The biggest banking and payments event globe-trotted from Boston to Singapore this year – coinciding with the city state’s 50th anniversary of independence and attracting more than 8,000 attendees. Blockchain, disruptors, collaboration and real time payments were to the fore. Xiou Ann Lim reports

The subject of bitcoin dominated Sibos 2014. Conversations at the SWIFT-organised 2015 event in Singapore had moved on to thebitcoin-inspired infrastructure, blockchain. Fintech disruption was high on the agenda also, becoming an ever-bigger concern for banks. Yet disruption can lead to collaboration, which can mean everyone’s a winner- FI, start-up and consumer alike.

Blockchain technology

Blockchain-based technology – or distributed ledgers – offer independent entities the option of sharing a common or prime record of important financial transactions amongst themselves instead of keeping their own records. Blythe Masters – chief executive officer at Digital Assets Holdings, a start-up that offers this technology – spoke at Sibos about how this benefits firms by simplifying the tedious, expensive and time-consuming exercise of continuously reconciling financial data between and across different entities.

While it poses an attractive proposition, there is a reason why banks are not scrambling to adopt the technology – this distribution of sensitive and private information may leave banks wide open to vulnerability. However, Masters says that the sophisticated credentialisation techniques in blockchain ensure a high degree of confidence. "Only those with a need to know have access to the appropriate information," she said. She also added that just because it’s accessible by multiple parties does not mean it will be advertised to everyone at will.

Masters admits that there were early concerns that the infrastructure could be used to bypass anti-money-laundering regulations, but notes that regulators are now more open to blockchain as the technology becomes better-understood. "They see the technology as having the power to reduce friction cost and counterparty risk as well as tackle settlement latency … which leads to risk in the financial system. It’s in the interest of the regulators to see that risk diminished. If technology can be used to do that by speeding up inefficient processes and cutting costs in the process, that’s unambiguously a benefit – provided it’s done responsibly," she said.

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The financial services sector is now witnessing radical changes that were seen in the media, taxi and hospitality industries. This disruption that is largely consumer-driven is causing consumers to expect from banks the same experience they gain from Amazon, Google or Apple. The advent of digitisation has helped eliminate time and location constraints. As such, consumers have begun to demand more from banks.

What are some of the gaps in banking that new entrants took advantage of? According to EY banking expert Jan Bellens, start-ups such as TransferWise focus on one particular high-margin specialised service that consumers want. "Banks have typically done a very poor job of offering that service in a customer-friendly and efficient way." Secondly, he also believes that they’ve done a pretty poor job at protecting where their margins are. "They cross-subsidise themselves. They will use high margin from international transfers to subsidise other operations that don’t bring them any money," he adds. But he believes that disruptors face monumental challenges as well, as scaling is a major issue for them – especially in Asia. "The market poses challenges such as different regulators, cultures and languages. It’s not so easy to scale in this environment," he says.

To keep up, he thinks banks should build an ecosystem where they can partner with innovators and think hard about what untapped advantages or assets they have as compared to these start-ups. "For example, they have customer relationships. They may not always do a very good job of managing them – but they do have them and customer data. They also have experience in meeting high regulatory standards and they can operate major infrastructure. These are benefits upon which they can leverage."

Meanwhile, Christopher Wasden – professor of innovation and executive director at the Sorenson Center for Discovery and Innovation at the University of Utah – thinks that banks are in danger of believing that they could be immune to disruptive changes by way of protection from regulators. As such, he warns that change is going to be continuous and deliberative. "[It] may not be as fast as it was in media. But it will continue relentlessly and regulators will actually be driving it as well."


Although disruption may mean different things to different people – as some view it as the emergence of new technologies that have the potential to disintermediate financial firms, while others see it as an opportunity to create new business models – SWIFT aimed to bridge the divide by creating an ecosystem of collaboration between the disruptors and the disrupted, most notably through its Innotribe initiative.

This year, Innotribe invited representatives at the helm of organisations that accelerate engagement between banks and start-ups from eight fintech hubs around the world to discuss why banks need them. Mike Sigal – founding partner of that is based in Silicon Valley – notes that an innovation hub creates a sandbox environment in which "the costs and risks of experimentation in either making their organisation more innovative or bringing new products and services" can be significantly reduced.

Discussion also revolved around how innovation feeds off the diversity of skills and ideas that are commonplace in these hubs. "Banks don’t naturally disruptively innovate, particularly at the origination level," says Lawrence Wintermeyer, chief executive officer at Innovate Finance that is based in London’s One Canada Square. He notes that banks are very much focused on their balance sheets, risk controls and P&Ls – which results in there being little behavioural motivation to be disruptive. He says that on the other hand, disruptors are operating in a relatively frictionless environment right now. "So, institutions need to access that level of innovation while innovators need banks for scaling, capital and partnerships. The two coexist more comfortably than people think."

Apart from how collaborations will benefit all parties, there was also a discussion on how banks should engage with start-ups. Alex Scandurra – chief executive officer at Stone & Chalk in Australia – believes that engaging with start-ups is very different from doing so with any other third parties that banks are used to dealing with. "In terms of collaboration, it’s important to think through how you’re going to be start-up-ready as an organisation – from how you rethink and re-engineer your procurement process to what is the right approach in terms of timelines," he advises.

Real-time payments

Another topic that was heavily discussed at Sibos this year was the emergence of real-time payments and how ISO 20022 is becoming the default choice of standards for the newer real-time systems. A key driver for banks to move to real-time payments is – once again – the emergence of new entrants in the market. Within the payments space, some non-banks are offering faster and cheaper alternatives to consumers and this is creating a sense of urgency among banks to keep up.

Says Stephen Lindsay, head of standards at SWIFT: "Traditionally, we’ve split payments into value or volume. High-value payments will receive high levels of care while volume tends to be dealt with in batches. With everything moving in real time, we can give the same level of care for all payments."

Within banks, payments are currently being processed in batches. Instructions are saved up
until a batch is formed and then it is exchanged with another bank at the end of the day – or a few times a day. With real-time payments, banks cannot wait anymore for processing and they will have to start exchanging transaction by transaction. A consequence of this is that the back office of banks have to be changed completely.

Richard Chapman, head of strategy at Sungard, believes that real-time payments is something that has been talked about for a long time.

"I think we’re now at a tipping point where it will become a reality. But the reality is that there is very little real-time data available. Until recent times, it has remained that way," he observes.

He doubts core systems in banks are able to produce or cope with real-time data. So, while he believes the infrastructure is needed and that SWIFT’s providing it, he thinks the underlying systems need to be able to cope as well.

"But I think banks will find it a real challenge to convert what they have today to be real-time-enabled. As this moves into an industrial-strength exercise involving large volumes of data and real-time processing, it’s going to be an enormously expensive exercise and highly error-prone to begin with."