Singapore slings (and arrows)
Singapore is set to be the biggest Asia Pacific Sibos event yet
For those who attend Sibos every year, it can seem as though the conference never actually ends – it simply adjourns until the following year.
This year, the rise of distributed ledgers and the role of non-bank players in financial services look set to top the agenda at this year’s event in Singapore – but there will also be a strong focus on innovation, women in finance and millennials.
In many ways the really big change this year will be the role of Innotribe, the Swift project that focuses on innovation in financial services. Innotribe is reinventing itself and as such, it has been given a central place at this year’s Sibos, covering five sessions on the first day alone. Whereas in previous years some critics have suggested that Innotribe could be a little too abstract, its focus is now being targeted more closely to core, immediate banking issues.
“Historically, Innotribe was allowed to get a bit too Edinburgh Fringe,” says Daniel Marovitz, one of the founders of Innotribe, formerly of Deutsche Bank and currently European president at Earthport. “It wasn’t necessarily focused on the core problems the banks are trying to solve over the next year. It was often looking at seven, eight or 10 years in the future. It developed a reputation in some cases for being a little too whimsical, a little too at the edge of relevance.
“At the end of the day, banking is a conservative world: given that they are dealing with money and the systems that keep the global economy running, they don’t particularly want people who are too radical. On the other hand there is technological change which is real and which is not futuristic, and it makes all the sense in the world to make sure bankers are in touch with the stuff that’s going to hit them soon. Innotribe has now been focused down to be a little less cyberpunk and futuristic in its orientation, but also expanded out to become bigger – for example, the future of money is a main stage plenary session rather than relegated to a dark corner in a back room. That’s what Innotribe is trying to do and I think they’re doing a good job.”
According to Peter Vander Auwera, another co-founder of Innotribe, the agenda for Sibos has been designed around four main themes, each assigned to a specific day. Day one will be based on platforms – this includes with sessions on the rise of blockchain technology, cyber intelligence, the rise of APIs, faster payments and global trends in regulated securities markets. The theme for day two, Vander Auwera says, is ‘What society wants’. The phrasing is borrowed from the title of a 2011 book, What Technology Wants by Kevin Kelly.
“Kelly’s point is that technology is starting to develop its own life,” said Vander Auwera. “It’s not only us who are in control. Technology is starting to influence how we behave. The same inspiration can be found in the book Program or be programmed by Douglas Rushkoff. When you use an app, you think you are a sentient being acting freely, but actually everything you are doing is within the confines of what has been programmed – so in a way, that freedom is an illusion.”
These themes translate into day two Sibos sessions on the Internet of Things, payments platforms for millennials, financial and cyber-crime and business intelligence. But there will also be more traditional sessions on correspondent banking, cross-border securities transactions, resilience, industry standardisation, ISO 20022 implementation, as well as macro issues such as how to develop transaction business with China, the rise of the Chinese renminbi as an international currency and the growth of managed services as well as the benefits and risks of outsourcing.
Innotribe was originally created to focus on innovation in financial services, and a return to that focus will drive the agenda on day three, which is based on the theme ‘What innovation and start-ups want’, says Vander Auwera. For the first time, the main stage will host the final of the Innotribe Start-up Challenge, and the challengers will pitch on day three. Meanwhile, Innotribe’s ‘growth stage’ start-up companies will be allowed to set up home in the Innotribe innovation hub, which will be located right next to the main Swift stand. The idea is to reward them, giving them good exposure and visibility. Day four will focus on ‘What machine intelligence wants’.
Within each of the four themes, there are two further focus points that run right through everything: women, and millennials. The reason for including both groups is relatively straightforward, although they are different. In the case of women, it’s because they are under-represented in the fintech industry. In the case of millennials, it is because they are the customers of the immediate future. Vander Auwera is aware that the stereotypical Sibos delegate is often an adult male, so efforts have been made to redress the demographic balance.
“We’ve put ‘instigators’ into the sessions to intervene and challenge some of the speakers,” he said. “A good example is the session featuring Scarlett Sieber [SVP, open innovation & ecosystem builder at BBVA] – she is both a powerful woman in fintech and she is also a millennial. We also worked closely with the Singapore Management University, and we have some millennials who will engage with the speakers from a millennial perspective.”
This aspect of the conference programme seems to have gained support from some Sibos delegates. “I noticed that diversity is a theme,” says Arindam Das, head of HSBC Securities Services, Middle East and North Africa. “Swift is reflecting the banking industry on this. Most of us have been really focusing on diversity in recent years. It comes up in our board meetings and any time we talk about governance.
“We also talk about reverse mentoring. For example, traditional mentoring involves an experienced employee teaching a new employee. But reverse mentoring flips it the other way round. For example, you could have a young millennial employee teaching someone senior like me.” Asked about the expanded role of Innotribe at Sibos, Das says he is pleased.
“In previous years it was a bit geeky, a bit start-upish,” he says. “They needed to propose practical ideas to the large banks, without too much blue-sky thinking. Yes, it is necessary to think openly about these questions at the start of a project but it needs to evolve from blue sky thinking to commercially implementable, and I’ve not really seen that in the past. It’s positive that Innotribe is growing and becoming more mainstream, because by interacting with banks, it gives them the help they need to move forward in the right direction.”
The emergence of non-bank financial players will continue to be of interest this year, particularly where it affects consumers and retail payment mechanisms. For example, companies like Square, Stripe and BrainTree are active in retail payments – and the last of these three has been acquired by PayPal, which is itself now a public company. Meanwhile, there are 450 million credit cards eligible for use via Apple Pay, should customers sign up to use the service – placing a company that traditionally was not focused on payments potentially in a position to handle significant payment flows. The theme of disruptive innovation and possible disintermediation of banks has been an issue at every Sibos for at least the last five years, and is unlikely to disappear any time soon as the entry of new players has been too prominent to ignore.
“Non-banks are starting to take market share from the established banks,” said David Williams, partner in financial services at EY. “Supermarkets, fintech start-ups, technology companies are all getting involved. This is being felt more by the retail banking sector so far but corporates and investment banks need to stay tuned as well.”
Vander Auwera believes the way industry participants think about fintech and the distinctions between entrants to the ecosystem and existing institutions will become irrelevant in five to 10 years, because of the “quite different” kinds of competitors entering the arena. Companies such as Facebook, Google, Amazon and Twitter are well-known for the extensive data they have about their customers and users. He highlights a session at Sibos on the ‘voice of the customer’: “There are new banks like Fidor and others creating a very participatory platform to interact with customers,” he says . “What happens if you exploit all the data from Facebook and all these other tools and put it into a Watson-style computer with deep learning capabilities? How will that change how you interact with the customer? And all this as we move to an increasingly real time world … the possibilities are endless.”
Marovitz agrees, pointing out that the issue of non-bank entrants often overlaps with that of Big Data, as many of the biggest non-bank companies that have revolutionised the world in recent years based much of their success on the way they were able to use data.
“Historically banks have had amazingly big data sets that they have done nothing with – the data just sat there,” he says. “But companies like Facebook are leading the creation of the social graph which is being able to make determinations about the demographics of customers based on what music they listen to. There are now 1.5 billion customers on Facebook. Using Big Data they are able to make very accurate predictions about who they are connected to, or who somebody is, based on who they are connected to. It works both ways: banks are starting to come to the same realisation in the payments space. Transaction history creates a profile of somebody which lets you know what their career trajectory is like and when a big purchase is coming up.”
Another of the top themes this year will be the rise of the distributed ledger, otherwise known as the blockchain. The word blockchain was first made familiar to many people when Bitcoin emerged into the mainstream public consciousness in 2013. A blockchain is a public ledger or transaction database that digitally records every transaction ever executed. According to London-based consultancy Z/Yen, every new block of transactions “contains a hash of the previous block, creating a chain of blocks from the ‘genesis’ block to the current block”. But for many financial institutions, the really interesting thing about the blockchain is its application to other areas of their existing businesses.
“The blockchain has a profound impact for the securities industry,” said Das at HSBC Securities Services. “I think it will be one of the main themes this year and I am looking forward to learning more about it and how it will affect our business.” Other Sibos delegates expressed similar sentiments, focusing particularly on the distributed ledger and its potential to act as a catalyst for change in the payments industry. “We are very interested in the New kids on the blockchain session, and we know a lot of our clients are asking about that and are interested in it,” said EY’s Williams.
“Our view is that the real value comes in cross-border payments,” added Marovitz. “At the moment, these generally use the correspondent banking network. That’s a 40-year old system, and it uses a series of bilateral relationships – bank-to-bank-to-bank. All of those banks have the ability to charge a landing fee. What that means is that if you send $1,000 from London to Jakarta, it’s entirely possible that only $920 will show up in Jakarta, and you have no idea at the time you send that money that $80 will be deducted in all sorts of fees.
“Earthport has been trying to tackle this with our ACH product for a number of years. It provides clarity on when the money will arrive, which is lacking in the traditional structure, and we provide clarity on pricing so you know exactly how much money is going to arrive. But with the addition of the distributed ledger, for the first time the system will be able to go to nearly instant payment. So rather than T+1 or same day, which is what we do in most markets, we will be able to do it within minutes.”
The shift towards real-time has been a recurring issue in recent years.
Last year, most of Europe moved to T+2 settlement from the previous T+3 regime, while in the US the DTCC is also working towards a shift to T+2. While the blockchain falls under the general theme of innovation in financial services, there is one important distinction between it and other kinds of innovation that are likely to come up at Sibos.
“We think it’s disruptive but not competitive – the difference is we are selling our product and services to banks, and this is a way for banks to augment and accelerate what they do,” said Marovitz. “This isn’t a fintech disruption intended to kill the banks. We serve the banks.”
The continuing pressure of regulation is also another perennial favourite of Sibos discussions, and this year attention is likely to focus on KYC, AML and sanctions – particularly in the light of the Iran nuclear deal agreed between the US, Iran and the other major G7 countries earlier this year. The rehabilitation of Cuba, which has been effectively on the no-go list for decades, will also be a factor. According to Marovitz, both countries are now re-emerging as part of the global club of nations – but conversely, Russia is increasingly sanctioned.
“Cuba is relatively less important because of its size, but Iran is a major country,” said Marovitz. “It’s going to be interesting to see how sanctions systems adapt to these changes. At the same time, the specificity of global sanctions is changing, there will be less blanket and more corridor-specific targeted sanctions. That poses interesting challenges for financial institutions to correctly identify and manage counterparties.”
“In the absence of the right technology, which in many cases banks don’t have, it means lots of operational human work. I think we are moving to a world of system applied business rules, system analysed business rule pattern aggregation and then human analysis of system analysis. The first chain is a series of rules set by a human, those rules are implemented by a machine, a machine then aggregates the results, the results are read as having applied those rules and then a human analyses that data.”
One example of this principle in action would be pattern recognition technology that is able to predict the behaviour of an entity without understanding its reference data, merely from how it trades. The ability to make this happen is starting to become more mainstream, particularly in capital markets sales and trading, but also in payments. In the former case, it can be applied to algorithmic trading strategies. In the latter, it can be applied to payments activity as a tool to help catch individuals and groups engaged in nefarious activity. BT
