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Innovations in payments across regions

Bankers Association for Finance and Trade notes international systems for moving money are “exploding with innovation”

Banking representatives from around the world gathered in Toronto in October 2017 to discuss global innovation in payments. The main themes of discussion included how the payments aspect of banking is "exploding with innovation" and how dynamic and powerful change is emerging from underbanked areas around the world. Panellists also explored the impact of regulation within the context of this global transformation. 

The panel was part of a half-day forum hosted by the Bankers Association for Finance and Trade (BAFT), whose members are organizations actively engaged in international transaction banking. The panel included representatives from Royal Bank of Canada, US-based Berkeley Research Group, the Bank of Ireland, and Ripple, an online payment protocol that enables the instant and direct transfer of money between two parties. The discussion focused on the global state of payments innovation, and included regulatory policy issues, fintech trends, strategic considerations for banking institutions developing their payments infrastructure and offerings, digital disruption in the payments sphere, and risk management. 

Key insights

  • Banking is designed fundamentally to move, store and lend money, and the “moving money” aspect is exploding with innovation
  • There is a need for banks and regulators to work together to create a common regulatory infrastructure
  • Silicon Valley might as well be renamed “AI Valley,” as it is reshaped by a flood of funds into fintech

Transaction banking undergoing “waves of change” 

Across the globe, the logistics underpinning financial transactions are being fundamentally redesigned. One panellist commented, “Banking is designed fundamentally to move, store and lend money, but the 'moving money' aspect is exploding with innovation." 

The panel discussion on payments innovation ranged from how alternative banking propositions are leading to an “unbundling” of banking services, to the move to real-time processing of customer transactions, and the extent to which exponential technologies, big data and artificial intelligence are reshaping global payment systems. One panellist suggested that Silicon Valley “should be renamed 'AI Valley,' due to the flood of funding into fintech.” 

Innovation emerging from “underbanked” regions 

The exponential growth in banking technology worldwide is matched by an exponential demand for banking services—particularly in regions with “underbanked" populations (i.e., areas with insufficient banks to meet market demand), including Southeast Asia, the Middle East, and sub-Saharan Africa. Panellists noted that these regions may produce more powerful and dynamic change in banking and payments due to their appetite for technology, comfort with technological change, and the rapid pace of development.  

Big data and artificial intelligence are reshaping global payment systems

Areas of emergent banking technology and services were contrasted with regions that have more established banking systems. One panellist commented that “regulatorydriven change tends to focus on known problems, while much more dynamic and powerful change is emerging from more fluid parts of the world, where people are redefining what it means to bank and transact.” This fluidity provides a “richness of opportunity” for banking services, in contrast to areas where the regulatory focus is role and process-driven. 

A key change that has allowed regulators and innovators to work together is the development of a “regulatory sandbox” by the UK's Financial Conduct Authority (FCA). The sandbox operates as a space where companies can test fintech innovations in a controlled live environment, with regulatory input.  

A key change that has allowed regulators and innovators to work together is the development of a “regulatory sandbox”

One advantage of using a sandbox model is that it provides regulators with a smaller-scale and bounded mechanism to examine new products and services and how they interact with existing regulations. Another benefit is that it provides the opportunity to explore how a new form of regulation may develop in response to new market developments. Panellists asserted that the use of a sandbox may reduce the risk of regulation dampening innovation, because it allows regulators and innovators to work together on common ground and in a shared space. 

My way or our way? 

The third main area of discussion was on the role of regulatory reform in the payments industry, with panellists calling for ways in which global areas can collaborate on regulatory innovation. Rather than adopting “the 'Frank Sinatra' approach to payments, doing it 'my way', which doesn't create better regulators or higher ground for global transformation, there is a need to create a common regulatory infrastructure, not control,” said one panel participant. 

There is a need to create a common regulatory infrastructure

Panellists also cited the tremendous challenge for regulators to “catch up” to the pace of innovation in the marketplace. They suggested that banks may need to “let go to grow” by moving away from some of the market space they have traditionally occupied, and to instead focus on developing new strategies and value propositions. Exploratory business development would ideally allow banks to remain relevant, in part by repositioning their offerings to new types of customers. 

One area in which banks are striving to remain relevant in a changing world is through the growing use of technology, big data, and artificial intelligence, all of which can be used to “add context to payments” as well as to increase efficiency in banking. Panellists noted that the impact of fintech on traditional banking is global. They also added that while payments may look different in different regions, they are nevertheless subject to many common developments, pressures, and trends.

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The Bankers Association for Finance and Trade (October 15, 2017) BAFT Global Councils Forum, Innovations in Payments Across Regions