The Pay360 event is widely recognized for its forward-thinking discussions on emerging trends and cutting-edge innovations in the financial services sector. This year’s conference, attended by Philip Benton for the first time, delved into pivotal developments poised to shape the future of payments and banking. The focus centered around critical themes including the importance of interoperability in cross-border payments, the challenges banks face in adopting new technologies, the burgeoning trend of embedded finance, and the evolving landscape of open banking.
The Importance of Interoperability
One of the primary themes at the Pay360 event was the growing need for interoperability in cross-border payments, exacerbated by rising geopolitical tensions and increasingly fragmented global regulations. Swift’s report shed light on how these fragmented regulations are becoming significant obstacles to seamless cross-border transactions, posing potential threats to the global economy. Specifically, Adam Bealey from Swift highlighted that if the current pace of capital flows continues to decline, global GDP could be significantly reduced, stressing the urgent need for synchronized regulations.
In line with this, Project Orchid, an initiative led by the Monetary Authority of Singapore (MAS), was showcased as a promising avenue to address these challenges. Project Orchid is a multi-phase exploratory project that aims to achieve interoperability in Purpose Bound Money (PBM) across various platforms, wallets, payment systems, and rails. The diverse range of payment rails, although beneficial in providing choices, adds to the complexity of achieving interoperability. This complexity underscores the necessity for a concerted effort to harmonize regulations and increase cooperative mechanisms to ensure efficient and smooth cross-border payments.
Challenges in Banking Technology Adoption
The Pay360 event also cast a spotlight on the significant struggles that banks continue to face in adopting new technologies. Despite the rapid advancements in the payments landscape, banks allocate a lion’s share of their IT budgets, typically between 75% to 95%, to maintaining outdated systems, ensuring regulatory compliance, and managing resilience. Gary Palmer of Payall articulated this prevalent concern, highlighting how this allocation severely restricts the resources available for innovation and the adoption of advanced technologies.
Echoing this sentiment, conversations with various industry leaders revealed a persistent focus among banks on modernizing mainframe systems, digitizing manual processes, and implementing functional applications. These foundational improvements are essential but often leave little room for investing in and exploring the full potential of cutting-edge technologies such as artificial intelligence, embedded finance, and open finance. This focus on legacy systems and regulatory compliance continues to be a significant barrier to the agile adoption of innovative solutions and technologies that can drive the future of finance.
Embedded Finance: A Growing Trend
Embedded finance emerged as a particularly prominent theme, reflecting its growing importance in the industry. The concept of embedded finance, while widely discussed, is often defined differently by various experts. Philip Benton describes it as providing financial services at the point of need. Meanwhile, Aron Alexander of Runa interprets it as leveraging existing technology to bring financial solutions to market more swiftly. This interpretation closely aligns with the principles of banking-as-a-service (BaaS), highlighting a convergence in thought regarding the delivery of financial services.
The evolution of embedded finance is characterized by its increasingly ‘invisible’ nature, seamlessly integrating financial products within consumer and business ecosystems. Saira Khan from First Direct emphasized the goal of making financial services so seamlessly integrated into daily activities that consumers do not have to consciously seek them. Instead, these services become an integral part of the user experience. Similarly, Barry O’Sullivan of OpenPayd noted that innovation in embedded finance aims to achieve this invisibility, particularly from a B2B perspective. This trend shows that companies are embedding a variety of financial products within their services, enhancing customer experience and streamlining financial transactions.
The Evolution of Open Banking
The future of open banking was another major topic discussed at the event, with the panel “Navigating the next phase of open banking” offering key insights. Recent findings from an Alvarez & Marsal report were shared, stressing the importance of monetization strategies, developing a robust regulatory framework, and empowering open banking entities such as Open Banking Limited (OBL) in the UK. These discussions highlighted the need for a cohesive approach to ensure that open banking can deliver its full potential.
The UK is frequently cited as a global leader in open banking, a model closely watched by other countries. However, nations like Saudi Arabia, Brazil, and Australia are making notable strides in their open banking initiatives. OBL’s vision for becoming a standards body funded through industry-wide contributions aims to create and maintain a high standard of open banking practices across the sector, ensuring uniformity and efficiency. Despite these advances, challenges remain, particularly in monetizing open banking services and ensuring comprehensive data sharing protocols. High costs associated with rolling out account-to-account (A2A) payments underscore the need for a fair commercial model that balances costs across the market.
Overarching Industry Trends and Perspectives
The overarching industry trends highlighted at the Pay360 event emphasized the critical role of interoperability, the ongoing struggles with technology adoption in banking, the rise of embedded finance, and the continued evolution of open banking. The necessity for harmonized regulations and interoperable systems is clear, as these are pivotal for the success of cross-border payment initiatives. Banks find themselves hampered by legacy systems and regulatory burdens, which limit their ability to adopt new technologies and innovate effectively.
Embedded finance demonstrates a significant shift towards providing financial services in more integrated and seamless ways, increasing consumer convenience and experience. Finally, sustaining progress in open banking requires well-structured regulatory frameworks, strategic monetization plans, and comprehensive data sharing agreements to uphold the UK’s leadership and achieve industry-wide standardization across various markets.
Conclusion
The Pay360 event is highly esteemed for its progressive discussions on new trends and state-of-the-art innovations within the financial services sector. This year’s conference marked the first attendance of Philip Benton, who explored significant advancements likely to shape the future of payments and banking. The event emphasized several crucial areas: the essential role of interoperability in cross-border payments, the difficulties banks encounter when integrating new technologies, the growing movement of embedded finance, and the ongoing transformation within open banking. Additionally, this year’s conference addressed the regulatory challenges and opportunities that arise from these innovations, encouraging dialogue on how financial institutions can adapt effectively. The discussions were insightful, providing attendees with a deeper understanding of the direction in which the financial landscape is heading and equipping them with the knowledge to navigate these changes successfully.
