IBS Journal April 2017


global payments innovation (GPI) DLT Proof of Concept (PoC). The market will decide whether it is in time or not to protect its dominant position on cross-border payments. Many Tier 1 banks are already partnering with Ripple during their early stage developments of blockchain technology. They’re hedging their bets to see which platform, and DLT protocol and platforms, will be the most useful in the future – externally with partners, and internally to optimise procedures. Infrastructure providers can be displaced, as well as retail or investment banks, if they don’t meet the needs of customers at an acceptable price.


Banks have the same advantage as SWIFT in that they already have scale, pre-existing clients and business models. These count for something, but don’t guarantee continued dominance. However, it is only the minority of FinTechs that want to displace existing FIs. The majority simply want to be bought out for their good idea or product, rather than face the challenge of scaling up to compete with incumbents.


In order to effectively outsource their R&D to outsiders, banks must possess a flexible core banking system and architecture that can easily and quickly incorporate new tools and/or FinTech developed services. The collaboration trend is another driver for the digital transformation of aging core banking and IT systems as banks seek to make their systems more flexible to co-opt the innovative zeal of startups.


This will no doubt be supported in future years by the drive towards open application programming interfaces (APIs) in banking which is being encouraged by moves like the UK authorities Open Banking mandate and the EU’s Payment Services Directive (PSD) 2. However, these regulations could be seen as a threat, as well as an opportunity, because they will mean more new players are allowed to enter the marketplace by regulators than was previously the case. Banks will have to release more data than they have previously too.


According to Rajashekara Maiya, Head of Infosys Finacle’s Product Strategy, the response of FIs to the various challenges of new entrants; the need to cut costs; to collaborate; and to meet enhanced customer and compliance demands can be summarised in just one word: “digitisation”.


“The rapid evolution and adoption of digital technology is posing a very real threat of disruption to the established banking business as customers continuously reset their expectations based on their experience in other businesses, and new competitors prove more agile than incumbents in fulfilling those demands,” he says, while adding that regulators are gradually lowering the barriers to entry for newcomers, even as they demand better reporting capabilities.


“At the same time, however, digitisation has also thrown open undreamt of opportunities for FIs,” says Maiya – if they can match newcomers’ technology capabilities then their scale advantage come into play. “Digitisation has smashed the cost and efficiency benchmarks in banking operations, for instance, and for those that have already moved it has enabled unprecedented service and experience expectations to be met. It has also enriched decision making with real-time, actionable intelligence by improving data capabilities.”


Infosys Finacle has identified “the on-going tech trends” that it believes will be prevalent during 2017, including: Open APIs and Open Banking; Cloud-first policies by design; Simplified technology, driven by open source, componentised architectures; AI and associated building blocks of AI such as machine learning and natural language processing; Blockchain/DLT. The race to production will be evident during 2017 as pilot schemes mature or are scaled up.


There is a lot for banks to get their heads around – and to ensure the crucial alignment of people, process and technology is achieved – but a digital core banking transformation that is flexible and open to technological advances is a good place to start.


Maiya cites Alipay, Ant Financial, Paytm and Airtel Bank as exemplars setting standards for innovation for other global banks to follow. “We see ICICI in India and RBL bank as reaping the benefits of the latest technologies they’ve installed too. Banks such as DBS in Singapore are also creating different business models to increase their reach and strengthen their position.”


If banks don’t rise to the challenge, there are many FinTechs waiting to nibble away at their business. For instance, Caxton is a company that uses hybrid


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