EXCLUSIVE: ‘The third-party piece’ – Eric Bayle, Société Générale, in ‘The Fintech Magazine’
Eric Bayle, Head of Global Transaction Banking at Société Générale, says banks must embrace tech to better serve their customers
Not so many moons ago, the world’s major banks enjoyed a cosy monopoly on payments, content to rely on what now seem archaic practices, like performing daily, or even weekly, batch payments between themselves.
The result was a cumbersome process, with complicated transactions – crossborder payments in particular – frequently bedevilled by blocks in legacy systems that had been built in-house and allowed little visibility of what was happening to them.
Not anymore. The tsunamis of digital technology and regulatory changes in the payments sector, have combined to increase customers’ demands to a point hither to considered to be impossible: instant and frictionless, end-to-end transactions from one account to another, worldwide.
One game-changer along that road has been the introduction of SWIFT gpi by the Europe-based Society for Worldwide Interbank Financial Telecommunication, the dominant force in the larger payments network, which counts most of the world’s major banks among its members, and which now provides real-time tracking of transactions through its upgraded messaging system. Société Générale was one of the first big banks to convert to gpi.
Another milestone is the phased introduction of ISO 20022, a new open and universal messaging standard for data-driven payments, which, by the middle of this decade, will allow for much greater interoperability between banks and other payment service providers (PSPs).
A third, significant contributor is the emergence of fierce competition in the form of a new breed of PSPs, while the likes of card giants Visa, Mastercard and other standalone tech firms and consortia develop their own alternative digital infrastructures. Added to that already-boiling cauldron is open banking, which has led to ever-increasing collaboration within global financial services.
Eric Bayle, head of global transaction banking at Société Générale, believes banks need to make the most of all these unprecedented developments to improve their services before others leapfrog them.
“Yes, there are legacy systems across all banks, IT that they need to update, upgrade or adapt, but that can be done with the help of specialist third-party providers, and by plugging in new applications. The payment experience will evolve to become much more real-time, much more frictionless – as simple as Faster Payments in the UK, but everywhere in the world,” he says.
“For the moment, at least, the competition for that is not so much between banks, it’s between banks and new entrants that are offering payment capabilities without the need to have a bank account. In Asia, for example – and in China in particular – there are plenty of web companies that are now offering payment services.”
Change, he says, is not only being driven by the industry, but by corporate customers’ expectations.
“Treasurers today want the same customer experience as the one they have as consumers when they use their banking apps,” says Bayle. “What they expect today is good user experience, trustability, security and predictability. To match these expectations, banks, but not only banks, also third-party providers, software vendors, PSPs in general, are going to rely on and leverage new technologies. It’s application programming interfaces (APIs), it’s artificial intelligence (AI), it’s machine learning, it’s blockchain, distributed ledger technology (DLT) and use of data.”
In a clear bid to try to hold on to its kingpin status in the payments landscape, SWIFT has recently started a two-year development programme to create a new digital platform that will use APIs and Cloud technology to provide a common set of processing services that banks have historically developed in-house, a move very much welcomed by Bayle.
“Every bank in the world has the obligation – and it’s not optional – to screen payments for sanctions and money laundering,” he says. “At the moment, banks are doing it individually, meaning that, when you send a payment, each bank along the chain is going to do the screening with its own tool and come up, perhaps, with the same alert many times, and each time it will be stopped, the alert is going to be cleared, and the payment will be released. That can lead to some delays, and we do see payments that are perfectly OK but are still blocked and delayed because banks are obliged to run these controls.
“SWIFT is aware of this topic and its sanctions screening programme is looking at how to remove frictions from the screening process, to drive instant and frictionless payments.”
KNOWING your LIMITS
Payment transaction data specialist, Accuity, recently announced plans to launch a single API combining account validation and fraud control – a first of its kind. Others will no doubt follow.
Bayle is convinced of the advantages of using third-party providers like these, both for their expertise and, vitally, because they, not the bank, are responsible for future modifications and upgrades to address vital issues such as compliance. Using APIs that have passed due diligence can literally be a case of plug-and-play.
“Banks realise now that they are not software companies,” Bayle says.
“Not long ago, they tended to develop everything in-house, so as not to rely on third parties. Now, they are opening up more and more to third-party software companies dedicated to producing specific applications for specific services that complement banks’ payments activity.
“When you use a third-party application, you’ll always benefit from the latest version first. For example, if you use a third-party payment module and new regulation comes in, you don’t need to modify your core banking system; the PSP will modify its core banking system to meet the regulation criteria, and the version fed back to you will be compliant.”
A good example of that in action is Société Générale’s partnership with fintech Intix, begun in 2019, to create a decade-long digital archive of the bank’s financial messages and transaction data. The system is expected to go live in 2021.
“A bank has an obligation to store its financial messaging. The minimum requirement with SWIFT is to keep it for 13 months, but I think it’s very important for any organisation to retain its data for much longer than that, for two reasons,” explains Bayle.
“The first is compliance. If you have a query about a payment from two, three, five years ago, you must be able to produce the information quickly. Then, if a customer, corporate or retail, has a query about a specific payment, you should be in a position to retrieve the data about that transaction quickly.
“We are going to use Intix for archiving financial messages, and instant access to transaction data. It will allow us, eventually, to store and retrieve 10 years of data, and what we’ve seen so far shows that it’s much faster and quite user-friendly. It’s used by our transaction processing teams, of course, when they process a payment, but also by all our middle office, when we have a customer or internal regulatory query.”
What are Bayle’s top three tips for any of his banking peers keen to keep ahead in this fast-changing landscape?
“The first thing is to stay tuned, and keep their ears to the ground for new initiatives that are coming,” he says.
“All this is really boiling and they need to be listening to what’s happening to choose the best solution.
“The second piece of advice is to define their strategy according to their customer base. Who do they want to target? They want to improve their customer experience, but for whom? For corporates? For large corporates? For mid-caps? For retail customers? For consumers? Who? Because who they are targeting will define their strategy.
“The third thing I would say is to always remember that they are not a software company. Their core role is to be a bank. So, leveraging on existing applications – exactly what we did with Intix – is sometimes the best possible way to serve your customers.”