Volante Insights - Issue 3

The biggest development of late in payments has seen the publication of the Regulatory Technical Standards (RTS) for the implementation of PSD2.

This framework document has come into criticism from banks and the payment service provider community for not going far enough in defining how key areas such as Secure Customer Authentication (SCA) will work, how Third Party Providers (TPPs) will be certificated and who will manage the registration of potentially hundreds of such entities, and in particular the definitions of the APIs themselves. Unless there is clear guidance on the data standards (use of ISO 20022 data elements have been proposed in the RTS), many fear that there will be divergence of the APIs that banks will publish, causing major interoperability challenges for the TPPs - many of which will in fact be the servicing banks.

In the UK, where Open Banking is on the agenda and with a more aggressive timeline than PSD2, an Implementation Entity has been created to try and prevent the challenges noted above. In Europe we have also seen a number of industry groups created looking to define their own rules/frameworks for PSD2 implementation. These include the Berlin Group (well known for its work in the Consumer cards domain), the German Banking Industry Committee (GBIC) and the Convenient Access to PSD2 Services (CAPS) group. Indeed, successful suppliers of such services such as the very successful IDEAL in Holland, are promoting a design for PSD2 – no doubt concerned with not having to reinvent the wheel.

Finally, on the topic of Open Banking, November saw the Australian Government announce steps to move forward with open data sharing in its reports on the four major banks in the country.

Other developments have seen the EBA issue its design for a pan-European real-time payments platform which will be compliant with the SCTInst scheme. Coupled with PSD2, there is a real shakeup in the retail payments domain on its way very soon.

Blockchain and Distributed Ledgers of course remain in the news with significant moves by Goldman Sachs and Santander to pull out of the high profile R3 Consortium.

As R3 looks to raise further funding to continue its development of solutions, and plans to publish its Corda platform as open source technology to the Hyperledger project with such high profile departures, whether this ambitious project succeeds remains to be seen. Other significant blockchain news sees the established banking cooperative SWIFT join the party, with a POC demonstration of its Eris-based blockchain solution for the full lifecycle of a bond trade. Bitcoin value increased to a recent high of $750, and despite a number of hard forks to the platform in recent months, Ethereum remains a popular permissioned ledger of choice.

In the correspondent banking world, the SIBOS event in Geneva at the end of September saw heavy promotion of the Global Payments Initiative which now boasts an impressive 73 members. This scheme, with its aim of increasing efficiency and speed for cross border payment transactions in the B2B space will launch in 2017. In part, this could be viewed as a defensive measure by SWIFT against some of the new payments technologies such as Ripple, who were quite vocal in their opinions of the new scheme at the SIBOS Geneva event.

And finally, no report on the industry would be complete without some mention of regulation - one directive to note due to come into force in May 2018, is the EU General Data Protection Regulation (GDPR). It will be interesting to see how it will impact the implementation of PSD2, particularly the newer TPPs (of course banks will be making specific plans to cover this regulation, which potentially carries huge fines for non-compliance - up to 4% of global turnover). This regulation includes the potential for the so-called “right to be forgotten” (or data erasure to be precise). My question is, how will this work with solutions that have employed blockchains with immutable records?

Volante Designer: addressing industry challenges through open dialogue

As a customer of Volante, or thinking of becoming one, you will be aware that we have spent the past 15 years providing message-based financial integration solutions to some of the world’s largest financial institutions, including banks, buy and sell-side participants, stock exchanges, central counterparties, utilities and corporate enterprises. Our technology has enabled organizations the world over to accelerate the adoption of both domestic and international message standards across asset classes, and importantly, keep up to date with changes with ease thanks to our vast maintained library of standards plugins and transformations.

Over the past two years we have created new software products directly aimed at alleviating pain points for our customers in the payments domain, which is undergoing rapid change in the areas of real-time payments, open APIs, and migration of ACHs to ISO 20022. These applications, branded under the VolPay suite of products, fully leverage the underlying proven power of our core Volante Designer product.

We also work closely with customers and the wider industry to understand the pain points outside of the payments domain in order to leverage our expertise in those domains and create solutions to address those challenges - both from a technological and regulatory perspective. As an example, we are involved in conversations with standards bodies such as the FIX Trading Community and ISITC to see how we can help accelerate the adoption of blockchain/distributed ledger technology (DLT) while simultaneously insulating firms from the risks associated with DLT.

We also continue to closely monitor new and changing regulation such as MiFID II, EMIR, CSDR, SFTR and BCBS 239 so we can better understand the pressures our customers face with reporting under many different jurisdictions. For example, data will have a big impact on impending regulation - in total there are around 700 data elements that will have to be reported across the current regulations, and these elements will need to be reported to many regulators in different formats in a timely manner with the threat of fines if not.

DLT and regulation are just two emerging trends outside of payments that we have identified as being significant current pain points in the industry, but we want to continue delving deeper into the challenges our customers face. As such, Volante would very much appreciate an opportunity to discuss your views on what the challenges of both your organization and the market in general are in these areas, or indeed any others you feel would be relevant. We pride ourselves in being customer and market driven, and it is only by having dialogue that we can achieve that. So don’t be shy!

Middle East and Africa: Accelerating Change

After operating successfully in the US and Europe for over 12 years at the time, and having understood the Middle East and Africa regional challenges around financial message standards and data integration, Volante established an office in Dubai in 2013. The initial focus was to build Volante’s brand in the region and support regional and local standards and services for the regions.

Having spent many years working across the local financial markets, one thing I have learned is that local partnerships are key to having a successful business in such a large and dispersed region. With that in mind, our approach was to initially focus on growing a network of regional partners who are well connected and understand the local industry, placing them in a perfect position to help us, and our clients, address the challenges around integration, payments and securities processing.

As a result of our focus on developing local partnerships, there has been fast expansion in the MEA region; we now have licensed customers in 13 countries including Saudi Arabia, Nigeria, Jordan, South Africa, Malawi, Swaziland, Namibia, Lesotho, Mozambique and Uganda. Furthermore, due to this success, we have been able to expand the regional office in Dubai and by the end of 2016 we are looking to gain an additional 5 new clients in 3 new countries. We have also established ourselves as integral players in the local market through event sponsorship and speaking opportunities at industry events such as MEFTEC in UAE and SWIFT ARC in various African countries. We augment our event participation through regular article contributions to publications such as The Banker Middle East and The Banker Africa.

From our work in the region we have found that banks and corporates experience many of the same integration and payment processing challenges as faced in other financial markets. There is a real appetite for improving the speed with which payments are on-boarded from customers as well as a desire for increased agility in the orchestration and processing of payments inside the banks. However, in addition to these global themes, for the Middle East and Africa, the digital payments age has drastically changed the nature of the bank’s customer base and the ways that it must interact with these dynamic and ambitious consumers. There are increased numbers in the banked population, massive increases in payment volumes and flows of remittances, and more demanding and reactive customers.

Volante, and our regional partners, have a great opportunity to help the banks in the region to radically improve their time to market for new services and their internal cost of change. It is exciting times for the Middle East and African regions and the groundwork that Volante and our partners have carried out in growing our brand and profile in the market over the last three years, is now starting to deliver significantly increased engagements and opportunities. We’re looking forward to next three years as we continue to grow by delivering value and excellence to our customers.