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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

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Agenda

• Why the interest in Payments Industry

• Trends

• Challenges Ahead

• Resources to Dig Deeper

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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

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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

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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

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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

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Regulatory Compliance Eco System*

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

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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

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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

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Security and Authentication

Source: Cap Gemini Financial Services -2016

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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

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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%202020-July%202016_tcm21-39245.pdf

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Questions?