" class="no-js "lang="en-US"> Exclusive: 'P is for payments' - Paula da Silva, SEB in "The Fintech Magazine" - Fintech Finance
Friday, January 27, 2023
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Exclusive: ‘P is for payments’ – Paula da Silva, SEB in “The Fintech Magazine”

Next year, the Nordic countries will introduce a new, crossborder payments system that replaces domestic clearing houses. Driven by the region’s six big banks, it’s an example of how they can build trust and deliver superior customer service, says SEB’s Head of Transaction Services, Paula da Silva

Frantically digging around in  your wallet to find a bank card will one day be a thing of the past. Future generations will instead ‘consciously agree’ to pay, even if they don’t physically authorise  a transaction, with payments embedded in everything we do – particularly when it comes to the more mundane tasks. 

Want to buy a movie, as you do every time you turn on Apple TV? Your system will recognise that and pay for it accordingly. Run out of groceries? Your smart fridge will put an order through for you automatically, just as it did last week.

A pipe dream for now, but perhaps not for as long as we think. Payments are becoming increasingly frictionless and real time – particularly in the Nordics, where countries have long led the way in cashless transactions.

“The banking industry cannot be the hindrance to the Internet of Things being adopted,” observes Paula da Silva, head  of transaction services at Sweden’s SEB, which is also the Nordics’ leading corporate bank. She’s seen the bank transform  its payment services almost beyond recognition as society and technology have evolved over the past 30 years, and she is only too aware of the commercial incentive and systemic importance of incumbent banks in the payment space. Right now, she’s in a position to make sure they are doing the right thing.

SEB is one of six of the region’s banks that have joined forces on the P27 initiative the first, bank-owned pan-Nordic payment infrastructure for Nordic currencies and the euro. The name derives from its ambition to facilitate payments for the Nordics’ 27 million inhabitants.

Da Silva is currently chair of P27, although she makes it clear that it will ‘eventually have an independent chairman, according to the rules and regulations of the shareholders’ agreement’. Meanwhile, she has been facilitating the set-up of the company, a task she has clearly relished, precisely because it facilitates the seamless data journey and circle of trust that she believes banks have the ability – indeed the necessity – to build.

Along with Sweden’s Handelsbanken and Swedbank, Finland’s Nordea and OP Financial Group and Denmark’s Danske Bank, SEB is helping to create not just Europe’s, but the world’s, first crossborder payments platform in multiple currencies. P27 is due to go live by the end of 2021. 

Its major, immediate impact will be to give individuals and corporates the ability to make payments across accounts in the Nordics in real time, explains da Silva. But in order to achieve this goal, there will need to be trusted mechanisms put in place to replace the traditional correspondent banking routes – and that means a great deal of upheaval for the banks involved, not least in the way they manage data.

“Today, you have an account with us, we have an account with the correspondent bank, that bank has an account with the customer,” explains da Silva of the current procedure for sending, for example, Swedish krona to Norway or euros from Finland (the only country in the Nordics to adopt the euro) to Denmark. Trust in the correspondent banking system is implicit.

The secret to crossborder, real-time payments of the future will be having what she calls a ‘closed circuit’ of trustworthy partners, with systems such as P27 in place to ensure the parties are who they say they are from the outset.

“You can create mechanisms that ensure whoever is in that closed circuit is a trustworthy party, and then you can let the money go,” she says.

She cites Sweden’s peer-to-peer payment system Swish, which enables both consumers and corporates to make quick payments by smartphone, as a good domestic example of how such a platform can work.

“That can definitely be extrapolated between countries. You need to use the same mechanisms of trust,” she says.

That theme of trust is central to payments, whatever the context, and comes up time and again in da Silva’s analysis of the banks’ role in modern payment mechanisms. It’s important that we trust that the contract between the buyer and the supplier has been set up correctly, and trust is embedded in the way banks use data analytics to sort routine automatic payments from those that need flagging to us.

“Most of your life – 90 per cent or more – you do the same things over and over again,” says da Silva. “We don’t need to alert you every time you pay  rent, for example, but what if we see a really high bill from a restaurant that you’ve never been to before?

“We don’t need to inform you every time you make a payment because, most of the time, you have chosen to do so yourself. That’s where data comes in. We can use it to predict your behaviours and when those behaviours are out of the ordinary, whether you are a company or a private individual, and we inform you about it, as a customer you take trust from that. You know we are watching over you. That’s what we are trying to achieve.”

To get to that point, however, requires data handling in the back office to be radically different from how it used to be segregated between departments for their own discrete use. One of the biggest lessons da Silva has learned over the years is the importance of ‘getting your house in order in the back to be really good at what you do at the front’.

“When you look at the end-to-end customer process, you understand that the back office is really the cumbersome part, but also the one that will make a bigger impact,” she says.

There have, of course, already been many significant changes in back office processes. Da Silva harks back to her early days with the bank, taking payment orders and sending them by post.

“When a customer asked ‘where is my payment?’, it was difficult to answer. But often they accepted that it took two weeks for it to reach whatever country and enter their account. That was OK but now they want it like this,” da Silva adds, snapping her fingers. “It’s pretty different.”

The impact that is having on the back office is seismic. And the most important thing banks can do in response – in fact the thing they have to do if advances such as P27 are to be successful – is remove departmental ringfencing of information. Da Silva believes banks now need to create a new role to manage this.

“We don’t have this kind of role in banking’s DNA; we have credit people, front office staff and so forth,” she says.

Citing the example of payments data, da Silva explains: “If you’re using that in the markets area, or in the financing area, you cannot go and alter it. It needs to be static so that it’s predictable; so, field 12 needs to include exactly the same thing. To make sure that happens, you have to have people that are responsible for driving that data across the bank.

“It’s a big undertaking but very important – for the industry, the bank and the customer – so that we have a predictability in what they use from us and know how we can best serve them.”

Streamlining back-end data processes comes with other benefits – notably in compliance. While the changes may be painful during the transition, the uniform presentation of data that systems such as P27’s platform will require, for example, matches up with what many regulators are looking for and makes the whole job of reporting easier.

“The good thing about what is required from regulators, right now, is that we need to do the same exact work for our customer offering. So, when we have the structured data with which to report to the authorities, we have the same structured data to be able to predict our customers’ needs.”

P27, when it arrives, will be a triumph of co-operation between big banks that have done things their own way for a long, long time. The utility of the idea is clear: “Instead of having domestic clearing systems, we will have Nordic ones across the countries and currencies up here. And that, of course, means we won’t have to invest – all of us, in four different countries – in goodness knows how many systems,” says da Silva. “It’s a way of getting together and using our combined investment strength to make sure we have something that is good for the community.”

It’s an historic change she’s helping to steer. “Yes, something to tell the grandchildren,” says da Silva. And then she pauses. “Only, of course, they won’t know what a payment is, because by then it’s all going to be embedded!”


 

This article was published in The Fintech Magazine: Issue #18, Page 68-69

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