EXCLUSIVE: ‘Easing the load on CIOs and CTOs’ – Anders la Cour, Banking Circle Group in ‘The Paytech Magazine’

Executives in these roles have had more than enough to cope with over the last 18 months. But, having come through the fire, Banking Circle wanted to know what it is about ‘the next normal’ that still keeps them awake at night. Its CEO, Anders la Cour, suggests how a financial infrastructure platform can help lighten the load.

“Technology leaders are being called upon to serve as kinetic leaders – a super-charged change instigator, pursuing transformation while ensuring resilience.”

That rallying call to chief technology (CT) and chief information (CI) officers came from Deloitte’s 2020 Global Technology Leadership Study, based on results gathered just as the world shifted under the feet of financial services, the pandemic catapulting them faster than anyone ever thought possible into a digital-first future. Eighteen gruelling months later and Banking Circle decided it was time to ask what, of their many ‘super-charged’ responsibilities, was keeping CTOs and CIOs awake at night.

It turns out that the answer largely depends on whether they’re instigating change for a fintech or inside a bank. Of the 600 office holders that Banking Circle interviewed across the UK, Benelux and DACH regions, those employed by the former, including challenger banks and payment service providers (PSPs), mostly fretted into the wee hours about potential tech outages, whereas those employed by the latter couldn’t sleep for intrusive thoughts about their digital  transformation projects.

A good solution, the researchers suggested, was to find a new partner – not to share their bed with, but rather their technology troubles.

“Working in partnership with external providers will ease the burden on CIOs and CTOs, by spreading the load,” says Anders la Cour, CEO of Banking Circle Group, the Luxembourg-based ‘super-correspondent bank’, which aims to relieve them of at least one of the stresses of the job… that of ensuring clients’ cross-border payments are settled securely in minutes, rather than days, for a fraction of the standard cost incurred in the traditional correspondent banking chain.

It’s the long-winded process, with potentially multiple regulatory checkpoints at which a payment could be detained or rejected (often erroneously) that makes transfers – of smaller amounts, in particular – uneconomical for all concerned, disappointing customers and choking off international trade for small businesses.

A fully-licensed bank, working solely for financial institutions and payment processors, Banking Circle’s aim is to reduce the number of stages in any transaction by providing payment rails through a combination of direct clearing with central banks and a strong correspondent banking network.

MEETING THE CHALLENGE

In 2020, it processed a record six per cent of Europe’s business-to-consumer (B2C) e-commerce flow, a total of €155billion in payments on behalf of financial institutions. The uplift in volume was a reflection of its fast-growing client base – including the onboarding of significant global payment players Stripe, Alibaba and Paysafe – which saw it double the number of companies it worked with during the year.

Banking Circle’s latest white paper, Futureproofing Payments Tech: The Challenges Keeping CIOs And CTOs Awake At Night, indicated that, having successfully adapted to the intense demands of 2020, they were fairly confident in the ability of their organisations to investigate and procure new payment and related IT systems, to cope with not just the new normal but also the next normal (whatever that might be). That said, they weren’t as convinced of their businesses’ resilience in other areas that they were responsible for, including artificial intelligence and machine learning, data security, systems migration and training, to name a few.

Although 63 per cent of office holders at fintechs, and 56 per cent of those at banks, expected to see their payments IT resource increase in the next 12 months, many, it appeared, were still wrestling with boards that underestimated the technical challenge and financial resource needed to deliver what they were expected to deliver over the next few years.

Faced with the impossible task of squaring the additional demand for digital payment services accelerated by a pandemic, with budgets that, while increasing, were not enough for a complete overhaul of the infrastructure required, many saw partnering with external providers as a way to futureproof their organisations. Overall, two-thirds of those surveyed in both banks, fintechs and payment service providers said partnerships featured in their future plans.

“The CIOs and CTOs we surveyed are facing some significant internal challenges that are hampering their ability to meet business objectives in some areas,” says la Cour. “The biggest challenge was the lack of integration with customer-facing departments, that was true for around half of all respondents, and only slightly fewer, around 45 per cent, highlighted a lack of data consistency between internal systems, and a lack of consistency across country operations. So, clearly, data consistency and system integrations are areas that need to change, and partnership with external providers could help solve the issues without a significant investment of internal time and money.”

When it came to external challenges, inconsistent regulations across geographies ranked equally with the threat of money laundering – the latter weighing particularly on the minds of CIOs concerned about the consequences for the whole enterprise.

Two-thirds of all respondents planned to build the necessary payment tech in-house, while the same number said they’d buy it off the shelf and 65 per cent would outsource or utilise partnerships, which indicates that many firms will make the decision to build, buy or partner on a case-by-case basis. As the white paper points out, a payments infrastructure provider with compliance systems already in place across multiple jurisdictions, and sophisticated fraud detection,  is a compelling proposition.

Fleshing out those findings, la Cour says: “In terms of payment technology, many of our respondents are planning to spread their budgets across a number of platforms, not just utilising one resource. Banks are most likely to buy off-the-shelf, that was around 71 per cent; PSPs and fintechs are most likely to build solutions in-house, that was true for somewhere around 70 per cent.”

All respondents agreed that the area that will see the most new funding, compared to pre-COVID levels, is API technology, with 44 per cent planning more investment, which the report’s authors interpreted as ‘a desire for better integration/usability to improve experience’.

The good news – if you’re a glass-half-full kind of observer – is that 56 per cent of all respondents said that at least half of their IT and payment systems are already in the Cloud. On closer inspection, Banking Circle found – perhaps to even its surprise – that banks were ahead of fintechs in that regard. Sixty per cent of banks said at least half of their payment systems were Cloud-based, compared to 52 per cent of fintechs. None of the fintechs questioned had a 100 per cent Cloud-based payments system.

As la Cour knows only too well, such infrastructure investments are hugely costly and complex, which makes working with a Cloud-based partner that has already done the heavy tech lifting, an efficient way to future-proof the business without weighing down the balance sheet. There is another issue that points to the logic of partnering.

“All of the fintech respondents confirmed that they have skills gaps in their organisations,” says la Cour. “The most common was in Cloud skills, which was a problem even for 60 per cent of fintechs, followed by AI and machine learning, at around 53 per cent. Thirty-four per cent of banks lack skills in programming, compared with 27 per cent of fintechs. And when we asked which skills the organisations felt were most crucial, banks and fintechs agreed on data warehousing, followed by technology management and architecture.”

As analysts at Gartner pointed out at the beginning of this year: “The culture of digital ‘haves and have-nots’ in finance will deepen if finance leaders don’t address digital finance skill gaps. It will also make it harder to capture returns on digital investments. But even when finance leaders are committed to improvements, it can be challenging to identify and install the specific digital finance skills and competencies needed.”

Partners, on the other hand, tend to be a cauldron for such talents, with staff exposed to a wider range of experiences across client organisations, bring mutual benefits. While, historically, the CTO reports to the CIO, many clearly hold very different opinions to the boss, which was most obvious when it came to the part of the survey that asked about investment and the decision to buy or build – important, perhaps, for a prospective supplier/partner to know.

For the CTO, the white paper said, the most common driver for investment is ‘offering a superior customer experience’, at 37 per cent, while for CIOs it’s ‘overcoming resource limitations’ at 33 per cent’, which researchers suggested was reflective of CTOs’ typically more outward-looking roles. Interestingly, the second most selected internal challenge by CTOs, after a lack of integration between customer-facing departments, was a lack of C-suite support for the role (46 per cent), ‘revealing that their peers have differing focusses and CTOs have their work cut out to convince them for more backing’.

There was another important divergence of opinion when it came to outsourcing, where CTOs were noticeably less willing (58 per cent) than CIOs (71 per cent) to work with a third party, indicating a potentially uncomfortable conflict for anyone caught in the middle. CTOs, the paper observed, would rather build in-house, ‘perhaps in order to build purely bespoke for themselves and customers or keep perceived third-party costs down. CIOs see it differently, understanding the huge time and investment required to get in-house infrastructure built and operational’.

There was, however, more agreement when asked what their priorities were for the next year, the most common high priority being improving data quality (43.7 per cent), closely followed by improving the customer experience (43 per cent) and migrating to digital delivery of services (42.2 per cent); CTOs, in particular, seeing ‘keeping customers happy’ as crucial to remaining competitive, the white paper said.

Given the demands of the jobs, it’s not surprising that just over half of all CIOs and CTOs admitted to feeling stressed – those employed by organisations with a turnover of between £1million and £50million noticeably more so than those toiling in small companies or £100million-plus corporates. Diamonds are made under incredible pressure, but, given there are payment technology firms that can help, would you rather sparkle… or sleep?

This article was published in The Paytech Magazine, Page 16-17