Creating the next global payment rails – takeaways from Banking 4.0

article written by Mirela Ciobanu, senior editor at The Paypers

‘The future of the payment is not in the payment itself or the payment mechanism, but in what the payment does for the customer and the merchant contextually. First, we’ve been through a cycle in’, Brett King, Breaking Banks: The Innovators, Rogues, and Strategists Rebooting Banking.

Cash or electronic money, crypto or fiat, stored within a bank account, a digital wallet, or other places, money and payments are an important part of our daily lives. Whether we buy a coffee while strolling, paying the parking lot, buying stuff online, or paying local taxes we want the process to be fast, secure, accessible no matter the time and place, bringing additional benefits. Gradually we are embedding payments within our daily activities, seeing those as means to achieve higher objectives. It is the banks, fintechs, and other parties to think about how this can be achieved.

On Nov. 25-26th, we joined one of the biggest digital banking events in south-eastern Europe – Banking 4.0. For two days, European regulatory bodies, fintech enthusiasts, and local banking industry champions have revealed what we need to create the next global payment rails, which is the foundation for outstanding customer experiences.

What is an outstanding customer experience in banking? It all starts with the customer in mind and … use of technology

The next global payment rails enable businesses to develop outstanding payment products and services, which follow the customer everywhere and anytime, understand and anticipate him/her behaviour, his/her challenges, and then solve them. What would it be like to park in a parking space and not have to care about paying when exiting? This could be possible via a parking service, a mobile app, and a camera at the payment terminal that recognises your licence plate. The payment is automatically debited from the driver’s account. Or to open a bank account fully remote, with verification processes done in the background by the bank and no paperwork? Or even better, get an attractive loan offer, based on search data that revealed you were frequently searching terms like ‘homes for sale in my area’, ‘how to apply for a home loan’, and ‘mortgage rates 2021’.

The use of mobile app data, automated onboarding, hyper-personalisation, and other techs can enhance financial services experiences. The financial services industry is a domain where the volume of data generated and handled is enormous. Every activity of this industry generates a digital footprint backed by data. With the growing number of electronic records, banks and fintech are actively using big data analytics to derive business insights, store data, and improve scalability. Mariana Chindris, CTO at Banca Transilvania, revealed for the audience that the use of data analytics at the bank level provides a quick customer impact, increases digital engagement, trust, the ability to find the right moment to engage with the customer (based on behaviour).

Open banking and APIs in Europe

The interest in Open Banking has grown across Europe in 2021, especially for payment initiation services. Many Banking 4.0 speakers stressed the idea that in the future APIs will be more important than branches. To support it, Vladimir Pintea, Head of Open Banking gateway at Salt Edge, brought some numbers taken from their report on the state of Open Banking in Europe in 2021. He stressed that in 2021 banks have greatly improved their API availability compared to 2020. If 2020 was mostly a one-way communication between banks and TPPs, where banks’ API would receive the API calls but not reply to them, in 2021 this has changed. According to the study, countries such as the UK, The Czech Republic, Portugal, Austria, Netherlands, with rates ranging from 97,61% to 91,12%, registered the highest availability. Regarding the PSD2 APIs, the study observed slightly higher availability of payment initiation APIs and better quality.

The new generation is looking for embedded banking experiences, where payments are invisible and follow the consumer’s lifestyle. It is what Karin Van Hoecke called it in her Open Banking Interview ‘the ultimate laziness’ that banks should aim for.

Banking (in Romania)

Bank digitalisation has become more than an industry trend. Unified action across (1) rethinking the business model for the digital era, (2) scaling the organisation’s capabilities to drive continuous innovation, and (3) rapid creation and delivery of new value can transform the business model.

If before 2020, less than 50 % of transactions were happening outside the branch, the COVID-19 pandemic has shifted them to digital, and in the future, more than 50 % of the transactions will happen via third party digital channels, according to John Barber, Vice President Infosys Finacle Europe. These statistics support the evolution of the banking business model – from traditional analog banking and digitised banking to truly digitalised banking and culminating with a digital business ecosystem.

Strictly referring to the Romanian market, the process hasn’t been that fast. Dana Dima, VP head of retail at BCR, stressed out that only 65% of people in Romania have a bank account, and on the business side, banks have adopted a more conservative approach to innovation, according to Raluca Micu, Head of Payments Oversight Division at BNR.

If we take for instance PSD2 implementation, in the first two years since it was passed, Romanian banks saw it more as a compliance burden, and not a business opportunity. But gradually they have started to feel threatened by the local fintech players and they have come to realise that resisting innovation is no more a viable option for them.

Fintech does not always pose a threat to the banks. Banca Transilvania’s VP head of retail, Gabriela Nistor confessed that the bank is embracing a hybrid model when it comes to creating outstanding customer experience products in banking, which means building inside the organisation but also relying on partners and acquiring tech already build on the market.

Bankers need to be taught about technology, about its potential in financial services. Moreover, they are encouraged by local fintech enthusiasts to create sandbox environments for TPPs to test and develop APIs in Romania. The lack of such ‘financial products playing grounds’ has caused the existence of only one TPP in Romania so far – Smart Fintech. Still, banks such as Banca Transilvania, BCR, CEC have created space for Open Banking payments, according to Finqware’s CEO Cosmin Cosma. As a result, Finqware will be trialling out, beginning with 2022, payments initiation at the POS in an offline environment for local wholesalers such as Selgros, Dedeman, Metro Cash&Carry, Hornbach. These wholesalers are motivated to implement such solutions as they want to reduce their card payments costs.

Overall, there was a positive vibe regarding the willingness to grow the low levels of banking service usage, especially in the rural side, the desire to apply emerging tech – analytics to support banking services (BT is testing voice recognition to measure customer satisfaction via calls), and the intention of some visionary banks to collaborate with fintech players to create value for the Romanian customer.

Along the way, we lost trust. How to regain it?

In the beginning, there was trust on the internet. When the internet opened for commercial use in the 90’s, trust was lost. How to regain it? Daniel Goldscheider, Co-founder & CEO of yes.com, invited experts and organisations across the world to cooperate to change the status of lack of confidence in the online environment and build an interoperable identity network/layer for the internet called the Global Assured Identity Network – GAIN.

Some islands of trust already exist, but GAIN, as an interoperable system, aims to bring all these together. If Q4 2021 meant mostly publicising the scheme and gathering requirements, starting with 2022 the GAIN Community Group will start working on Alpha Proof of Concept. The POC aims to build interoperable interfaces across multiple platforms/geographies, with minimal claims, based on identity assurance attestations. It is seeking interoperability between different architectures and if Relying Parties (Universign, Intesi Group, Truelayer, OV Loop, etc.) can integrate with multiple Identity Providers (BankID, Akoya, Criipto, Dizme, etc.).

One of the local participants at the event, Cristian Barbu, Owner of IT Smart Systems, mentioned that its company is to release some initiatives in January 2022, as part of the GAIN project, planning to convince banks in Romania to pick up digital identity.

The paswordless journey

One of the key points stressed out by Uwe Haertel, Country Manager Central Europe at Entersekt, and Michał Wawrzyński, Sales Manager at OneSpan was that a good digital identity solution enables a flawless user experience when shopping, which balances both user experience and security.

With 49% of online users reusing passwords across multiple sites, according to Forester, and breaches containing usernames and passwords increasing 450% in 2020, both speakers stress the benefits FIDO authentication brings to both consumers and businesses.

Overall, Banking 4.0 was a positive experience for everyone, be it online or physically present at The Imperial One (the event’s location). This was sparked by the lively discussions, insightful presentations, and … tasty local Romania wine. Looking forward to next year’s edition.

About the author

Mirela Ciobanu is a Senior Editor at The Paypers and has been actively involved in drafting industry reports, carrying out interviews, and writing about innovation in payments and fintech. She is passionate about finding the latest news on AI, crypto, blockchain, DeFi and she is an active advocate of the need to keep our online data/presence protected. Mirela has a bachelor’s degree in English language and holds a master’s degree in Marketing. She can be reached at mirelac@thepaypers.com or via LinkedIn.