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Taming the flow monster in real-time payments

Bhupendra Warathe, Chief Information Officer (Corporate and Institutional Banking, Information Technology and Operations)

Bhupendra Warathe, Chief Information Officer (Corporate and Institutional Banking, Information Technology and Operations)

What are the strategies for banks as the world adopts instant-transfer schemes

As the world adopts real-time payments, creating massive volumes of instantaneous transfers in seconds, the challenge for banks has evolved from managing liquidity to managing velocity.

Digitisation is driving the growth and future of real-time payments. In Singapore, funds transfers between two local accounts can be done almost instantly. Hong Kong, which launched its near-instant payment scheme this month, may see bank-to-bank transfers completed just as quickly. Such payments have not only created the need for 24x7 funds flows but also at higher frequencies. As a result, payments and treasury departments can no longer adhere to batch and daily processes, and the need to move to real-time systems is urgent.

While most of the development in fast payments has focused on domestic transfers between individuals with a capped sum, in some jurisdictions participants have included non-bank businesses such as remittance providers and e-commerce players. With the current pace of implementation, it is a matter of time that cross-border instant payments are fast becoming a reality. Just earlier this year, SWIFT held exploratory talks with banks from the Asia Pacific region about the development of an Asia Pacific cross-border real-time payments system based on SWIFT global payment innovation.

How do banks respond to the challenge?

The demand for instant liquidity, dynamic FX exposure management as well as the ability to process real-time cash flow and transaction data mean that banks have begun to deploy the combined strength of Distributed Ledger technologies, Artificial Intelligence and Application Programming Interfaces (APIs) to transform into a highly effective, high-performing and value-added banking for clients.

The speed of real-time payments also makes it vital for banks to perform instant fraud and identity checks before the payment is sent.

Digitisation is driving the growth and future of real-time payments

At Standard Chartered, these systems are supported by as many as 12,000 coders and technologists, and they now account for about 15 percent of the workforce. The numbers also underline the extent to which banking has become a digital business.

As we move forward, speed and agility are two critical factors driving success. In the past, software upgrades took place once in a few months, but with the rapid changes in today’s environment, the development of software, upgrades and deployment need to happen at a much faster pace. DevOps (Development Operations) is one way to deploy software into the production environment quicker. With this approach, testing and deployment processes are fully automated. New code is dropped into production while the system with the previous codes will still function, allowing the end-user to continue using the services.

A rapidly changing environment has also caused banks turned to partnerships to help them adapt quickly. In recent years, the concept of Open APIs has become increasingly prominent in our industry. In the next 3-5 years, we project a massive integration of service providers’ platforms with banks leading the charge. Open API-led transformations will enable banks to accelerate collaborations with outside organisations and third-party developers. Increased co-created systems will allow a bank to redraw the boundaries of the products and services it offers.

Banks need to change the way they operate

With ever-changing consumer needs, Agile ways of working can help banks embrace changing requirements. Agile software development, an approach based on iterative development that brings together small, cross-functional teams to develop solutions within weeks rather than months, allows a product to go live sooner. At the same time, a project that is not on track could “fail fast,” allowing the team to recalibrate and take a different course quickly.

The prevalence of technology in every aspect of our lives also means that IT cannot be a department that sits on its own in a corporation. As banking becomes a seamless digital process, IT professionals are now integrated with every banking department. At Standard Chartered, besides having IT professionals across our 60 markets, four Centres of Excellence – two in India, one in Malaysia and one in China – support and provide expertise for our global operations. IT teams are now closely integrated with respective product/client solution teams for agile delivery.

Talent and resources are critical for any strategy. Besides having the best talent, there is also a need to be faster and more scalable. There is a progressive shift to cloud-based infrastructures which can connect with multiple platforms such as those of industry-specific clearinghouses, e-commerce platforms, large commercial and government institutions.

Without a doubt, real-time payments are redefining the banking landscape. In the next few years, there will be a multi-fold increase in volumes, with clients expecting 24x7 availability and scalability to handle peaks and troughs. We foresee intense competition for talent and resources, not just in the banking industry, but also with tech firms and telcos. A survival of the fastest, the organisations which can react to the change the fastest will be the true winners.