EXCLUSIVE: ‘Where the smart money is’ – Roland Brandli, SmartStream in ‘The Paytech Magazine’

The ‘Fourth Industrial Revolution’ is at last well under way in payments and FS – but how, not if, companies choose to invest in digitising will define them, says SmartStream’s Roland Brandli

With almost half of UK financial institutions planning to extend their relationships with fintech firms in the next year – up from a third in 2020 – it is crystal clear that the drive to digital, particularly for payments, continues to accelerate at breakneck speed.

Furthermore, three-quarters of UK financial services chiefs say technology, automation and digital investment are the top strategic priorities in the year ahead, according to the sixth annual Lloyds Bank Financial Institutions Sentiment Survey. And the key reasons for this fintech investment are the ability to develop new products and services, followed by improving customer experience and then driving growth.

The poll revealed more firms expect to increase spending on their technology systems and core platforms over the next 12 months – (77 per cent) compared to last year (62 per cent) – with the aim of improving client experience (71 per cent), driving growth (60 per cent) and boosting productivity (59%). Firms also reported that their top technology investment priorities are the Cloud (83 per cent), APIs (77 per cent), and data science,  ncluding machine learning and artificial intelligence (69 per cent). More than a third (37 per cent) of companies are also prioritising investment in blockchain, up from 27 per cent in 2020, which suggests more institutions are considering the potential applications of emerging technology after pausing plans at the height of the COVID-19 pandemic. And the trend is not confined to the UK.

Investment in open banking technologies by European finance firms has recovered this year, after they held back on spending during 2020. In total, 47 per cent of the 300 organisations recently canvassed by open banking fintech Tink, said open banking budgets had increased in 2021. The recovery comes after a challenging year, which saw expected average budgets fall to €32milion from the projected €50-100million, as the pandemic wreaked havoc on economies globally. And Tink, which was bought out by Visa for €1.8billion in June 2021, found that investment in payment initiation technology topped the priority list for
72 per cent of executives at finance firms.

In the US, banking giant Bank of America (BoA) is ploughing $3.5billion a year into developing digital products and services, to such an extent that CEO Brian Moynihan now regards BoA to be a fintech rather than a legacy bank. For example, among the latest products in its digital payments suite is a business-to-consumer (B2C) solution called Pay to Card, which supports the growing need among corporates to pay consumers quickly and digitally, by depositing funds directly into an individual’s, or small business’, bank account.

Roland Brandli, a strategic product manager at SmartStream Technologies, which provides financial transaction management software to 70 of the world’s top 100 banks, is unsurprised by financial institutions’ appetite for digital investment, swept along as they are by the currents of fast-changing consumer habits and expectations, as well as technology advances, such as the introduction of the standardised payment messaging system ISO 20022.

“One area where there’s definitely huge change is digital payments,” says Brandli. “We all use contactless cards, we all use mobile wallets; everything is moving towards digital payments, behind which normally stand instruments like credit and debit cards. With everyone transitioning to digital, it brings a huge increase in [payments] volume.

“And it’s also a much more complex process than the customer sees. From the bank’s perspective, it’s problematic as they must first have control over the card usage, check the customer is authorised, what limits they have, etc, and then they also have to handle bank-to-bank payments.

“Then, there are instant payments, which we’re slowly getting used to on a national basis, that also need to be implemented on a cross-border basis – and being able to do payments in five or 10 minutes, changes everything again. As far as the technical aspects go, we’re moving to new standards. That’s where something like ISO 20022 comes into the game, which is a much larger dataset, and the systems that we currently have don’t really cater for that.”

SmartStream made a strategic decision to move to a streaming platform specifically so that it could be flexible enough to take full advantage of the avalanche of data ISO 20022 will bring, explains Brandli.

“There’s a saying that data is ‘the new gold’. ISO 20022 enables a lot more data to be exchanged between banks; where we previously maybe had 30 or 40 fields, you’re talking about 700 or 800 fields. Processing that is obviously going to be more challenging, but, at the same time, we’re getting a lot of ‘gold‘ with that data, we’re getting a lot more information that we can use in a wealth of different applications that we couldn’t previously, to streamline processes like anti-money laundering or know your customer, and feeding information to other bank systems.

“That’s something that, at SmartStream, we’re really very strongly focussing on and why we also moved to a streaming platform, which brings with it all the benefits of having APIs, being event-based. And, because we do the reconciliation, we have the best quality of data to distribute throughout a bank. The main benefit is that, in a database, data does nothing, it’s passive; it always waits for someone to come and ask it to do something. In a streaming platform, the opposite is true: data is active, it drives the process, so that opens up a wealth of other applications that previously could not be realised, as well as enabling true real time.”

Of course, speeding up the payments process also increases the risk for financial institutions, which is why Brandli is convinced that the introduction of ISO 20022 will see more and more of them buying in solutions from firms like SmartStream – a view that is supported by the Lloyds Bank findings.

BALANCE OF POWER

For its part, SmartStream’s Cloud-native, AI-powered data reconciliation tool, SmartStream Air, enables the process of identification, prioritisation, allocation and audit to be further simplified, and it boasts being able to match  any data, for any reason, in an instant. Brandli says use of such tools will be vital for banks, as customer expectations of lightning-fast payments bring with them intense competition in a fundamentally changed payments landscape. Elaborating, he says: “Speed is of the essence, so the systems have to change for that, and then, again, for the breadth of data. You only have to put yourself in that position: you’re used to a payment taking five minutes, and suddenly it doesn’t go through, so you call the bank, and they say ‘we’ll fix it’, but it takes them five days. What is your impression of that bank as a customer?

“That’s where the competition comes. And that competition will be fought out at different levels, in future. If the banks don’t manage to get it right, the fintechs will jump in because fintechs think differently. Fintechs are always looking to answer the question ‘what customer demand can I fulfil?’.

So, while banks might just be the backbone for a fintech, we know who holds the power; the person who holds the customer.“It’s a fundamental change in the landscape and we will see which players adapt in what ways, and how successful their strategies are.

“In any case, SmartStream delivers the tools to help them dig for gold. We make sure that their operational practices are up-to-date, reflect best practice and are compliant, and really help enable them to get to that real-time journey, with security and knowing that their data is right.”

Another fundamental change for financial institutions will be their increasing use of Cloud-based technology like that provided by SmartStream, which Brandli describes as a game-changer.

“As with every new technology, at the beginning people are very careful about adoption, especially with Cloud, because it feels like they’re giving their operation, or their data, to a third party and that worries a lot of people,” he acknowledges. “But,” he adds, “ultimately, it is a game-changer because, with the power of Cloud, organisations can adapt much more, scale much better, and much more cost-efficiently. It also gives them so much more flexibility.

“As an example, during the COVID crisis, because we were already on Cloud and not using our own datacentre, SmartStream managed, within a week, to move 1,000 people to working from home. That was a great advantage.

“And Cloud has a lot more to offer. Greater scalability for one thing, more than businesses can maintain in their own datacentres, and it’s cheaper because they only use the resources when they need them, whereas, in a datacentre, they have to maintain those resources even while they’re lying redundant. But I think one of the greatest opportunities around the Cloud is security,” continues Brandli. “We all want our data to be held carefully, where it can’t be accessed. We all struggle with security; it’s become the most important thing to any organisation and consumer. The Cloud offers benefits that no bank on its own could carry; the big Cloud vendors like Amazon, Azure and Google spend billions every year, just on security.”

BLENDING OLD AND NEW

With digital payments volumes growing exponentially, and with that rise further supercharged by the COVID-19 pandemic, customers are now also expecting more from their banks, particularly with the market disruption caused by the emergence of digital-only challengers. Again, Brandli believes Cloud technologies can be harnessed by legacy players to help them compete, with the tools offered by SmartStream at the forefront of that.

“We have the experience, having built software for the last 20, 30 years, to know the pitfalls and the requirements,” he says. “At the same time, we’re investing a huge amount of money into products like SmartStream AIR, which is a 100-per-cent Cloud, 100-per-cent AI-driven technology, and, again, a game-changer. But we’re also taking our clients with us on that journey, because we have other products, including legacy ones.

“The difference with a company like SmartStream, is that we don’t say ‘here’s a shiny new box – throw everything away that you had’. Instead, we transition businesses. We take all their existing data, that existing work, and configurations, that they’ve invested a lot of money in, and bring that into a brand new technology stack. That’s something that is really important, in terms of our pedigree.

“We know there are a lot of efficiency gains we can make, but we’re also very careful. For example, when we formed our innovation labs for AI technology, our brief was to only build AI where there was a proven return on investment – because companies were making requests like ‘we’d love an AI application to do this, or that’, but it might only have saved them two or three days of work a year. That doesn’t make sense. What they need is AI that actually helps them to mitigate problems and issues.

“One of the most interesting things we see AI helping with, apart from reducing manual work, is learning from user interaction. For chief operating officers, it’s great to see something using less manual touchpoints but what they’re really interested in is how to make their businesses sustainable. What happens when someone who’s doing a lot of manual work goes on holiday, gets ill, or, post-COVID, changes job? The business loses all that skillset.

“To have AI that learns from what a worker is doing, creates a concept of being able to build a sustainable business, so that, should they be ill, there is no loss of efficiency … that’s a completely different way of looking at things, and I think that’s where those technologies will help us. Lots of people worry about AI replacing their jobs. I don’t think that’ll happen. What it will do, though, is enable them to focus on the things that really need brainpower, that really bring value. And, let’s face it, everybody wants to feel valuable in their workplace and not just do manual jobs that anybody can do.”

It’s that increasingly sophisticated use of AI that will play a key part in what Brandli says is now a period of unprecedented change in the finance industry.

“Whereas, before, we all talked about the Fourth Industrial Revolution and AI changing the world, nobody was actually seeing it happen. Now, we’re in that phase where it’s going to,” he says. “And that’s going to make it really exciting, partially because you have a double challenge. It’s not just the challenge of inventing something shiny and new; it’s about also making sure that you can maintain the existing business models, and improve them.”

This article was published in The Paytech Magazine #10, Page 4-6