IBS Journal October 2017
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also started developing its region-wide real-time payments scheme, SEPA Instant Credit Transfer (SCT Inst), which is due to be launched in 2018.
Blockchain – the answer to frictionless payments
In a bid to find the right solution to simplify the entire payments process both within and across countries, one technology that has been in the limelight is the use of cryptocurrencies and the underlying blockchain architecture. Blockchain’s distributed ledger architecture offers an immutable audit trail and allows real-time verification and authorisation of transactions within the network, which in effect makes the transaction instantaneous. Many banks and financial technology firms announced joint projects to explore the potential of using this new technology for cross-border payments. Of note was BNP Paribas processing several live payments in various currencies between its bank accounts located in Germany, the Netherlands and the UK for two of its longstanding corporate clients. All the payments were fully processed and cleared in a barely a few minutes.
Payment technology suppliers in demand
Advances in technology are surely transforming the payments industry. In the midst of these developments, banks and financial institutions have already started upgrading their technology infrastructure to remain compatible with new payment technology standards. While the customer-facing part of the payments value chain continues to witness high levels of innovation, financial institutions are still grappling with back-end infrastructure enhancements. This places suppliers of payment technology systems in high demand.
It is imperative for payment system suppliers to keep pace with the latest technology innovations
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In recognition of this growing focus on payment systems, IBS Intelligence introduced a new category under its Annual Sales League Table 2017 edition focusing on payment technology systems. During 2016, the total payment systems related deals recorded by the participating suppliers amounted to 15 sales. Intellect Design Arena’s Intellect Payments and Temenos’ Payments solution came out tops on the leaderboard with six and four customer wins, respectively.
Payment technology drivers and strategic imperatives
The outlook for payment technology suppliers is positive, with system sales expected to grow further in 2017 as banks continue to upgrade their infrastructure in line with evolving payment systems. One main driver for demand in payment systems will be the upcoming regulations such as the SEPA Instant Credit
Payments Systems SLT | 2017
Transfers and Revised Payment Service Directive (PSD2). A recent report indicates that many European banks are still not equipped for the system requirements related to PSD2 because of the limitations of their legacy systems. The open banking and PSD2 will place demands on the underlying technology architectures of incumbent banks, such as the need for real-time support for open Application Programming Interfaces (APIs) and messages. Similarly, for SEPA Instant Credit regulation, banks are required to implement the ISO 20022 XML messaging standard for transactions. Both SEPA Instant Credit and PSD2 regulations, which will be effective in 2018, will require banks to invest in technology and also revamp their delivery models, to remain compliant and stay competitive.
When it comes to product strategy, it is imperative for payment system suppliers to keep pace with the latest payment technology innovations and international standards, and to develop their core
product accordingly. For example, they will need to make their systems compliant to the ISO 20022 messaging standard, which is necessary for cross-border real-time payments infrastructure.
A long-term success factor for payment system suppliers will be based on how actively they collaborate with technology start- ups and participate in emerging technology-related initiatives such as blockchain technology. Already, banks and suppliers are experimenting with cryptocurrencies to use as a value-transfer mechanism for frictionless and efficient cross-border payments. This technology has potential disruptive implications with some likening it to the internet boom back in the 90s.
One thing is certain, the future of payments will be digital, operating a cashless society with real-time transactions across regions. How soon we will get there is, of course, a function of industry and government initiatives and collaboration, and consumers’ preference for a completely digital payment experience. With global payments industry revenues expected to reach around US $2 trillion, the market is huge. The successful payments technology supplier in this case, of course, will be the one who is the quickest to the market with payment solutions that are compliant with the latest international standards and offer compatibility with old and new systems.
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