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Financial Institutions Forum

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Low value payments in a high value world

Wednesday, 16 September, 15:00 BST

In our final call of the series, Maarten Van Rossum, Global Head of FIG Sales, is joined by a panel, discussing how to improve the efficiency of cross-border payments and the evolving role of Financial Institutions in this process.

Operator: Maarten, we are now live. Please begin.

Maarten van Rossum: Thank you, Ashely. And good morning, everybody. Good afternoon, or indeed, good evening to our audience who's joining us from around the world. My name is Maarten van Rossum, and I'm responsible for cash management sales for the FIG client segment here at Barclays. And like many of you, I am currently working from home. In my case that means I'm working from Amsterdam.

So you may hear some church bells ringing in the background there. So if you do, just ignore them. I have been trying to do the same thing for the past four months. In any case, wherever you're joining from today, thank you for spending your time -- your valuable time with us today.

So I have the pleasure to host the fourth and final instalment of our FI Forum. It's a series of virtual events which we've hosted over the past few months for our FI clients globally. And it's our attempt really to keep the conversation going in the run up to [Syblos] next month and also in the absence of physical meetings and opportunity for events.

Previous sessions that we've held have focused on topics including the return to work amidst a pandemic, ESG within the trade finance world and cybersecurity. And today we'll be taking a closer look at cross-border payments and specifically the low value kind.

So let me explain first what we're going to be -- what you can expect from the coming hour. In order to set the scene, I'll just start with a brief overview of the topic and some of the latest developments that we'll be exploring today.

And then we'll jump right into discussion with our panel that we have of industry experts. Now we'd like this session really to be as interactive as possible. So at the bottom of your screen, you should find a Q&A option. If you have any questions, please pose them there. We will be putting them and trying to incorporate as many of those as we can directly into discussion with the panellists.

So cross-border payments. Well, I started working in global transaction banking about 20 years ago, and at that time I would never have thought this would become such a hot topic that it is today. We've seen an influx of new market entrants. We've had great advances in digital and mobile technology, and all of that has really shook things up. But for all of these changes over the past two decades, the simple act of making a cross-border payment has really fundamentally not changed all that much.

What has changed, though, is the profile of those cross-border payments. And driven by globalisation of the marketplace and also of the workforce, we see higher payment volumes, and they often have a relatively low value.

Now without going into too much detail, and I think all of you will be familiar with this, I think it's fair to say that the traditional correspondent banking model is simply not fit for purpose for these kind of new flows.

The existing frictions in the model, the relatively high cost disproportionately impact low value transfers. And many of those are originated by retail customers, by migrant workers, SME clients that are beginning to do cross-border activities. And all of that is holding back economic activity, economic growth, international trade, development and financial inclusion. And for that reason, this has been on the topic for quite some time.

And Saudi Arabia in their G20 Presidency this year, they have made it a priority, and they requested the Financial Stability Boards to investigate this. They've coordinated a three-stage process with the ultimate aim of developing a roadmap for the enhancement of cross-border payments. A Stage 1 report, this was issued in April, that provided an assessment of the existing arrangements and challenges of the cross-border payment market. And in July, the Committee on Payments and Market Infrastructures issued the Stage 2 reports.

And in this they outlined 5 focus areas and 19 associated building blocks for building a roadmap to enhance cross-border payments. And the third and final report is expected in October, and this will be building upon the previous two reports that have already been issued to outline a detailed roadmap forward. Now I encourage all of you to read those reports, if you haven't done so already. They are available for download on the FSB website. And we will also be sending you an email after this session, which will contain the web links as well.

So with that bit of background, I think it would be a good time to introduce our panel. And as you can see, I am joined today by three esteemed guests with a long career in the payments industry. So Ashley, if you can put that slide up.

First we have Vikesh Patel. And Vikesh is Head of UK and Ireland at SWIFT where he's charged with strengthening and [do captures] key relationship, delivering commercial performance across its portfolio of products and services. Prior to SWIFT, Vikesh was the Chief Operating Officer at LCH. And he also held roles at Goldman Sachs and Morgan Stanley, with the primary focus on market infrastructure and post trade strategy.

Next we have Martin Runow, our very own Martin Runow. He's the Global Head of Digital Payments and FX here at Barclays Corporate Bank. He joined us last year from Deutsche where he was the Global Head of Digital Clients Connectivity Products. And during his 26 years at Deutsche, he held multiple client roles and product-related cash management roles, including leadership roles in New York and Zurich and last in Frankfurt.

And finally, last but certainly not least we've got Stephen Grainger. He is the Executive Vice President, Business Partnerships, New Payment Platforms at Mastercard. And at Mastercard, he is responsible for determining how the organisation realises its vast existing network and capabilities to attract new business.

Prior to joining Mastercard, Stephen held the position of Managing Director at SWIFT where he was responsible for its North American business. His career spans more than 18 years with previous roles at Goldman Sachs, Bank of America, Merrill Lynch and Citi.

So all together, I think we've got a panel with a wealth of experience, many years in the industry that we'll be able to tap into in the coming hour. So welcome, everybody. Thank you for joining us. And we'll start with the first questions. And I'd like to focus those questions really to draw the view from our panellists on the challenges that we face in the cross-border payment world.

So first for Vikesh, you joined SWIFT in 2017. That's the same time, the same year that SWIFT launched the Global Payment Innovation Initiative. And GPI was designed to address many of the same issues that are highlighted in this report. So looking back at that experience and the things that happened there, what kind of lessons can we draw on from the experiences of SWIFT GPI?

Vikesh Patel: Yes. Thank you, Maarten, and I'd like to thank Barclays for the kind invitation to the Fixed Income Forum today and also for everyone who's joining and giving their valuable time on this topic. I think as we look at the environment, the need to stay connected, have open, honest conversations with each other, it is ever more important. And that's great that you're putting this on, and thank you again for the kind offer to be here with you.

And yes, SWIFT GPI, I'd like to say that my joining SWIFT was some kind of catalyst for its success, but actually it's the reverse. I think the innovation that was being undertaken by the industry, which SWIFT was working for the good of the ecosystem, was a huge draw for me to join. And actually, SWIFT GPI was in its genesis many years before we actually launched as a concept and was discussed with banks in various forums.

I think what we've seen with SWIFT GPI and what we try to bring as a tool for the good of the community is speed, naturally. But actually a lot of payments were speeding up anyway. Organisations were increasing their processing and upgrading technology.

And secondly, traceability, which really touches to the client experience, the ability to see transparency where payments may be at any time. And I think those two things at its inception were really important and have been hugely beneficial for both the client experience, but also financial institutions in terms of removing some of those back office processing efficiencies -- inefficiencies as well.

Over the last few years what we've seen, and the report talks about this, frictions still remain. And whilst the second report doesn't go into a lot of detail around the work that's being done by the industry, a huge amount has been done by many different areas of the industry, and I think it's important to recognise that.

But what we now see is that GPI provides while that concept of kind of transparency and speed, provides a good backdrop for overlay services. And then ability to then address some of the other remaining frictions or start to really address those piece by piece. For example, confirmation of paying your pre-validation of certain fields before payments were initiated, case resolution and other areas.

So I think where we see GPI's already made a step change in that we're tracking that data. We're seeing a huge amount in the industry of payments, something like 39% crediting the end beneficiary in under five minutes, nearly 100% within seven hours. That ability to track it is important, and then we can build on that and have the industry to really look at those remaining areas of friction, which I think's important.

Maarten Van Rossum: Thanks, Vikesh. And I think that is definitely fair to say that we should recognise the work that has been done within the industry already. It's only been five years, and one of the things that GPI certainly showed was the fact that a lot of these transactions already were settling within a matter of seconds or just minutes.

So yes, Stephen, if we look at other ecosystems, you look at Mastercard's division to enable domestic and cross-border payments from, as your bio says, from any source to every destination for any need. And one of the first focus areas in the report that it talks about is to create public and private sector to jointly develop a common cross-border payment division. So you've done that at Mastercard. How do you see that happening on a much broader scale as is being proposed here?

Stephen Grainger: Well, I think it's quite interesting that CPMI called that item out upfront. Because although there's a lot of work that has been done, and we shouldn't undermine at all the work that SWIFT had done through GPI. It certainly moved the cross-border banking business a long way forward.

But the fact that CPI and CPMI are calling out that public and private sector need to do more together tells you that it, for me, it's a stark warning that the public authorities feel that we, the private sector, are not moving quickly enough to address what are a number of the core challenges they see, particularly as they think about low value payments.

And low value payments, it's an entirely relative construct. But I would look at a low value payment as anything that is under something of a benchmark of about $100,000. And even then you've got a very broad range of outcomes within that from very low value remittances to what are relatively low value B2B payments and B2C payments.

And it's -- and while a lot of progress has been made, while there's been a lot of individual action by a lot of individual firms and individual banks were striving to do things differently, what it says to me is that unless the private and public sector can find a way to come together to identify that vision and make commitments towards delivering against that vision, the likelihood of any of those individual actions getting to a place of being able to scale is going to be very difficult.

And so I sit here as Mastercard in establishing a brand new business and defining what Mastercard's cross-border services strategy looks like. And so I'm in that unique position of the people in this panel of not being the incumbent, if you like. And not being the incumbent in this space is a really difficult place to be because there is a lot of challenge to get over.

And the biggest challenge of course to get over is inertia; why do I need to do something different? And I think we collectively need to figure out how we do something different because the nature or form of competition is changing rapidly, and it knows no boundaries.

So that is very much what is on my mind. So I was really pleased to see that called out. And in calling that out right up front in the CPMI story, I look at what else is in that paper. And until you get to Section E, which talks about new settlement outcomes and new platforms and new business models, a lot of it is we can think about as excuses for why not to do something or why we haven't made progress. But really what we need more of is a willingness of organisations to come to the table to want to work together to drive more change. There you go, Maarten.

Maarten Van Rossum: Thanks, indeed. And yes, that certainly is -- that was a lesson from GPI as well. It was lesson in general that none of us in the industry can do this alone. None of us are largest enough scale-wise in order to move this forward. There's not a single company that can do that. And what we've seen a lot indeed up until now are individual initiatives that have been well received, but no global answer, indeed.

So Martin, you joined Barclays, as I said, a little about a year ago. Your mandate here was to deliver digital channels and connectivity tools. One of your primary focus that you always mention is client experience. And even last week I heard someone mention, I thought it was a good example that banks are -- they don't need to compete with the other banks on client experience. Today they're competing with entities like Amazon and Google on client experience. So from that lens, can you kind of see how that would apply to this topic from a client experience?

Martin Runow: Yes, totally. It's quite interesting. You mentioned inertia. That's actually one of the biggest things we have to get over in any of these topics to begin with. But if you boil this down, or if you boil many of these market problems, client problems down, then you see a couple of very interesting trends across payments, but especially also across digital [right] payment.

Like everything in our shiny new digital lives, I'd say the consumer -- and I will include corporate clients in this experience -- is that the payments generally should be faster, should be cheaper, should definitely be transparent. And GPI in just the track-and-trace has clearly, clearly proven that.

And there's maybe a level of inclusion that is not quite there yet. So you don't -- you cannot expect and you should not expect as a financial services firm that your user needs to be a messaging expert or a cross-border payments expert and FX expert. So those things we took for granted. Now when you look at -- when you overlay sort of those themes with how we have been approaching our client, and then we see competition come in through fintechs and other people, how they approach the client experience, then you see the big difference.

So you see solutions that are really geared towards solving very specific problems with I'm going to call it design, a workflow or design that is just natural and simple. And it's geared towards the digital lifestyle that all of us have. Everyone here in this virtual audience, so the virtual room is carrying around a smartphone. We all use online shops.

We use tablets. We use laptops. And there's a certain way, a slickness to how things should work. And then when you think back to how we all operate in our payment systems and how we make people log into online banking tools today, then -- Stephen, you were saying that, right? So where's actually the line? What's the low value payment versus the high value payment?

I'll say it's completely irrelevant. The experience has to be a simple one. I need to be able to go in and say I need to pay Martin in Frankfurt. I'm in the UK. So most likely it's going to be a cross-border cross-currency payment. But that doesn't mean that I as the consumer or as the corporate treasurer need to figure out is this now a wire? Is this -- do I need to do FX here or there, right?

So I'm expecting us to drive the transparency. So it's been an interesting ride. And Maarten, you were dating us all a little bit. I predated myself with my number of years I spent at the other firm. But I do remember sitting in a bank department and processing cross-border payments on a Telex terminal. And those days are quite clearly over.

So if you look at, I think there is an element of community. And both my engagements with my fellow panellists here, we've seen some of that, which is this public-private engagement model where you cannot expect one bank to create all of this or one entity like Mastercard or one entity like SWIFT. There needs to be a bit of a community approach to solving the faster, cheaper, transparent and sort of inclusive topic.

And the neat little compartmentalisation that we've been used to -- this is a wire, this is an ACH -- that's falling away. And we have to kind of stop thinking about it, really putting sort of the client experience into the middle. That's sort of how I view this space.

Stephen Grainger: I would agree with that, Martin, by the way. At the end of the day, nobody wakes up, not even a corporate treasurer wakes up in the morning and says, great; I'm going to make a payment today. Payments are always -- somebody might do, but I'm not sure I necessarily want to meet them. But what it says to me, payments are a byproduct of an action. People don't care about the payment.

They expect it to work and expect it to be transparent. And they have all these expectations that are wrapped around what increasingly is their own personal experience. And if their own personal experience means that payments are cheap, fast, transparent, whatever, then the expectation is they transfer into their business life is that they become cheap, fast, transparent. And I think that's what's embedded within a lot of the CPMI report.

Vikesh Patel: Yes. And I think just to kind of build on that a little bit, because as you see goods and services across borders increasingly get quicker, it's only natural that the payments piece will be focused by regulators. If you're a personal – you’re personal shopping on Amazon, you can in certain areas get your parcel in two hours. So it is natural that there will be a focus on this area.

But I just wanted to pick up on something Martin said as well around this kind of, I guess this view to make payments cheaper, and I can understand that. But also I think it's important to understand there's an element of risk that the initiator is going to take relative to the business need of that payment. So if I'm sending a payment into an international jurisdiction to pay for supplies for my manufacturing plant, naturally and that's a large value, then I'm going to want to have more protections.

I'm going to want to have more certainty. And with that there's going to be a cost differential, because if I'm making a payment that's to me relatively -- or further, it's a smaller amounts, you may want to take actually a bit less of that protection knowing it's going to go quicker, and therefore, the cost may be a bit cheaper. So that differential is going back to what Martin said which is important, which is the customer experience is really important and the level of risk associated with what you're doing.

Maarten Van Rossum: That's a really good point. Then there's another point here actually that was raised by one of the audience members here is a question is there's also a risk of payment. So you have an inherent risk with making a cross-border payment. It doesn't really matter whether that is a high value or a low value payment. Banks will need to treat them in the same way. Do any of you have a view on how banks, or other players for that matter, should be able to mitigate that risk?

Vikesh Patel: Yes. So maybe if I kick off, I think it's a really good question. And I think my answer or my view on that is kind of two-fold. Firstly, you'd want as much of that risk mitigated upfront as you can. So whether that's screening or financial compliance type checks or validation at the end beneficiary such that you can kind of take some pre-active action and have some early warning before a payment's kind of already left and on its journey. Secondly, when it's on its journey, you want to be able to kind of stop and kind of reverse that.

And I think that kind of option is important. And I think the combination of those two really are the key things. So you want to be able to in as automated a way do those two areas: upfront preventative alerting and in-flight kind of stop or reversal.

Maarten Van Rossum: Yes, and that's an interesting -- that's actually an interesting leeway into one of the particular building blocks that was identified by the reports. And that is potential for corridors that potentially could be used where compliance checks can be reduced.

So Stephen, this is one of the things that they are proposing there that'd be almost like a safe travel corridors that have been introduced in the current corona crisis whereby you would identify specific areas, payment types and specific corridors for where you can reduce barriers to entry and lower the compliance checks. How do you see that working? Do you have a view on how that would be able to benefit?

Stephen Grainger: A lot of it makes a great deal of sense. And another level what we just need to be mindful of as we think through that is not to get pulled into a layer of complacency. But clearly there are corridors that are extremely -- I'm just having a memory blank, actually. So there are corridors in that play that are highly commoditised, and you know, we have a lot of certainty in terms of the way they work. And you can look at GPI stats, for example, and see not just how quickly those things get processed, but also on the what likelihood there ought to be to have been checks along the way. It makes a lot of sense.

I think that as you get -- as you start to push down the payment value dimension, then the nature of payments in their own right necessarily changes. And that I think comes to a place where it becomes a -- at some point there should be a risk decision on this for the people that are initiating it, or are actually initiating and then processing a payment. And what I mean by that specifically is right now everybody's scared of a regulator. Everybody's scared about what any one of the sanctions regulator will come in and say and take a view on how either sanctions are being controlled or AML is being monitored.

And I think that's where this need for getting to a place of having sound business principles underpin payment processing is fundamentally very important. Because right now on that type of topic, imagine trying to introduce some kind of screening utility and their attempts to do it. It's never a question of going down to the lowest common denominator.

It's always following the very high standard. And so to avoid that and to avoid what comes with that, whether we're talking about highly commoditised corridors or exhausted corridors, you still need to be able to get to a place where you've got some semblance of business rationale looking at the type of payment, who it's being sent from and on what the purpose of that is, all of which is most likely going to be known -- going to be known at the point that that payment is initiated.

The challenge really comes as there are more payment intermediaries in this space who don't look like banks. And that's one of those components that we're all going to have to find a way to deal with much more effectively.

Maarten Van Rossum: Indeed. That is a good point. And with that introduction of additional parties into the payment chain, we also are increasingly seeing that the payment chain is getting longer. And I have an interesting question here from the audience from Keith Wright at Bank of America saying that the traditional formats that we have for payment messages, they are only allowed for the introduction of so many parties.

But as we add more parties as more payment service providers and payment service providers of payment service providers to the chain, it becomes impossible almost to input that information. So we -- on the one hand we have a requirement to meet regulatory obligations, and on the other hand we have too much information. Maybe Vikesh, do you have a view on this given the introduction of the new XML formats?

Vikesh Patel: Yes. And just very briefly, just to touch on the question earlier, I thought it was a really good question. And I like the analogy of the holiday thing and I think with the COVID. And I think that's a good thing. The analogy is very strong. You don't want to be stranded on holiday in Portugal and then your government tell you, by the way, we're changing something at midnight tomorrow and you've got to come back. And inevitably what happens, your cost goes up. So it's important that whilst you have those kind of arrangements, predictability, timing and all of that's important as you can see in maintaining sanctions, et cetera.

But one thing I did want to say, from our experience, it's currency controls in a domestic market that are a big contributor to payments taking a long time. So I mentioned earlier 100%, nearly 100% of payments are crediting the end beneficiary within seven or eight hours. The lion's share with the payments that fall out of that 5, 30-minute, even an hour window is because a domestic market has currency controls, and there are requirements to see either a business purpose for the payment, whether that's in China or in other markets. So it's important to know kind of the nail you're trying to hit with the hammer.

And the question's a really good one around the chain. And I think, again, we've seen and I think we're tracking end to end in certainly in some of the tests that we've done more recently where we have connected up to cross-border GPI into domestic schemes. We've done that in Asia a couple of years ago, we did that with ECB last year, and we've got other exciting markets this year that will be coming out pretty soon. That the end-to-end timing of that kind of is pretty quick.

So the point that was made around formats and how to ensure that, I think from what I understand, we feel that actually some of the 20-022 formats are structured in a way that the data transmission should be there. And actually, we think that managing those transactions kind of -- we've got some exciting ideas that will be coming out in the coming weeks as well around about how that might look as well. So I think there are -- there's a good backdrop of things out there that we in the centre are enabling for these cross-border claims ecosystem to be able to meet some of those challenges, so maintaining speed whilst transaction chains may be longer.

Maarten Van Rossum: Yes, indeed. And yes, after I used that analogy of the travel, the flight corridors, I immediately thought, hmm, maybe not such a good one, indeed, because they keep changing. But you're right. That's exactly what we need to avoid.

Martin Runow: Maarten, can I quickly add something to what Vikesh just said? I guess I'm doing it anyway. I guess thinking --

Maarten Van Rossum: Please. Please go ahead.

Martin Runow: Really good point also on having data available. I think GPI and other things that we've done across the industry now actually give us much more granularity around why are payments taking long -- longer. What are the characteristics of those things? Because we have been facing a lot of generalisation things. Banks are slow, traditional payments are complicated, cross-border banking is expensive and not transparent.

And so a lot of that, that may be fair in part, but not across the board. So I think the GPI actually has helped us tremendously putting more granular data around it just to say, okay, this is the stuff that's holding things up.

And as maybe one more point, again with my digital channel hat on, if you look at clients in the beginning. So the idea of pre-validation I think is a great one. And I know SWIFT has been playing around with it. We've seen actually really good benefits from the fraud prevention angle with the confirmation of PE that has been rolled out in the UK. And there's obviously something -- some of that in the Netherlands, if I'm not mistaken. So those things, while I would have to admit they're painful to build, obviously very, very helpful to make sure that clients don't actually go and do something they then don't want to do.

And I say that for us, if we look at fraud vectors and things that are happening especially on the retail side, but also with corporate clients, the things that I mentioned earlier are obviously also quite interesting from a fraud perspective. So instant payments, faster payments, things that just go quickly are obviously nice, because as you were saying, these things you cannot actually recall and get your money back, at least not easily.

So in terms of what sort of security or features you want in this new payments world, it's not just the sanction screening that we need to figure out and get that done right. We also need to make sure that we take care of things that could happen and payments that go wrong, like fraud prevention very, very early on in the process. But just to add to what was said earlier.

Maarten Van Rossum: Yes, indeed. And there's actually another question here that's sort of -- well, it's kind of related. If you look at SEPA, essentially SEPA created kind of a -- they harmonised the payments world for a region. We really, we should need a SEPA on a global basis.

Part of the problem that we have with SEPA here is that it is closed system. You can only use it for domestic payments, and it doesn't allow one leg out transactions. So a question from the audience here is what are our expectations around that rule changing anytime soon? I know that there's been a lot of discussion about that. Actually Martin, you're close to that. Any thoughts?

Martin Runow: I could only speculate, which I'm kind of always happy to do. So generalising a little bit from my end, I don't believe in this connected world, COVID notwithstanding, that closed systems are the future. So I would personally rather see some of these systems open up and then have good controls around the data that goes in and out rather than trying to protect it from the outside.

So that's kind of my take, but I may quite totally be wrong here. It's just if I look at everything that's happening across the globe with instant payment schemes showing up everywhere, and a lot of effort going into by players in the industry, individually, bilaterally, or on a larger scale to look at how can you actually connect real-time payment schemes with each other across borders and across regions, then to me, keeping everything nice and closed tight in Europe for the main ACH scheme doesn't look quite right to me. But that doesn't mean I know that rule change will pass or not. I do not.

Maarten Van Rossum: Okay. So no false hope for us. We have another question, and this one is related to pricing. So maybe Stephen, if I could ask you for this. You're at Mastercard. There's of course focusing on very much on low value payments. There's a question here from one of our audience members saying how should the pricing for a low value proposition compare to what we have today? Keeping in mind of course that even though it's a low value proposition, a lot of things still need to happen to it just, even if it was high value.

Stephen Grainger: Yes. So there are a couple of angles on that. And so there is an expectation that pricing -- and when we talk about low value, you can lead yourself to a place that says, oh, it's low value. The expectation I have in my domestic market is -- why should it be priced any differently to a domestic real-time payment, which is pennies, not pounds? But I don't necessarily buy into that.

In the CPMI report itself, Sir Jon Cunliffe talked about the fact that cross-border payments are in their own right much more complicated than domestic ones. There are more actors involved, there's more things that need to be done. And because of that, we shouldn't necessarily associate the fact that low value payments necessarily have to be cheap, but they have to be relatively cheap.

And I think part of the problem, part of the reason we're discussing this and part of the reason it's all out in the open with the CPMI is in large part that low value payments are a problem if you try to push them through the correspondent banking model. This is not about correspondent banking model more broadly.

This has nothing to do with SWIFT. This has nothing to do with Mastercard. It's more the fact that trying to push through that type of payment, a low value, whatever the purpose is, through correspondent banking mechanism typically does not yield value formally.

And that's for a whole host of reasons. Partly because of all the functions that are carried out or the cost that's embedded there, but more than that because the correspondent banking model is a profit source. And in my mind, we've got to address that fundamental business need to think about what are the customers who we're trying to serve more effectively to be able to get to a point of figuring out what is the right way to kind of price for that type of activity.

It will not be lost I don't think to anybody on this call, but arguably the biggest customer, our most profitable customer for any of your banks' FX desk is either your retail business or the corporate business. And that can't continue to be the case going forward as more banks start to think about how they transition to becoming more relationship-orientated rather than being necessarily transaction-orientated.

So in this space, if we want good services, people have still got to make money. And so we shouldn't be thinking about a race to the bottom. What we should be thinking instead of about price is about what's the value that we're actually offering to our customers. And in some cases that might be speed, and speed should be a factor that's charged for, I think. It might be data quality, and data quality might be something that is charged for. It might be greater levels of predictability and certainty.

And I think you can't answer this question about price without really getting to the point of fundamentally understanding where's the value and who is that value accruing to, and then you can make decisions based on the outcome. Right now what I see all too often is that kind of logic goes out the window, often for good reasons, and it is I need complex services provided at fractions of pennies and I don't want to give away any FX.

And so everybody's in desperate need of wanting to retain profit and not see any value in that. And I think it's a phenomenally complex issue to actually try to resolve as we think about the conduit for these payments being potentially the correspondent banking model.

If I come back to the question about structured payments, this whole notion of nested risk is predominantly nested risk in capturing payee details. It's complex because structured messaging doesn't allow for that. But also, the move to XML and ISO 20-022 is not straightforward either. And I can tell you, trying to roll out new APIs or enable API-led services to deployment into banks is also phenomenally difficult.

And that's one of the most accessible forms of what people actually would need technology, and that's not new at all. So we have a challenge, what do we want to be when we grow up and how do we want to service the customers that we have. And we need to have sensible discussions around value and price and service.

Maarten Van Rossum: Yes. And I'm glad that you said that indeed that even though there is an expectation, there shouldn't be a race to the bottom. I think that that's a very fair point. And talking about these, the different providers and the downstream nesting of payments and the various layers.

But one of the focus points that's being raised in the report is the need for additional access to schemes. So right now that access is very much limited to a number of clients, primarily banks. Martin, we at Barclays is one of those banks that plays a major role in providing clearing access to third parties and other parties. I guess it's fair to say it's easier said than done. What do you see as the challenges and opportunities that go along with expanding access to those clearing schemes?

Martin Runow: That's not an easy one. So it's -- well, we do, as I say, we do have a pretty strong agency banking business in the UK. So we have a lot of banks that use us to access systems like BACS or Faster Payments. And that's a bit different than what you'd typically see in Europe in the SEPA where most banks are [not] connected directly.

With everything that comes with it, so the liquidity, the cost, the running of everything. So it's actually quite complicated and costly to do all of this and be a [reoccurring] member. And I think that's probably, especially for non-banks, is probably the biggest hurdle to get over. We do see some payment service providers, fintechs, whatever you want to call the new, at least these newer companies. You see some of them becoming Dart members or Faster Payment scheme in the UK.

But we are still a backbone provider to quite a lot of them because it's costly, it's complicated and quite old school to do all this. And then also managing all the rest of the liquidity, the testing, the constant updates of that. So it's a bit -- actually, I like what Stephen said. There is value in us banks or service providers providing these services. And the value is it's maybe not always fully priceable and not fully priced.

So I would say, Maarten, you said it. It's easier said than done to just open it up. It also would potentially or could potentially be a bit of a problem for overall just security, liquidity, management, et cetera. So it would require quite an effort by central banks, by the market infrastructures and by all the players to come up and do these things.

And it's a considerable effort for those banks, especially non-banks that are trying to do this. So not easily done, and I don't have a really super answer of this is what it would take, what it would take to get there. I wanted to actually add quickly some  

Maarten Van Rossum: Go ahead. No, please go ahead.

Martin Runow: No, I just wanted to add something to what Stephen said earlier. It's a value for money. I do believe in value for money, despite my cheaper, more transparent comments earlier. And I think that's a conversation that with some corporate clients you can have. With fintech clients, it gets a bit more different. That's not my segment, obviously.

But there's also value for money there. There's different ways of creating value or paying. It doesn't have to be fees. You can do what all of us basically do with our private lives. You can pay with all your private data to Facebook or whoever you're dealing with. So that's also a price you pay.

So there, that will ask the question in the room or the elephant in the room really is what's the business model in commercial correspondent banking going forward? And the answer is it's not an easy answer. I will expect the drive for transparency is going to make charging random fees quite impossible, which I don't think is a bad thing. It's just fair. And the other side of price or revenue if you're looking at profitability obviously is cost. So for us, that does mean that, putting my digital hat on, we do have to drive cost out of our own system and out of the system at larger scale.

And if you look at -- I'm sure that's true for most banks on this call. If you look into your money transfer operations department, and you still will see a lot of manual intervention. If you look at, we talked a bit about sanction screening. If you look at those teams, there will be hundreds, if not thousands, of folks sifting through false positives.

So I think there is still -- there's still some opportunity for us to just get way more efficient and better in the way that we do process the payments that we process. But we also need to make sure that we don't do this race to the bottom, Stephen, to your point earlier, and also explain the value that sits in some of these more complex things. So just side track. I just thought that was --

Stephen Grainger: And just as my own example in that, right? So I used to live in New York. And when I was moving back, we were trying to do up our house and we were applying [stupid] doors that needed to get paid for. So I transferred our money back into the UK from the US. And there, I banked with a very large bank in the US and held my UK bank account in a very large bank in the UK.

Now this is only two years ago, two and a bit years ago at the time. By the way, they were both banks on CPI. And I made the mistake of making my payment on a Sunday night, and it took until the following Monday -- I don't mean next day -- I mean eight days later, for those funds to have got credited into my bank. At that point in time, I would have paid $50 to know that my bank, that my funds, were going to hit my bank account in eight days' time, rather than keep going in everyday thinking, did I put the wrong bank details in because it's such a convoluted process?

There is value -- value comes in many different ways, and different people will pay for different concepts of where they perceive value to be. And I think that's not just the same for me as a retail banking client; it's the same for corporate clients as well. There's different expectations for the different types of payments that are being executed.

And as we see, as this debate continues to rage, I think what is also happening is that payment processing is becoming increasingly commoditised, and it's becoming much more technology-enabled. And the challenge for everybody is how do you keep up with that technology? And I think what we'll find is there'll be more emergence of PSPs who can handle the commoditised processing in a more effective way.

And over a period of time, what is it that most of the people on this call care about? You're all risk managers. How do you manage your balance sheet most effectively? How do you provide execution services most effectively? And I think that we'll see an increasing trend of banks outsourcing payment processing to third parties, because it just makes more sense to drive that from an efficiency standpoint rather than necessarily trying to consolidate all of that complexity in-house, because margins are forever decreasing.

There's more and more pressure on bottom line. And that's not a good outcome, at the end of the day, for us or for our customers.

Maarten Van Rossum: It's interesting you mention, indeed, technology and that we need to keep up in this. And then if we take just a completely different look, the final focus area of the report looks at what potentially could be happening in the future. I think there's a very -- well, there's a risk that while we're all talking about these things, there's a kid sitting in his parent's basement in California who will come up with something that will have wiped all of this out in the payment. Although we do have regulators that might -- that is probably our one big advantage.

But some of the things mentioned in here in the report is things like stablecoins. There's talk of central bank digital currencies. And there's talk of just completely throwing everything out and starting with the establishment of a completely new multilateral platform. So I'll just go down the panellists just to see your views on this in the last few minutes that we have and which one of those you think has the best credentials. Vikesh, how about you?

Vikesh Patel: Yes, thank you. And this is always dangerous territory, kind of crystal ball gazing. But I think I'd kind of, my closing points would be around four themes. I think to the point you just made, innovation is rife. And at SWIFT we talk about responsible innovation and the need to know what the business processes that you're innovating for, to do so in a regulated environment.

The fact that CPMI-IOSCO have written this report means that they are looking at this clearly but equally where they intervene. The intervention could be in a way that's not as it's been written just around frictions. So we need to make sure that that innovation is done responsibly, knowing the environment we work in is highly regulated.

The second thing I wanted to kind of touch on is I think the future looks a lot around, as has been touched on, open ecosystems as Martin was saying. And we and I firmly believe the future is on open ecosystems. I think if you're a closed loop system, your days may be okay for a while, but they'll be numbered eventually.

You just can't give your client what they need if they have to hook in and get what they need from 15 different places, or that there's no means to leverage that enrichment or value add.

And an extension of that is really looking at data elements. 20-022, we talked about it as a messaging format. It's a data dictionary. It's a dictionary of business functions, business processes that have been defined globally that you can transmit.

Now if you focus on that, you can then not worry about the envelope that you're putting your parcel into, that you think about the data in your parcel and you put the right envelope around it, whether that's an API or something else. And that's important to keep in mind. I think that's going to have a key role.

And then the last area really is around choice that I touched on earlier, choice for the end user. That choice is driven by risk, how much risk are they willing to take. But equally, I touched on the GPI instant pilot where we've connected up and domestic and instant schemes. Now in one way, you could high five yourself and go, wow, it kind of went end to end in 15 seconds. And look, that's no small achievement. It's quick. But the corporate treasurers who talked to us in Asia gave a different view.

And they said, look, speed is good. But actually if you're a Chinese corporate sending an Aussie dollar payment into Australia and using the Reserve Bank of Australia, your cut-off is midday on Friday in China to meet cut-off. Now if you can use an instant scheme with no upper limit, suddenly you have different optionality open to you, that you can send payments through a different group.

And that's kind of my last thought that I can get from my house to the North of England using a motorway. That motorway kind of may be a bit poor and rubbish. I can think of creative ways to get around that. But actually the right answer is to fix the motorway, and where do I want the choice of coming off the motorway because I want to?

And that's probably giving those end-to-end point benefits across the cross-border space. And that's what we're focused on, making instant schemes and the benefits they've had bringing them into the cross-border space and giving the end customer and our FI customers choice about which channel they use when.

Maarten Van Rossum: Well, thanks for that. Thanks for that, Vikesh. And then indeed, Stephen, same question for you. How do you see the future?

Stephen Grainger: So we're doing a lot in this space. Actually, we're doing some stuff with Barclays and with some of the other people on this call around how do we -- how can we leverage distributed-led technology in a different way to be able to manage data differently and more effectively.

We're also exploring what the future is around tokens and tokenisation and what role do they have to play particularly around just think about the challenges associated with liquidity.

But again, I keep coming back to the CPMI report. I didn't write it. I promise I had nothing to do with it. But I actually thought the report was actually pretty interesting. One of the observations that's made in the report is that you can get to a whole series of new outcomes, but the building blocks for getting there are what are outlined in Sections A, B, C and D which kind of says there's no quick and easy way to get to any new outcome.

And we've seen that. In all truth, we've seen lots of new entrants come to the market with, particularly with new technology-based solutions that without scale, the likelihood of any of them being able to take off is extraordinarily limited. And I'm not going to name names here, but you can't bring in a challenger to SWIFT and only have 10 banks on board in a limited capacity. That doesn't do anything to move the needle on anybody. And as Vikesh said, the answer is not necessarily can we find a new answer to SWIFT. The challenge is -- there are many different challenges.

I think for me, actually, and I think the conversation we're increasingly having is the role of data is super important. And actually think about things like digital identity and the importance of digital identity, whether you're dealing with individuals or corporates, actually being able to have that notion predefined, and actually to do an awful lot upfront, irrespective of what the technology is that's underpinning it.

So I think finding a way to be able to establish identity meaningfully gives us a much more effective way and arguably could deliver a much more scalable way to drive new business and new business models forward. But all of them involve one crucial moment, which is kind of where I started, and that is we've got to find a way to be able to evolve beyond the inertia that exists today.

And without that, then it doesn't matter whether you've got, whether the kid in parent's basement in California has come up with the most ground-breaking way to think about payments differently. It won't matter if people don't adopt it or can't be bothered to adopt it or don't have the ability to be able to adopt it.

And that is the biggest mindset change actually I think for me. Vikesh talks about responsible innovation. Innovation has got nothing to do with technology. Technology is purely an enabler. Innovation is a mindset. And we have to want to innovate. And unfortunately, I think there are too many people who are quite happy with where they are and don't see the need to change. And I'll leave it there.

Maarten Van Rossum: Yes, indeed, it's very clear. Thank you very much. And, well, final then. Martin, any thoughts from you, final thoughts?

Martin Runow: It's always easier to --. Stephen, what you said makes a lot of sense to me. I will counter, though, to most of us on the call who are part of correspondent banking ecosystem. Inertia is a problem, and it's really, really hard when you see a business change and your business model change to disrupt yourself. So we have awesome on the PowerPoint, go disrupt yourself. It's great.

But you are giving up profitability and revenue that especially in this year and more than ever I think we need. We need the fee income. At the same time, none of us wants to go the way of the dinosaur, right? So responsible innovation, I like that a lot. I think it's hard, but we will have to look at this business model changing. It's been shifting around us massively, and more in the last two, three years than the last 20 before, right? So that there's no way around it, that we have to keep an open mind there.

What I will say then with my, again, my digital client experience hat on, one way to make sure that your clients, our clients, they can see value in what we do is by creating good products which will be created with our clients in mind, with our clients actually together and deliver a really, really outstanding experience for them, right? And again, the things I said earlier about transparency and speed, but especially transparency, I think that will be totally key for me.

And then just be mindful that the world is going to change, and we will not be able to ride this one out into retirement, even though Maarten made us all sound really old when he said we're all distinguished panellists, right? So I think that's going to change for all of us. There's no way we're going to stop change.

Maarten Van Rossum: No, indeed. I'm afraid that we're all too far from retirement to sit this thing out, indeed. Well, thank you very much. I want to thank Vikesh and Stephen and Martin for sharing your time with us today and your expertise. Also the audience, of course. Thank you for the interaction and the great questions that came through. We hope that this has been a session that's been useful to you.

More importantly, we hope that we'll be able to once again interact with you in real life to talk about topics such as this one or the many other topics that impact all of us.

So after this call, you will see a feedback form. We'd love to hear from you. Love to hear what other things you'd like to talk about, how you experience this. And with that then, I will go ahead and close the call for today. And thank you and goodbye.

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