards segment

    The global value of contactless point-of-sale (POS) terminal payments, conducted instore via cards and mobile, is expected to hit $500 billion in 2017

    Technology is driving digital payments adoption Emerging markets moving towards mobile-first payment strategies,

    Implications In Mature markets, banks are expected to issue more contactless cards and upgrade

    their systems to accept contactless payments in emerging markets Payment cards are expected to account for 90% of contactless payments over the

    next five years Deployment of near field communication (NFC) payments and biometrics security

    would increase consumer awareness and usage of smartphones to fulfill transactions Foray into the digital payments by high profile players such as device manufacturers

    (Apple, Samsung), tech firms ( google, Alibaba, Facebook), telecom operators ( Airtel,Jio) and startups ( square , PayTM) is expected to attract more digital transactionsacross the globe

    T1

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    Number of Worldwide Non-Cash Transactions* T1

    Source: World Payment Reports 2017

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    T2Instant Payments Emerge as Alternatives to Existing Instruments

    Overview The availability of instant payments is triggering new customer needs and

    requirements, Instant Payments also forces service providers to offer newer business propositions The introduction of PSD II is expected to disrupt payments landscape Several countries including Australia, US and India are actively pursuing the

    development and implementation of instant payment infrastructure

    Implications Overlay services such as PayTM in India, can increase the adoption of instant

    payments across retail and corporate environments Instant payments could drive the growth of non-cash transactions by doing away

    with less efficient instruments like cash and check or even Cards Instant payments could replace POS terminals in cases where the fees charged is

    lesser

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    Non-Cash Transactions and Changes in Payments Mix T2

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    Cost of Non-Compliance T3

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    T3Banks Need a Paradigm Shift to Adopt to Regulations

    Overview

    By taking a holistic approach towards compliance, banks can leverage their expertise in local regulations across the globe and offer appropriate and relevant services to corporates in areas including legal, taxation, and accounting standards

    Banks can also help corporates to adapt to new regulatory environments in areas such as KYC, AML sanctions, and Base Erosion and Profit Sharing.

    in KYC, for example, banks can help to explain the requirements, enable digital documentation, and share documents across all legal entities of the bank dealing with the client apart from providing enhanced

    Implications

    Banks need to move toward integrated compliance, Risk and Governance Models Banks need to focus on technology areas enabling holistic compliance including

    DWH/Big Data , Analytics, Compliance Testing and Lean Methodology Banks can offer better services to corporates through holistic compliance efforts

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    Transformational Cycle Needed by Banks

    Redefine Scope of Compliance

    Programs

    Streamline Investments

    Recruit Skilled Compliance Staff

    Move Beyond Compliance Through Proactive Planning

    Improve Efficiency and Efficacy of

    Compliance Data

    T3

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    RegTechs and Regulatory Sandboxes emerge as key Themes

    Overview The regulatory compliance software industry is headed toward strong growth as the

    demand for regulatory and compliance software is expected to reach $118.7 billion by 2020

    Banks have always played the role of catch-up and have struggled to devise and implement a robust and efficient approach

    RegTech firms can help in analyzing and implementing governance rules apart from extracting, analyzing, and storing data

    Implications Initial Target Areas for compliance solutions by RegTechs include Basel III/ CRDIV-

    related compliance, risk analytics, KYC utilities for storing due diligence information, and cloud based plug-and-play software

    Banks benefit from RegTechs by becoming more flexible and agile As banks adopt to a more pro-active cycle, more tactical compliance tasks will be

    automated in order to reduce operational risks associated with compliance and reporting obligations

    T4

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    Regulatory Compliance Eco System*

    * https://www.421.se/regtech-time-turn-regulatory-compliance-competitive-advantage/

    T4

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    Regulatory Sandbox T4

    A Regulatory Sandbox is a regulator driven initiative where businesses can Test products, services, offerings in a live environment

    Source: http://industrysandbox.org/regulatory-sandboxes/

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    Adoption of Open API - A Paradigm shift in Payments

    Trend Overview An Open API is a public interface that is a set of functions and procedures that

    provides means to access data based on open standards Open APIs are slowly gaining traction in Indian Banking Sector, fueled by the

    government's Open API policy for programs like Aadhar, e-KYC, e-sign, and the Unified Payments Interface (UPI)

    Data thus accessed by Open APIs may be used to develop micro services for the end customers such as building custom applications on existing banking platforms to create a new revenue model

    Implications

    Banks are expected to forge inter-bank collaborations to develop standards and protocols for 3rd party partnerships based on open banking platforms

    There exists an opportunity for corporates to become more involved with their payment processing partners

    On one hand there is a need to accelerate service innovation through adoption of APIs in the market while on the other hand, collaboration between banks and third party API developers in a win-win deal for both

    T5

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    Advantages of Open API T5

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    Security and Authentication

    Trend Overview Regulations such as PSD II and Open API banking projects are forcing implementation

    of standards to reduce security breaches Focus on Authentication has increased , with growth of Fingerprint ID for single sign

    on across multiple bank accounts Security Risk is not only on the network and can't be only secured with software, in

    view of the technology developments and increasing volume of online and mobile payment transactions

    Implications Customer adoption of Digital Payments relies heavily on reliable and consistent user

    experience Industry leaders and central authorities will have to ensure that the security

    standards and frameworks are uniform and dependable Banks may review their payment system architecture to reduce the external touch

    points, making it easier for the bank to manage end-to-end process Banks should also implement solutions that can strengthen its cybersecurity

    processes against cyber fraud and protect it against risks of system breach such as denial of service attacks

    T6

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    Security and Authentication

    Source: Cap Gemini Financial Services -2016

    T6

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    Why the interest in Payments Industry

    Trends

    Challenges Ahead

    Resources to Dig Deeper

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    What are the Challenges ahead ?

    Existing Technologies makes it difficult for Banks to Innovate

    Banks need to Change existing Operational Models

    Cross border interoperability of systems that are built with the national concerns in mind

    Regulation has to keep up with Innovation

    Money needed for Change and Justification for the Investment

    But Banks need to Innovate else they become commoditized

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    Why the interest in Payments Industry

    Trends

    Challenges Ahead

    Resources to Dig Deeper

  • 23

    Some Resources to Dig Deeper

    World Economic Forum Report on Payments -2017

    World Payments Report 2017 CapGemini and BNP Paribas

    RegTech is here Time to turn Regulatory Compliance into a Competitive

    Advantage - https://www.421.se/regtech-time-turn-regulatory-compliance-

    competitive-advantage/

    The Open Bank Project - https://openbankproject.com/

    FCA document on Regulatory Sandbox. -

    https://www.fca.org.uk/publication/research/regulatory-sandbox.pdf

    Digital Payments 2020 The making of a 500 Billion $ Eco System in India

    http://image-src.bcg.com/BCG_COM/BCG-

    Google%20Digital%20Payments%2020