In a real-time payments and API-enabled open banking world, Sibos Sydney 2018 was all about the digital economy and who was doing what to enable it. Clarissa Dann and Janet Du Chenne report on a packed four days and how transaction banking is taking its place in a transformed financial services ecosystem

When it comes to 40th birthday celebrations, a 15-minute firework display lighting up Sydney’s Darling Harbour is pretty hard to beat. And so it was the world’s premier financial services event celebrated four decades of collaborative innovation as it brought financial and technology leaders together.

Despite journeys half-way across the world, this year’s event had registered more than 7,000 bankers and technologists from 150 countries – including around 70 fintechs. As SWIFT Chair Yawar Shah put it in the opening plenary session, “Last time we gathered here was 2006 with the theme of raising ambitions. We are in the same site and the venue and surroundings completely different,” he said. Australia is indeed transforming its infrastructure to meet its 24/7 needs – themes flow covered in the preview article, “Shape of a Nation”.

With seven speakers across nine sessions, the Deutsche Bank focus was on cash management, trade finance, securities services, regulation and technology, and how these very different areas of transaction banking are tackling change, building on existing strengths and reputation while forging new alliances.

In her welcoming words to Sibos delegates, the premier of New South Wales, Gladys Berejiklian says “Sibos 2018 is set against a complex backdrop of increasing change, and a growing appetite for collaboration between the established and the new. This series of articles, videos and photos demonstrates all of this in action.

This handy microsite takes you across days 1 through to 4, with summaries of selected sessions, along with session video links to the full experience for those wanting further detail.

Clarissa Dann and Janet Du Chenne are Editorial Directors in Deutsche Bank’s GTB Marketing team and co-editors of flow magazine

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Everything in flow

Living with disruption and change while staying agile to develop new ways of delivering payment solutions, securities services and trade finance connectivity were all core themes of the first day of Sibos

“Refreshingly different”, “Everything is in flow” were the words that greeted delegates as they made their way along the Sydney International Convention Centre (ICC) on the first day of Sibos. Etched discreetly on the dove-grey Deutsche Bank sponsored thermos bottles, delegates were able to experience this for themselves as they were handed the gift, along with the latest Sibos issue of Deutche Bank’s flow magazine.
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How refreshing! Going with the flow…

This set the tone for the first day, as themes of change, collaboration, disruption and agility punctuated many of the sessions, kicked off by Innotribe up on the L4 Discovery Zone adjacent to the sun (and rain)-drenched Sibos Garden. It was at this spot the morning sessions of Tai Chi with Australian instructor Peter Bliss took place for those able to make 8.00 am starts (although a number of others, including one of your Deutsche Bank correspondents, were in the hotel pool going with the flow in rather a different way). Another Level 4 attraction was the Sibos bag collection point (who remembers the Boston 2014 trolley bags and the elegant leather wallets of 2015?). This year’s handy backpacks complete with smart phone charging point courtesy of the SWIFT gpi power bank proved very popular, judging by the queues (which were longer than those at a certain bank’s legendary coffee bar).

Change as usual

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Brett King on the virtues of a chameleon approach to dealing with change

When Innotribe first launched ten years ago, the discussions were held on the fringe of the conference, but now they are core and have their own “Discovery Zone” complete with psychedelic sound and vision, white padded seating and the passionate Head of Innotribe Kevin Johnson. This year he took delegates on a whistle stop tour of disruption from the Stone Age through Apple’s launch of the iPhone on 29 June 2007 and the App Store and iOS2 13 months later.

“This is the disruptive force we have lived through. It has changed how we consume software by designing it as a platform. Last year they added US$11bn from running the App Store and from its launch US$100bn delivered back to the developers. By allowing others to compete and deliver products to their customers leaving enough value on the table so both sides win, Apple is the largest company by value. The current battleground is customer experience,” he explained.

Australian futurist Brett King followed on in this Innotribe opening and keynote session. Author of  Banking 4.0, subtitled ‘Banking everywhere and never at a bank”, it was never going to be comfortable listening, but he made the points that companies such as Amazon and Apple are very efficient at generating profits from small groups of employees – which has an impact on the labour force.  He also noted that in a software and AI-based world, the traditional economics of supply and demand with an equilibrium point no longer applies, because once you have created the software or AI, you have created the potential of an infinite supply without having to increase the associated labour force. What would happen to all these displaced employees was not entirely clear….”A policy change will be needed,” said King.

Unprecedented payments growth

Payment trends

One of the Sibos annual fixtures is the advance discussion of key findings in McKinsey’s Annual Global Payments Report, and this year it was partners Philip Bruno and Marc Niederhorn that reported on how global payments revenues had swelled to US$1.9trn in 2017, “the best single year of growth in the last five years – we have never seen 11% before globally” (see Figure 1). “We have finally got the engine running in payments post crisis,” said Bruno in McKinsey’s Global Payments Outlook.

The analysis is done counting the number of transactions, their values and all the intermediary revenues from payments providers around the world. It is done for 43 countries, and accounts for 92% of global GDP.

Payments is one of the fastest growing parts of banking – this is 40% of total banking revenues in the system – and thinking about how you manage this across a financial institution is critical, explained Bruno.

Figure 1: Global payments growth

In last year’s report, they forecast that payments would become a US$2trn business by 2020, but  2017’s market performance was so robust — an 11%  growth rate fueled by continuing strength in the Asia–Pacific corridor — that global revenues are, they said, “poised to surpass that US$2trn threshold in 2018, and to approach US$3trn within five years”.

At more than US$900bn, Asia Pacific now accounts for nearly half of global payments revenue, they said.

See the McKinsey article, Global payments: Expansive growth, targeted opportunities, for further detail where the report will be available to download on request once available.

Payment market infrastructures

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Left to right: Daniel Gozman (University of Sydney); Paula Roels (Deutsche Bank); Mauro Pernigo (Intesa Sanpaolo); and Jonathan Liebenau (LSE)

However, future growth on payments in payments is not just contingent on what the banks are doing. In fact, the trends affecting Payment Market Infrastructures (PMIs) today could project us into a very different future. Lowering costs and low profit margins give many the idea that payments will become a mere commodity service with little to attract innovators or those interested in high value added activities.

In a SWIFT Institute session titled Looking toward a future generation of payment market infrastructures panel, Daniel Gozman, Senior Lecturer, University of Sydney delivered the findings of new research providing a new view of the current situation and prevailing trends including three scenarios: a continuation of the status quo, interoperable fragmentation and consolidation.

He then joined Paula Roels, Head of Market Infrastructure & Industry Initiatives, Cash Management, Deutsche Bank, Jonathan Liebenau, Reader in Technology Management London School of Economics and Mauro Pernigo, Senior Manager, GTB Product Development, Intesa Sanpaolo on a panel to discuss the landscape further. Both Roels and Pernigo are members of SWIFT’s Payment Market Practice Group, founded to “drive better market practices which, together with correct use of standards, will help in achieving full STP and improved customer service”.

“We cannot deny the payment landscape is changing, driven by customer demand for anywhere and anytime payments, new technology and a push from the regulators for fast and frictionless services,” said Roels. This is an industry on the move, she added, and explained that the industry is heavily investing in a SWIFT network that is fit and for the future.

Pernigo agreed, and observed, “Market infrastructures open 24 hours need to be as instant as possible.”

Commenting on competition from the fintechs, Roels said, “For fintechs payments are not a core service so ideally we evolve and develop on the common platforms with the experience they require from us. Actually the dynamics transforming our business are not the new technologies but the emergence of new payments schemes like such as real-time payments and instant payments but also new standards.”

She sees the message standard ISO20022 that carries the promise of banks being even more efficient. “It gives us rich structured data, helps us become faster and more efficient and cheaper in delivering payments as well as automated data analytics for anti-financial crime. We’ll have to develop the new payment landscape and be a bridge between the traditional and the future platforms.”

The development of that landscape will require global markets infrastructure modernisation of which ISO20022 is only one part. Just as the  Single European Payments Area (SEPA) delivered efficiencies for Europe, for the modernisation of the global payments infrastructure landscape, further harmonisation of standards is still required for the 2019−2024 roll-out period because, concluded Roels, not all infrastructures are currently considering 24/7 for individual payments.

Platform predictions

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Deutsche Bank’s Thomas Nielsen sees a tectonic shift in business models

Technology, regulation, customer demand and social demographics are driving big changes in the way financial and other services are being created and delivered. In the session entitled Open banking – what role for banks, Deutche Bank’s GTB Chief Digital Officer was joined by Mastercard’s VP Security Solutions Mallika Sathi and Natixis’ Senior VP Partnerships and Interbank Relationships Fabrice Denele, moderated by Bain & Company’s Thomas Olsen, to look at what open banking and “banking-as-a-platform” really means.

Nielsen said that data should be “set free” and used for client purposes, with the caveat, “if we think data is the biggest advantage in financial services then we are mistaken.” Panelists agreed that regulation had created opportunities - PSD2 had opened up account structures – but that data was at risk because regulation had given consumers control and responsibility of their own data via GDPR, where it could easily fall into the wrong hands if made available to third parties. “We are seeing a tectonic shift in business models where trust and relationships will last a long time”, reflected Nielsen.

In an interview with The Asset’s Darryl Yu Nielsen went on to explain, "Open banking allows traditional companies and fintechs to engage with us in a seamless, secure and trusted way without us having to create a bespoke solution for each one… I think that open banking has the biggest opportunity for a treasurer and for a bank to essentially become more of a platform player."

Navigating trade in a world of disruption

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Left to right: Daniel Schmand (Deutsche Bank); Mark Evans (ANZ); Olivier Paul (ICC); Michael Vrontamitis (Standard Chartered)

Led by Deutsche Bank’s Global Head of Trade Daniel Schmand (wearing his ICC Banking Commission Chair hat), this ICC Banking Commission panel comprising Olivier Paul of the ICC, Mark Evans, Head of GTB for ANZ and Standard Chartered’s Head of Trade Finance Michael Vrontamitis reported back on the launch of the ICC Digital Road Map, tasked with ensuring that trade finance rules are “e-compatible” and establishing a set of standards to enable digital connectivity for trade finance service providers. It also provided an overall briefing on latest advocacy and projects.

Of particular concern is how long it takes for FIs to onboard fintechs – the current average of 24 months has to reduce to two to four months or else the fintech has run out of seed capital before the process is complete…Evans and Paul explained how the ICC The Trade Register Report 2017 was based on responses from 22 banks and covered US$10trn of exposures. It was announced that supply chain finance is to be included in the submissions from the 2018 report onwards and that work was underway to make it less onerous for banks to submit the data.

Another point that came up was working with regulators as, according to the ICC survey, banks look set to move away from traditional paper-based trade finance as revenue sources in around five years, with all agreeing that it is hard to move forward with digitalisation if everyone is still processing paper. “We need to work hand in glove with our regulators to ensure regulation introduced is achievable and not a barrier to growth”, said Evans, as all agreed nobody wanted trade finance to move into the shadow banking territory.

Beyond the New Payments Platform

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ANZ CEO Shane Elliott talks about the doors technology is opening up

Of all the plenary rooms we have seen at Sibos over the years, this one stood out a mile – perhaps in keeping with the tone the Sibos host country has set for digital enablement. After a sound and vision extravaganza, SWIFT Chair Yawar Shah welcomed delegates and introduced keynote speaker Shayne Elliott, CEO of ANZ.

Elliott opened his remarks by setting the scene with the ongoing Royal Commission that is “looking into the behaviour of the past and where our industry has failed”. He said there was still a lot of work to do and, “at the same time, we are confronted with the challenges and massive opportunity about the transformation that is happening where Australia positions well in terms of digitalisation and new customer experiences”. While he agreed the New Payments Platform was exciting and had been a massive investment, he said it was important to focus on the data capabilities the NPP brought. “We were so focussed on getting there quickly and responsibly that we have yet to turn our minds to all the doors the technology will open up”.

SWIFT CEO Gottfried Liebbrandt closed the session with a reminder echoing Brett King’s earlier advice that “we need to adapt and change as never before”, citing SWIFT gpi as an example of how SWIFT was doing just that. “A platform for new services and extensions to be built on top of that, banks are putting it inside their customer facing applications”.  He reminded delegates social media is “shaping geopolitics” – where would the trade wars be without all those tweets – and that the use of financial sanctions as a political tool puts SWIFT in a difficult position. “We are a global critical infrastructure and can only serve if we are allowed to remain neutral – we continue to make that point to the authorities,” he said.

What lies beneath

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Collaboration with fintechs needs to be taken forward, says Deutsche Bank’s Fiona Gallagher

Increased regulation and new technologies are poised to reshape capital markets and give them a much-needed transformation. In a session mysteriously headed ‘Capital markets – is the enemy within?’ moderated by HSBC’s Global Head of Custody John Van Verre, Deutsche Bank’s Global Head of Securities Services Fiona Gallagher, Clearstream’s Co-CEO Philip Brown and Murex’s Chief Marketing Officer Stella Clarke looked at how the status quo of the industry should be challenged, and collaboration with fintechs could be taken forward. The panel agreed that cultural changes were long overdue and that banks should work together to help new entrants understand how custody works to improve the ecosystem for everyone.

Gallagher commented, “As banks we should not try to aim for the big bang but rather smaller projects and have the confidence to work together on some non-competitive elements.” She added that there had been a lot of change over the past 10 years and while this decade had “not delivered the pace of change we have hoped for”, the industry has got smarter at delivering smaller yet very tangible projects”. New technologies provide the industry with an opportunity to “move on” and avoid what Gallagher described as a duplication of effort on many non-competitive aspects of the custody value chain. 

One example of this is robotic process transformation of post-trade processes such as the chatbot solution (Debbie) that Deutsche Bank Securities Services and BNY Mellon announced in June 2018. More information about this can be found in the flow article, Dashboard Dynamics. Another example of a tangible project is the Enterprise Analytics Platform, announced at Sibos, which provides treasurers with visibility into their company’s cash positions globally to optimise their available liquidity, reduce funding cost and maximise return on cash.

Trade Information Network

Having been in gestation for almost two years, the Trade Information Network was announced on 17 October 2018 with seven banks having been instrumental in making this happen. It takes the form of a trusted trade information registry which allows banks to extend financing to corporates much deeper into the supply chain, having been set up to address existing financing gaps – pre-and post-shipment.

In a fringe panel session, representatives of all seven of the banks, plus the platform developer CGI, explained how the network aims to address the unmet demand for financing. “Through the network, suppliers and buyers will be able to share their information in a trusted fashion with the banks of their choice reducing the risk of fraud while giving customers access to multi-bank trade finance around the world an at an earlier stage in the supply chain.” Next steps are to get this adopted by as many banks as possible and to start populating the platform. One banker observed afterwards that it would be particularly handy if everyone could log how much facility utilisation was actually going on among borrowers – just so there was as collective understanding of what liquidity was still sitting in the ecosystem.

Plants with bite

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View of Deutsche Bank Sydney offices from the Calyx

In time-honoured tradition, the first day of Sibos was rounded off with a number of exhibitor events at local attractions. More than 400 guests attended the Deutsche Bank client reception held at The Calyx in the heart of Sydney’s Royal Botanic Garden, where a special exhibition was being held of carnivorous plants (never had Do not Touch signs been so rigorously adhered to). It was here that clients and partners relaxed with the Deutsche Bank delegation over glasses of rather special Australian Chardonnay and Shiraz (not to mention a few beers) after a busy, albeit refreshingly different, first day.

Competition and connectivity

On the second day of Sibos, key themes that emerged were those of a new world order, rules of competition that were founded in trade and infrastructure, and how to navigate cross-border risk and payment journeys

Setting the tone for Day 2 at breakfast was one half of the charismatic Singapore-based global power couple, Parag Khanna, founder of FutureMap, a data and scenario based strategic global advisory firm. His wife Ayesha took the podium the following day. Parag said while the world remains as competitive as it has always been, the battlefield has changed, and increasingly, “antagonists are connected to each other”.

Markets not territory

Parag Khanna’s breakfast wake-up call

In a world comprising almost 200 countries rather than the 71 when the UN was first founded after WW2 in 1945 to prevent a repeat of that conflict, he said that current conflicts were unlikely to ever escalate into WW3, because “connectivity plays a greater role” and the world is a much more integrated marketplace where competition is over supply chains and infrastructure. In other words there is much more focus on gaining a trading partner and a market, than on geographical territory.

As for trade wars, he said, they are “nothing new” and “we are battling a trade war every single day” now that “who rules the supply chain rules the world”. Khanna predicted, “We will build more infrastructure over the next 40 years than we have in the past 4000 years.”

Are instant payments really instant?

Adrian Lovney demonstrates instant payments in action

Having published our white paper of much the same name, two months ago, this Sibos session, ‘Instant payments – a real-time reality’ was a diary must have, with Australia’s New Payments Platform (NPP) CEO Adrian Lovney (pictured above), alongside Karen Birkel of the ECB (TIPS in Europe), and Petia Niederländer of EBA Clearing, Erste Bank Group (RT-1 in Europe) moderated by SWIFT’s Carlo Palmers. All three payment platforms were built on SWIFT rails.

Lovney demonstrated how the NPP worked using OSKO, the first overlay service that sits on the platform with a payment moving in seconds to a pay ID. This provides reach to 50 million accounts.

Niederländer explained how RT-1 started in November last year to process SEPA payments, with around 80 banks next month and 70,000 transactions a day. “We are happy we have one of the oldest banks in the world as well as banks that have only had their licences six months,” she said. TIPS is due to go live next month, said Birkel, and they are still testing. They have seen successful liquidity transfers in the test environment. “We are very confident we will go live successfully on 30 November.” She said this was a small start – 20 banks at the end of November – but more are expected to join in 2019.

Other countries are also on the road to implementation, and Lovney’s observations were that building the central kit was relatively easy, but “back office integration is likely to be more complicated than you think it is”. Banks, he said, are big beasts with a lot of legacy systems. And, you have to be willing to live with imperfection to achieve speed. “We all know you never switch on a system like this and expect ubiquitous reach on Day 1. We agreed around a year before we were due to go live on the minimum critical mass we were prepared to launch with.” The platform focused on person-to person (P2P) payments but they catered for who might need to drive standardised messages across the industry. He also confirmed they have made available an API sandbox to encourage API makers to play around with the tool in the cloud.

Trade wars and technology – a new era for trade finance

Left to right: Rebecca Harding; Jason Kelley; Samuel Mathew; Rajkiran Rai; Daniel Schmand

flow’s regular contributor, economist Dr Rebecca Harding, was back by popular demand, moderating ‘Trade wars & technology – a new era for trade finance’ with Jason Kelley (IBM BlockchainServices), Samuel Mathew (Standard Chartered), Rajkiran Rai (Union Bank of India) and Deutsche Bank’s Daniel Schmand (pictured above). Faster payments are all very well, but of course reduce the need for working capital, and a resurgence in nationalism and protectionism has ended the steady run towards globalisation over the past 20 years.

“One could argue this is a measure being used to force a single isolated position which has nothing to do with trade and the underlying economics,” said Schmand. “There is no war, it is just an exchange”, said Kelley. However it is an act of aggression – “remember the banana wars in the late 1990s?” said Mathew. He sees the bigger problem being the creation of an environment of uncertainty that could deter investors. Rai made the interesting point that India is a beneficiary of the trade “war” between the US and China once the supply chain gets disrupted, but that there is wider damage to the financial system that hurts everyone because “a lot can happen in 180 days” (the average tenor of a documentary credit), and banks are now exposed to greater risks during that period than they were before.

Turning to the Holy Grail of digitalised trade finance, the difficulty comes when you move outside a national closed ecosystem where rules and regulations are clear (eg Singapore) and go across borders. Schmand said that the issue is not the technology – “it is there and it works” – but a solution that could be tested in a closed ecosystem and then branch out. Another idea was to look at agreeing a new currency and settlement system outside the dollar, euro and yen as the technology continues to evolve. He reminded delegates that trade finance “flows on the back of commercial flows”, and a poll of the packed room indicated 75% of those present thought trade wars were “here to stay” and protectionism, along with trade disagreements, will be “ongoing”.

And for this reason, an improved digital solution to all that paper is all the more urgent.

Correspondent banking blues

Two Cass Business School speakers – Barbara Casu Lukac, Professor of Banking and Finance, and former Citi regulatory guru Ruth Wandhöfer (who has just finished her PhD and is starting a series of articles for flow) tackled “The future of correspondent banking cross-border payments”, in an insightful double act based on some new research.

This looked at whether and how technology and policy measures can unlock some of the impasses in correspondent banking and cross-border payments, by looking at new business models, and investigating additional services to make this a safer business that reconnects people across the globe after the recent period of widespread de-risking.

“We don’t have true settlement functionality. It’s about how people can interact with each other, about interoperability and stability. This is something hard to achieve cross-border”, said Lukac. 

A brief online questionnaire distributed by SWIFT revealed pain points including opacity in transaction-related costs, for example who paid which fees to whom for validation, AML and counterparty risk, ahead of costs for messages and bank charges.

The results were put to industry participants and discussed in focus groups including the Financial Stability Board on how a model could be designed to overcome these points. They came up with a set of key requirements for future cross-border payments models covering: settlement, liquidity efficiency, predictability, interoperability, transparency, ubiquity and interoperability.

A set of seven design scenarios for an improved cross-border payment process emerged including those already existing such as SWIFT gpi and new ones:

  • SWIFT gpi (a vital part of the solution). “This is an example of the importance of the network effect”, said Wandhöfer. “gpi is addressing the fact transparency plays a key role and uses cloud and APIs”.
  • A narrow clearing bank.
  • Connecting clearing houses – the ACH today are not for high value payments
  • Integration of regional RTGS (real time gross settlement) systems managing flows between different countries, with a blurring of boundaries between high and low value clearing
  • Global settlement utility to achieve settlement finality in central bank money
  • Synchronisation using DLT technology such as settlement coin
  • Next level of gpi including more services, with sanctions, KYC and more transparency through the new release implementing the UETR.

SWIFT Institute published their paper, The Future of Correspondent Banking Crossborder Payments in October 2018, which can be downloaded from SWIFT here.  It explores whether and how technological innovation, in conjunction with policy measures, can improve the process of correspondent banking cross-border payments.

Game of homes [data]

Developing the overall theme for the day of connectivity and new battlegrounds, it was inevitable there should be a session on how technology and data fuel not only protective behaviour from jurisdictions, but attract cyber criminals that can destabilise entire organisations and economies.

The 4th Industrial Revolution & Geopolitics: Are advances in technology worsening geopolitics or are rising geopolitical hostilities raising barriers in technology? The answer, according to the panel with this very long title, was that was not really the main issue and what was really needed was more cross-border collaboration on cyber-security, as well as opportunities (picking up Khanna’s breakfast point of territory gains being much further down the political agenda than market access).

This was all debated by Norm Judah (Microsoft), Josh Kalimer (Information Technology Industry Council), Rob Sloan (Dow Jones), ably moderated by Alison Tudor Ackroyd, Managing Editor of Finance Asia and Corporate Treasurer.

It was agreed by panellists there should be more cross-border collaboration on cyber security. They explained how companies and governments sometimes don’t know that they have been attacked and struggle to come back from one. Norm Judah (Microsoft) said that the struggle of governments to get a handle on cybercrime contributes to geological tension. “For example, Vietnam requires the localisation of data on the belief that it keeps that data safe. While the motivation is sincere, the response is suboptimal.

Attention turned to IP theft and leakage, and we heard how it is the mind-set of how you deal with the failure of protection and the recovery that is so important. “While information sharing should not be stopped, there needs to be a set of rules to avoid information leakages,” said Judah. Kallmer pointed out that these happen not always because of deliberate theft, but because people move around.

The overall conclusion on this was that both tech providers and the banks have to take a position on information sharing and leakages, but some guidelines from the governments are needed. For example, the financial services industry has been lobbying the US government to allow facial recognition. As soon as the governments have a policy there will be smaller preventative projects such as these.

Up to the atmosphere

Polina Evstifeeva: “Regulators do understand innovation”

Cloud and API – embracing disruption in financial services’ was one of the key sessions of the day, not only evidenced by a packed room but the general mobbing of the speakers afterwards.

It starred Polina Evstifeeva from Deutsche Bank’s GTB Chief Digital Office, alongside Chet Kapoor from Google Cloud, Claus Richter of Nordea and Eli Rosner of fintech provider (the former Misys) Finastra, moderated by Christine Leong of Accenture. A poll of the room indicated that most delegates did have some sort of API strategy or were at least thinking of putting one in place.
Nordea’s Richter set the scene with “cloud and open banking is about how we deliver business today and deliver the business of the future.”

Data gravity and computing power

Rosner developed this by pointing out that it was a means to an end and the transformation of a business model. “If you have an API it means you are future protecting yourself by exposing your capabilities through a standard interface and opening yourself up to communicate with other partners in the ecosystem. When you look at Cloud, it means that you now have today a significant collection of data gravity in one place, alongside infinite computing power, enabling you to drive a business transformation. Banks can transform their business model and diversify their business and grow,” he said.
Another room poll suggested most see APIs as a product evolution strategy rather than a regulatory obligation, but Deutsche Bank’s Evstifeeva provided some background to the regulatory drivers.

“We see a lot of data growing each day - everyone is producing data. So it’s about how you store and exchange it. Data and cybersecurity are under the regulatory spotlight. If you think about APIs, they are nothing new. But now we are talking about them all the time and there are eight or so sessions here at Sibos dedicated them. In Europe, the PSD2 requirement for banks to open up their data and systems to third parties has been the catalyst.”

Regulator engagement

She added, “Regulators do understand innovation and are looking at how they can support API and cloud solutions being adopted by banks and how they can facilitate that. This is really important support we can get from regulators on this journey which will help us drive this forward.”
Kapoor reminded everyone, “At the end of the day the centre of all this is the user. Our consumers are asking us for technology they are not getting and industry, corporations and regulators need to work together to make this happen.” He said he had seen many implementations and the successful organisations “think of technology as a competitive advantage, as something they use to change their business – it’s not just about cost savings.”
He added, “When you embrace technology you think about it as a time to market. You realise quickly you cannot implement technology with old rules. Your planning cycles cannot take nine months. You have to make cultural and process changes. Good organisations realise they have to move the goal posts, and the successful implementations are those that move quickly where APIs are regarded as products and not projects.”

Change or die

Evstifeeva reflected, “Let’s not forget the requirement to open up the data has only just come up. Banks are only just into the new reality. It was the norm that banks owned the data and now they need to open it up. Look at what we did with IATA – where Deutsche bank is taking the role of the third party provider to provide a payments solutions. The key is to embrace the change and become a market leader and play a new role. If you don’t you put your business at risk.” Further detail on her points can be found in the Deutsche Bank white paper, “Regulation driving banking transformation”.
Rosner gave everyone additional food for thought when the observation that a bank’s greatest asset is trust and “if they have multiple corporations banking with them and those corporations serve each other, the bank can be a trusted adviser and aggregator of that data and provide new services.”
Nothing is impossible.

Co-existence and collaboration

Co-existing with AI and new technologies and not simply accepting the ‘black box’ was a core theme of day three of Sibos. This will rely on collaboration between banks, fintechs and platforms in the new ecosystem in order to redefine customer experiences and revenue sources. Sessions on SWIFT gpi were a good example of this

People don’t know what they’re capable of unless they’re put in a certain situation. These words, spoken by most-capped cricketer Steve Waugh during the closing breakfast key note on Day 4, could not be more relevant for the banking industry. Disruption from fintechs and regulation have forced participants into situations where they have had to co-exist and collaborate. And adapt they have, with new business models evidencing that.

No pain, no gain

However, this is not the only area where comfort zones were stretched and the industry joined forces. Hundreds of runners met at Sydney’s picturesque Metcalfe Park at 6am for the 5k Sibos run/walk, organised by Oracle. In true collaboration in action runners from SWIFT (including CEO Gottfried Leibbrandt), banks (including Deutsche Bank’s Christian Westerhaus, Head of Cash and Clearing Products, Cash Management, Mike Clarke, Product Management, Securities Services and Janet Du Chenne, Editorial Marketing, GTB) and technology vendors (Broadridge’s Mike West) flexed their collective muscles for the perfect start to a busy Sibos day – and turned in very respectable times as well. It was dubbed the “special happy hour” by Westerhaus, who spotted many well-known industry figures en-route, all with smiles on their faces, albeit somewhat hot and sweaty.

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Winning together at Sibos – collaboration in action

For anyone all wired from their early morning run, what better accompaniment to a Sibos breakfast than  Dr Ayesha Khanna, co-founder and CEO, ADDO AI (the other half of the Khanna duo – we had heard from Parag the day before) with her dynamic Breakfast Keynote on the scale and impact of AI where she explained how humans will co-exist with technology to transform business and redefine customer experience and trust.

Trusting big brother

One obvious place to observe the impact of these technologies is in cities, she said. With two profound trends that will change humanity in the 21st century – technology and urbanisation – she highlighted that there are 27 megacities, which will have more than 10 million people in them by 2025.  She explained how AI is becoming ever prevalent in these cities, shielding some of them from terrorism for example, with 176 million surveillance camera’s built into the eyewear worn by the police. The technology uses two billion images provided by the Chinese government to train on. Using AI and data, anything is possible.

Dr Ayesha Khanna on co-existing with technology to redefine the customer experience

In another example, Khanna explained how UK company Babylon Health is using AI to give patients online advice, alleviating an overstretched national health service. “The very fabric of our existence depends on data, IoT and AI”, she said.

This is why companies are constantly adapting their service offering to co-exist with technology. Nowadays it’s hard to figure out who does what, said Khanna. Companies want to capitalise on their data and their technologies to give new services to customers and eight out of 10 times that request relates to fintech and financial services.

For example, Norwegian telco Telenor bought a microfinance company in Pakistan to use its data and AI to provide loans to the many millions of the unbanked in Pakistan. In a country with 206 million people, very few people have bank accounts and companies have been slow to innovate to meet this demand. Through Telenor’s acquisition they now have an easy app-enabled account through a service called easypaisa. This is the reality we live in now and for which we need to prepare, says Khanna.

Are we prepared for this disruption? Khanna argues that everybody needs to learn about these fourth industrial revolution technologies and until that is done their education is incomplete. This is why Singapore gave grants to fintechs to set up AI hubs there, “so financial services professionals are equipped with the skills and resources to be a financial hub”, she said. “But without their domain expertise I couldn’t imagine this replacing people. You need a team of super heroes, then you need to ensure the team of the future has a mixture of AI experts, technologists, bankers and sociologists in them and that is all relevant to make the product needed by your consumers.”

Khanna stressed the need to redefine education and work in intra-disciplinary teams. “This is why we shouldn’t treat AI as a piece of technology, but as colleagues. Our domain expertise is empathy, strategy and business knowledge. It is not an option for you not to understand AI. With the advent of more regulations in the European Union, some decisions need to be explained by humans and not by technology.”

And fittingly, on day three, Daily News at Sibos described this co-existence in action with a story about ‘Deutsche Bank and Data Labs in big data project’ on page 9, covering the launch of new analytics capability for the bank’s securities services business, due to go live in November 2018, starting with the German market. Fiona Gallagher, Head of GTB Securities Services, told them, “We have the data, we have the technological and analytical capabilities via our data labs and of course, we have the banking expertise – putting us in a strong position to dig into client data in a way that’s yet to be fully explored in securities services.”

Shoe shine SWIFT gpi

API connectivity
From left to right: Steve Dumont (SWIFT); Michael Thomas (Nedbank); Hau Peng (ICBC); and Paula Roels (Deutsche Bank)

An example of such a scenario is seen with the evolution of SWIFT gpi, which relies on APIs to realise its true potential. In a panel discussion titled SWIFT gpi – Maximising its value through APIs (moderated by SWIFT’s Head of Messaging Product Management Steve Dumont), Paula Roels, Head of Market Infrastructure & Industry Initiatives, Cash Management, Deutsche Bank, joined Michael Thomas, Divisional Executive, Global Business, Transactional Services, Nedbank and Hau Peng, Deputy General Manager, Operation Management Department, ICBC, to share their experience of how API connectivity to gpi has enabled them to provide their clients with the same experience they are used to in their personal lives. Roels likened it to the same experience she is used to when ordering her favourite shoes from Italy. “A payment hits a beneficiary account in 13 minutes and my shoes were despatched”. 

Using APIs, it integrates easily into the bank’s applications and the client is served better as a result. “Our customers wanted full transparency on a daily basis – we allowed them access using our front end Cash Inquiry app via an API layer on top, so that they can make a call to the tracker via the API interface to track their payment.”

Nedbank’s Michael Thomas spoke with equal fondness about the gpi payments tracker which helped customers with their remittances to 34 African countries. It addresses the client frustration of accessing the underlying payments themselves. They now have access to the visibility of a payment in the enquiries process area.

Multi-banked corporates

While nobody could miss all the SWIFT gpi sessions resonating from the SWIFT hub zone on Level 2, with 80 banks now live with 15 of them having integrated the gpi tracking system into their portals (including Deutsche Bank), the next question in the gpi journey was how corporates could use gpi given their inevitable preference to multi-bank.

This was answered in the other cracking gpi session that day (this time with a corporate perspective) entitled SWIFT gpi – Delivering value to multi-banked corporations and chaired by SWIFT’s Sebastian Rojas (who chaired a similar panel at EuroFinance), with the corporate camp occupied by Martin Schlageter of Roche, and Peter Claus Landi of General Electric. Representing the banks were Deutsche Bank’s Global Head of Payments & Collection Products, Christof Hofmann and Citi’s MD of Global Clearing and FI Payments, Mark McNulty.

Panelists shared with a packed room the work done by a group of international corporations and gpi cash management banks to streamline the gpi experience for multi-banked corporates. More information on this can be found in the flow article, ‘Moving swiftly on’.

"Knowing how long it will take for a payment to get there is a huge benefit, and transparency is crucial – when I use Amazon I know what is being shipped and when it gets to my doorstep," said GE’s Landi. He added, “Without sight of all bank transaction deducts, the corporate does not get the full picture."

Schlageter added that another pain point for multi-bank corporates was having to go into each bank’s payment tracker to reconcile what had happened to one payment. It was these issues that prompted the formation of the pilot group in November 2017 to test a SWIFT gpi for Corporates (g4C) standard that enables corporates to initiate and track gpi payments, via multiple banks, directly from their ERP and treasury management systems.

The solution lies in the Unique End-to-End Transaction Reference (UETR), the equivalent of a parcel tracking number, starting with the corporate, which is sent to banks around the world and then “we get it back, with the reconciliation and tracking of our payments.” He pointed out that this single tracker in real time is a much more professional solution.

Scalability is key, “we need all of our banks to sign up”, said Landi. Deutsche Bank’s Hofmann pointed out, “We have an environment which is undergoing massive change. The emergence of open banking and real-time payments as well as new competitors in the payments area have helped to create a sense of urgency. Also, some of the technology available now that wasn’t around ten years ago makes it easier to implement the gpi solution.”

The following day on 25 October 2018, SWIFT announced that nine corporates supported by seven gpi banks had successfully implemented multi-bank gpi payments and tracking through their treasury applications. The platform also gives corporate treasurers full transparency over fees and FX.

Disrupt yourself

Deutsche Bank’s Michael Spiegel says the time to act “is now”

Just as Singapore decided to disrupt itself by inviting a fintech in so that its banks could learn about AI and other new technologies, Wednesday’s Big Issues Debate on ‘Disruption in the payments landscape’ carried this idea forward by talking about the importance of collaboration to meet customer demand.

Banking is not enough

With these technologies and instant payments transforming the financial landscape, the Big Issue Debate featuring Michael Spiegel, Deutsche Bank’s Global Head of Cash Management carried an important reminder: It’s no longer enough to turn up and be a bank. In addition, factors including the regulatory drive for open banking and consumer demand for real-time payments has led to the rise of fintechs and new players in the industry, causing disruption in the once relatively unchanged payments sector. Banks need to engage in this new ecosystem and collaborate with others.  

Spiegel joined Ulku Rowe, Technical Director, Financial Services, Google, Esther George, President and Chief Executive Officer, Federal Reserve Bank of Kansas City and Leila Fourie, Chief Executive Officer, Australian Payments Network to discuss how collaboration and the adoption of those technologies should be customer led.

Banks had been leapfrogged by the tech giants in innovation, while they were dealing with their post financial crisis strategic challenges. They are now catching up, said Spiegel. But these institutions should not wait to see what new technology comes in and then decide what to adopt and who to partner with. The reason for this is simple: something phenomenal is happening with the rapid evolution of technology creating a level playing field for everybody, and providing lots of access for interactions with clients that have never been possible before. The time to act is now.
Old with the new

The balancing of legacy and new technology was also discussed. New tech rails have come up, but it’s a question of how they will work with legacy infrastructure, which is still used extensively. Illustrating this, George reminded the audience that the infrastructure for cheque processing is still being used, with about 18 billion cheques moving through the system.  

Spiegel explained that some legacy is always required even if for the simple reason that it creates opportunities to have some connectivity with APIs. The way payments and settlement are done won’t change but the communication with customers will change a lot. “The challenge is that we don’t know where payments are going to land but the good news is that we are working with the fintechs and offering the same services as they are on a retail basis.” Examples of working together to overcome this challenge were explained in a whitepaper titled Piecing together the global payments puzzle.

Echoing the words of Mark Twain, who said that reports of this death were greatly exaggerated, Spiegel said that the threat of complete overhaul of the banks by the fintechs were “greatly exaggerated”. “Instead, the industry is now in a connected ecosystem that will drive a better environment. We need everybody’s support and help in the future.”

And this includes the regulators’ visibility of the payment system because new technologies and incumbents also carry a risk. If a wallet provider suddenly disappears there is a different challenge to protect the customers, said Spiegel. “It’s about how technology is going to change future customer demands, so we need to work with regulators to create a collaborative environment.”

Secrets of success
To that end, it’s less about whether fintechs or banks will dominate the space but there are a few characteristics of success: those who own the front end of the customer relationship, those who are agile and can respond to customer demands and those who use artificial intelligence, machine learning and are able to store, manage and manipulate data in a meaningful way.

What are corporates demanding? Instant payments are important in the ecommerce environment. It keeps customers super happy. But it needs collaboration between banks and fintechs to add value since 50% of corporate customers want to work with fintechs, but they want a bank to help choose them. “Corporate treasurers cannot easily incorporate a fintech, so we go to them and say here is the trust element we can provide,” said Spiegel. Echoing his article in the Sibos Insider newsletter, where a survey conducted with the Economist Intelligence Unit revealed that corporates value trust and safety over speed, he said that these customers are more likely to use a fintech if incorporated within a bank’s platform.

Spiegel explained this preference in a flow article: Most of the fintechs provide innovative and sound solutions but in narrow fields. Yes, in theory treasurers could replace a transaction bank, but they would need to onboard a multitude of fintechs, or work with a large technology player to cover off the equivalent services. If a provider ended up consolidating all these services onto one platform, it would then resemble and function as a bank, and may get regulated as such.

In that article he indicated that corporates are looking to the banks to design and influence solutions that give them the right experience and called on banks to on-board the right players, provide connectivity and work with other banks in areas where there is no competitive advantage. 

The future is now, concluded Spiegel. “Expect the unexpected all the time. Create scenarios and engage in the developing new ecosystem.”

Out with a bang

Day four was all about the balance of human interaction with logic, artificial intelligence, and using technology to create something better. Delegates heard how cricket match principles play out in corporate life, how computer science can be harnessed to improve decision making and when human organisation should – and should not shape machine learning outcomes

Australia’s cricket reputation goes before it – it took an outlawed form of fast leg bowling from the English cricket team for their 1932-33 Ashes tour of Australia to combat Donald Bradman’s batting genius. So it was fitting that on the last day of Sibos, the most capped Test cricket player in history, New South Wales’ Steve Waugh gave the closing Breakfast Keynote, where learning points from leading a winning team were shared because of their wider business relevance.

Just not cricket

No more ducks as Australia’s cricket team aimed high, says Steve Waugh

He talked about walking out to bat in front of 40,000 people in his first test match “happy to survive the first ball and make a first run”. Such low level ambition resulted in a lacklustre overall performance and the Australian team’s turnaround began in 1987 where a lot more discipline was injected into the routine such as individual fitness programmes and using video to examine the opposition and develop a strategy.

“These are the same things that make you successful in business and philanthropy. We wanted to be the best in the world in one-day cricket as well as test matches. We wanted to create our own future and our own legacy. So each match was an opportunity to set the bar higher. As a team, we enjoyed each other’s company and had fun along the way. You have to play with passion and have a sense of fun – and we ensured nobody was complacent and trained as if we were a Number 2 side.” He also spoke about making tough decisions that are not necessarily popular, such as dropping Shane Warne from the test side against the West Indies in 1999 when Australia’s bowling legend was coming back from an injury, and finding that balance between individual flair and managing the “structure”. “People don’t know what they are capable of unless they are put in a certain situation,” said Waugh.

AI and better decisions

The daily lunch and learn sessions proved very popular, with “So what is artificial intelligence?” being no exception. Professor Uwe Aickelin, Head of the School of Computing and Information Systems at the University of Melbourne, explained three of the most common AI methods in fintech − evolutionary computation, neural networks and clustering.

He kicked off his presentation by debunking the assumption that artificial intelligence (AI) was just about robotics and automation. “I am fascinated by AI because of evolution. AI is usually software, and algorithms. Robotics is not the biggest application of all. The biggest application is decision support – making better decisions and reducing costs. It’s usually about trying to get new understanding, such as pricing prediction and fraud detections.”

Evolutionary algorithms, he said, are “inspired by natural evolution and adaption processes and used to find the good solutions for optimisation problems”. The computation normally involves a fitness function, an initial pool of solutions and the generation of new solutions. This has been applied in predicting potential bankruptcy – and corporate health. You can find out what variables we need to look at, and the computer comes up with something we had not thought of.

He then went on to look at neural networks which is, he said, the same thing as deep learning. Inspired by the way the human brain processes information, neural networks need high computer processing power and large sets of labelled data. It is a supervised technique where the data goes in and output comes out. But in a world where data sets are getting larger and larger and there are fewer labelled datasets, the technique, said Aickelin is his “least favourite”.

Clustering, he said, “scales much better with bigger data sizes” and is an unsupervised technique where the goal is to discover insights not prediction. It looks for clusters in a data set so that the observations within each group are similar. Aickelin gave a marketing segmentation example where features such as household income, occupation, distance from the urban area, are measured for a large number of people. The goal is to group people in terms of being more likely to receive a particular advertisement.

“To me”, he reflected, “AI is about how we think and how we simulate that. It’s about creativity.”

Human after all

After four days of discussion around collaboration and new technologies to meet customer demand, who better to wrap things up than an expert on human behaviour?  Professor Genevieve Bell, Senior Fellow at Intel Corporation, cultural anthropologist, technologist and futurist, called upon the financial services community to think about the adoption of new technologies in a way that takes them to scale. 

More of the same

During the Sibos 2018 closing plenary Bell summed up the week’s activity with a view of the human experience of technology. Applying an anthropologist’s view, she said, “If we're not asking the critical questions, we tend to reproduce our own lived experiences and those in turn shape technology” – which doesn’t provide seamless experiences. “Certain sets of data, certain devices, and certain algorithms may not want to touch other devices and data and algorithms. This is actually the way that humans have organised their lives." 

Having spent some of her childhood being raised by Aboriginal Australians, Bell proudly noted that there was “something really powerful in imagining that we get to talk about a future and what it means to be human in Australia, the oldest continuously occupied place on the planet and the place with the oldest piece of cultural technology – a series fish traps in a river situated about 250km West of Sydney”.

Anthropologist Professor Genevieve Bell on being raised by Aboriginal Australians and how she ended up at Intel Corporation

From anthropologist to technologist

The Stamford graduate, who wrote her PhD on Native Americans and the history of an industrial boarding school in rural Pennsylvania, was hired by Intel in 1998 to help build out their nascent social-science research competency. She got the job, she said, not because she’s a cultural anthropologist but because “knowing what frustrates people and what they care about are pieces of information you absolutely have to have if you want to build the next generation of technology. You have to build what makes sense to human beings. It’s easy to build things, but it’s the complicated human bit that is how you make better technology. Listening to human beings and infusing what they care about into how we make technology has always been my job,” she said.

Fourth industrial revolution

What does it mean to think about human beings and also to think about the future? Part of that, said Bell, is that you have to think about what are the technical aspects and systems you have to build and the skills you think you will need to manage the future. “What are the systems that are coming and how to think about them and most importantly how do we take those systems safely, to scale?”, asked Bell.

Illustrating her point, she called up a World Economic Forum chart on the Fourth Industrial Revolution and said that throughout earlier waves it was not the technology but the system (skills and division of labour) around it that mattered. Computers made digitalisation possible but it wasn’t until we learned how to use the web that we were able to leverage their skill, she said. Each wave created a new set of tasks, jobs and questions. The other issue she had with the chart is that there’s no people in it. “It’s all about technology and no humans,” she said. “But humans had these systems in their lives and it changed the way they thought about time and space and created new businesses, new challenges and also new opportunities.” So the critical question in the fourth wave of the industrial revolution is how do you scale up techniques such as AI and outputs from the Internet of Things?

Figure 1: The fourth industrial revolution
Source: The World Economic Forum

In other words asked Bell, how are we going to take AI from the steam engine to the metaphoric railway? How do we make a fully integrated system that runs through “all of that stuff” and takes that to scale?

Using autonomous cars as an example, Bell noted how these objects have some capacity to move in the real world. Through a set of critical questions, they are going to make a set of decisions without references to a pre-approved script and some localised ability to decide things for themselves. They can be autonomous but within a framework autonomy which may not be the same everywhere because as humans we’re conditioned to make sense of one world and not another. Bell explained how an autonomous vehicle has built-in notions about hazard – for example in the EU they might be programmed to recognise four-legged animals moving in a straight plane. On the other hand, in Australia, there may be localised technology according to different notions of what it means to be autonomous. The point is, she asked, is who sets the limits on that? She then turned to financial services: “There are lots of countries in banking – what would be the moral equivalent of deciding that a transaction couldn’t happen? Is there a standards body? Would international ethics come into play? How do you know who you can trust, and where the risk and liability sits? How do we decide that?”

Checks and balances

According to Bell, the next industrial revolution lies in the next generation of human social and technological systems and the people that are going to share the skills, checks and balances to bring it into existence. While concluding that anthropologists like asking questions and not having the answers to them (she did ask a lot of questions in her talk…) Bell shared that she has set up a body of researchers, who will try to determine whether these systems should be autonomous and who gets to decide what their limits and controls are.

And it’s goodbye from them

While humans are needed to decide these matters, SWIFT CEO Gottfried Leibbrandt also recognised that the WEF’s graph of the fourth industrial revolution had no mention of people in it. And yet, the engineers, economists, MBAs and scientists were responsible for making the change happen. “Despite being an engineer, an MBA and an undergraduate with a computer sciences degree - who according to the chart - don’t do people, I truly enjoyed interacting with people in Sydney this week,” he said. He added, “I met many old friends and many new ones and, as always, I stand here completely exhausted and completely inspired.

And true to Sibos last-day form, after a week of 300+ sessions on collaboration and new technology, he took off his tie, ending the week with the words: “Thank you Sydney and on to London next year!”

SWIFT CEO Gottfried Leibbrandt takes off his tie, officially bringing Sibos to a close

For the faint-hearted who caught earlier planes or took the opportunity to grab some antipodean sunshine and missed it, the Sibos closing event lit up the sky with a firework display worthy of Millennium celebrations. Entirely fitting therefore, for an industry on the cusp of a new era.

Next year Sibos will be held in London, United Kingdom 23 to 26 September 2019. See you there!

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