By Dominic Broom, Head of Treasury Services EMEA, BNY Mellon</em></strong></p> The transaction world is in the midst of dramatic change, with banks expected to adapt to an unprecedented level of transformation. Technology is the predominant driving force behind such change, bringing new capabilities that are fuelling both industry- and client-based enhancement demands. Regulatory compliance has been a key factor in bank strategies of late, yet as FinTech becomes an ever-greater force in the payments landscape – and with demands for faster, more convenient, user-friendly solutions – banks must ensure they are equipped to meet the ever-growing needs of industry and client.</p> Industry change</strong></p> So far, FinTech innovation has had by far the greatest effect on the retail/consumer space (think real-time, mobile and the increasing unbundling of services due to the presence of new entrants – such as Apple Pay, PayPal and Alibaba in the purchasing sector; TransferWise in fund transfers and FundingCircle and Nutmeg in investing). That said, industry demands are now driving change in corporate payments too. In the midst of the technology advancements impacting the retail space, the corporate banking industry itself has been evolving and offering significant payment enhancements.</p> The introduction of intraday liquidity and risk management requirements as part of Basel III, for example, have required many banks to upgrade their systems in order to be able to offer improved levels of transparency and data visibility, which in turn aids cash management and can generate cost savings for clients.</p> Elsewhere, payment processing harmonisation has taken huge steps forward thanks to initiatives such as the China International Payments System (CIPS), the International Payments Framework (between the USA and Europe) and SEPA in Europe. In addition, ISO 20022 – a universal financial industry message scheme – provides a common language for banks’ and payment providers’ systems to communicate, resulting in increased processing efficiency. Such advancements in standardisation are key enablers in the growth of domestic and international payments infrastructures.</p> Finally, security continues to be a key priority for banks and corporates across the globe and a great deal of bank resources are dedicated to protecting the economy through anti-money laundering (AML) techniques. Indeed, while it could be argued that regulation has moved elements of bank focus away from client-focused innovation, it cannot be denied that adhering to heightened compliance requirements has enabled banks to provide even greater levels of security and effective risk management.</p> Managing complex requirements</strong></p> Adhering to a plethora of new industry requirements has absorbed a huge amount of bank resources (it has been estimated, for example, that new regulation stemming from the financial crisis cost the six largest US banks alone US$70.2 billion as of the end of 2013</a>). Yet with the force of FinTech growing ever-stronger, moulding retail payments which in turn affects expectations in the corporate sector, banks need to adopt a new client-centric, technology-focused strategy.</p> Technology is helping to drive huge change in the payments space. Yet with digital enhancements – and shifts in the market in general – occurring so rapidly, banks have an uphill task trying to adapt to and accommodate the increasingly complex needs of all. Thankfully, technology is both the challenge and the answer, in that the introduction of software layers can allow individual system components to feed separately into a core system. This is a more modular approach to IT, in which new services can be added to existing systems. </p> A number of banks are working together on such global payments innovation initiatives. These initiatives have the flexibility necessary to adapt to today’s evolving payments landscape – and that of the future – without impairing data and payment security and reliability, thereby equipping banks and their clients with the ability to remain nimble and positioned to capitalise on developments as they unfold.</p> Another area of FinTech innovation that has been of particular interest to the banking sector is that of “big data”. Through enhanced data capture and analytics, it is now possible to effectively track and interpret reams of complex sets of client data; valuable information that can be used to add real value to banks and their clients. Such “smarter” data management can help banks to improve their payments operations and aid risk management, and banks’ clients in turn will benefit from greater insights into cash flow forecasts, spending patterns and processing errors (which can be subsequently addressed to help generate cost savings).</p> Combining strengths: Thriving in the new world of payments </strong></p> Of course, investing significantly into cutting-edge technology payments platforms can be a huge undertaking for many local banks. Yet joining forces through local-global bank collaboration enables local banks to leverage (and in turn provide) such capabilities, without the associated upheaval and substantial costs. Non-compete partnerships between local banks and global providers allow both parties to be well-positioned to adapt to evolving global needs – both industry- and client-led. Both parties can benefit from the sharing of knowledge and experience, with a local bank’s insight into country/region-specific nuances and requirements proving invaluable.</p> Without doubt, technology is the primary factor shaping our industry, and the enhancements it brings – and could yet bring – to the payments space are astonishing. With such a challenging payments terrain to traverse, and with developments in the corporate space in particular expected to step up a gear in the short-to-medium-term, banks need to ensure they are prepared for the unfolding payments space ahead. </p> Close collaboration with the FinTech industry can be a key strategy in this respect, positioning banks in the midst of this dynamic, fast-moving sector. Incubator programmes and venture capital investment are the most common examples, but banks are adopting a number of methods to become more involved in the FinTech scene. BNY Mellon, for example, has established a number of innovation labs across the globe, working with clients and FinTech start-ups to explore ways in which technology capabilities can be leveraged to evolve and enhance finance solutions. </p> There is strength in numbers, and establishing partnerships within both the banking and FinTech industries can help to secure a competitive, thriving future in the future of payments. </p>