Opening the London event, Stuart Foster, Managing Director Financial Institutions at NatWest, reflected on geopolitical and economic events of the past year: “While recent events have naturally been a distraction, it was good to see that there continues to be innovation and collaboration in turbulent times.” Foster also alluded to the exciting opportunities of incorporating AI into the business models of financial institutions, while emphasising that security in banking will always be a theme and will always have to complement innovation. Outlining NatWest’s priorities in payments – which include future-proofing innovations, experimenting in partnership with others, enhancing our suite of APIs, and supporting our customers’ digitisation journey – Foster concluded that it ought to be every company’s goal to build “a culture that champions innovation”.

This set the scene for Mark Brant, NatWest’s Chief Payments Officer, who welcomed not only the conference participants, most of whom were long-standing NatWest Commercial customers, but also keynote speaker David Pitt, CEO of Pay.UK, the operator and standards body for the UK’s interbank payment systems, whose role Brant characterised as “looking after critical national infrastructure”. 

David Pitt started his speech with a reminder of the staggering number of payments processed via Pay.UK’s infrastructure, and pointed out, payments must be robust and fit for future, and they need to be protected each and every day as they impact all businesses, all our lives, and ultimately the whole of the UK economy.

Key take aways from the Pay.UK CEO included:

• “Risk management is exciting, and we embrace it”: To mitigate the risk of fraud, collaboration across the ecosystem is crucial. And, staying ahead of fraudsters goes hand in hand with innovation: “Failing to invest and innovate is a significant risk.”
• The self-feeding mechanism: The safe use of data can help with building more resilient systems, which in turn enables further innovations. As the steady growth of payments comes with a steady growth of data, operators and regulators have more tools available to further enhance the robustness of the UK’s national payments system.  
• “The future belongs to those who see opportunities before others do”: While the UK payments landscape has seen remarkable change already with regards to growth, speed, and convenience, continuous innovation is essential to be fit for the future: “Responding to changes is not sufficient, our systems need to plan for tomorrow.”
• “The UK government’s Future of Payments Review (FOPR) will help to have a clear plan about the future payments system in the UK”: Pay.UK welcomes the FOPR’s key recommendation to develop a new national payments vision and strategy, which focuses on simpler, instant payments. Pay.UK has already developed new solutions, and it is now important to define and publish the new payments vision in a timely manner to ensure the UK maintains its leading position in payments around the world. 
• Pay.UK focuses its work on six priorities/principles: 1) Building the New Payments Architecture 2) Proactively helping to develop and use new standards such as ISO20022; 3) Delivering real-time capability 4) Lowering barriers to entry 5) Maintaining safe & secure systems 6) Innovating and driving efficiency.

Eleanor Hill, Editor for Treasury Management International (TMI), moderated the first panel of the conference, welcoming Paul Foster, Director, Global Payment Partnerships at GoCardless; Phillip Mind, Director, Digital Technology and Innovation at UK Finance, and Tamian Godfrey, Market Development Lead for NatWest Payit.

Looking at the 11 million payments made through Open Banking this year, the panellists agreed that “this is a fantastic achievement” but “there’s still a long way to go”, with Open Banking remaining a “burgeoning opportunity”. 

Other observations and viewpoints from the Open Banking specialists included:

• Bringing payments and data together could create unique benefits for consumers and businesses by potentially giving consumers access to better deals while solving long held business problems such as onboarding customers and validating their details – all of this could now happen much quicker thanks to the data Open Banking produces.       
• To boost Open Banking, three areas need to be addressed: 1) Tweaking current standards to create a journey that is familiar to consumers – at the moment, there is a lot of discrepancy between Open Banking providers which is not creating trust, 2) Removing friction that comes with high value payments, and 3) Confirmation of Open Banking payments needs to be quicker and more certain, to be similar to payments via cards. To tackle these challenges, the regulator and industry representatives need to collaborate.
• Open Banking has been a service that banks have been legally obliged to offer to third party providers. Hence, so far, there have been limited commercial incentives for banks as they bear the costs. Going forward, unless banks develop Open Banking products and services themselves, they will not see the benefits. However, Open Banking has reached an inflection point now where we can develop a commercial approach to Open Banking beyond the legal perimeter and create exciting products – with a huge opportunity for banks to leverage the trust of their customers and put them in control of their data through a wide range of new products to help them potentially manage their financial lives more effectively.
• Variable recurring payments (VRPs), are a good example of an innovative Open Banking product by banks. However, educating consumers about these new products is still an issue: When polled, 39% of the attendees at the conference hadn’t heard of VRPs.
• 2024 will be a big year for VRPs with the regulator choosing financial services, government, and utilities as low risk use cases in a pilot. Another use case will be charities who are very keen to enable their donors to set up VRPs.  
• NatWest sees VRPs as a foundation stone to move Open Banking from a niche alternative payment method to a more mainstream challenger.
• VRP challenges include: 1) need all retail banks to offer VRPs to ensure full adoption, 2) find a commercial model for the products that is attractive to banks and merchants, with the help of the regulator, 3) need a way for the ecosystem to contract with each other, for example, via a scheme, 4) we need some authority to manage that economic model as well as the development of standards and technical capabilities.
• To further evolve Open Banking next year and beyond, it needs: 1) greater standardisation on, for example, screen styles and messaging during Open Banking journeys; 2) immediate refunds, 3) strengthened consumer protection.
• Panellists’ advice for businesses on Open Banking: focus 50% of your effort on the technology and 50% on business readiness. And: “be curious and be collaborative”. 

Moderated by Doug Mackenzie, Chief Content Officer at Fintech Finance News, the second panel with Nick Perkins, Director, Fraud Prevention at NatWest, Simon Eacott, Head of Payments at NatWest, and Sumitha Fernandez Musoles, Payments Director at PwC, looked in more depth at the changing regulatory landscape for payments and its impact on consumers, banks, and corporates.

Insights shared by the panellists included:

• The (busy) roadmap of the future of payments includes 1) the global payments messaging standard ISO20022, 2) the Future of Payments Review and the impact of the new national payments vision and strategy, 3) the evolution of alternative payment methods, 4) financial inclusion, and 5) fraud prevention, with major regulation from the Payments Systems Regulator (PSR) on mandatory reimbursement of victims of Authorised Push Payment (APP) fraud coming into force in October 2024
• New regulation with the largest positive impact on consumers will likely be the PSR’s mandatory reimbursement requirement (see above) which will strengthen consumer protection and further increase the focus of banks on fraud prevention.
• Equally, new regulation with the largest positive impact on corporates will likely be the adoption of ISO20022, bringing with it many potential use cases for corporate treasurers:  

o    Improved reconciliation and self-serve mode

o    Transparency around international payments (‘Swift GPI’ track & trace for customers)

o    Visibility of liquidity held globally for Treasury linked to trade finance

o    Straight through, more instant processing of payments (standard format, enhanced data)

•  With fraudsters moving ever so quickly and becoming increasingly sophisticated (deep fakes being one example), customers do not know any longer whom and what they can trust. In addition, the evolution of frictionless/instant payments makes it even easier for fraudsters to move money around. While regulation plays a crucial role in the fight against fraud, the specialists warned that fraudsters will always move faster than regulation. Hence, the industry needs to collaborate more and faster to improve fraud prevention – utilising the power of data and data analytics to identify fraud. In this context, the panellists highlighted the responsibility that big tech firms carry with social media inspired scams. While the new Online Safety Act will help to some extent improve data security, much remains to address the fact that fraudsters often infiltrate the systems of tech firms first before they defraud banks. For this reason, the payments industry is pushing the regulator to enforce the same regulations on tech companies.  

The afternoon saw Mark Brant host a fireside chat with Andrew Ellis, CEO for NatWest Boxed and Noah Sharp, CEO of fintech company Vodeno. The pair reflected on the origins of Boxed, their partnership, and the ‘ideal customers’ for the cloud-native platform that helps UK brands, platforms and fintechs seamlessly offer their own branded financial services to their customers.

• While not a new trend, embedded finance – which includes products such as credit lending and cash back wallets – has really taken off in the past few years with better technology and providers enabling a seamless journey for customers, and with an increasing number of UK consumer brands realising that they need to offer embedded finance to make people buy their products.
• Offering embedded finance works best for consumer brands with:

a) a sizeable customer base,

b) high value products and/or high volume customers;

c) sufficient resources to invest in the offering,

d) a willingness to acknowledge the responsibility that comes with offering financial services products, and

e) a good digitisation foundation already in place.

•   Meanwhile, consumer brands are looking for providers who can offer a straightforward tech integration of embedded finance services as well as provide reliability and security on the finance side.

A recent podcast, hosted and owned by Fintech Futures, featured Andrew and Noah discussing Boxed and BAAS. Check-out the podcast for more.

NatWest’s Lee McNabb, Head of Payment Strategy and Research, delivered the closing panel alongside Nick Pedersen, Global Head of Digital at NatWest, Nicole Vandenberg, VISA’s Regional Crypto Lead, and Nick Kerrigan, Managing Director, Head of Innovation at SWIFT.

Looking at the future of digital assets (electronic files of data that can be owned and transferred by individuals, and used as a currency to make transactions, or as a way of storing intangible content) the specialists highlighted the following trends:

• ·The underlying technology of digital assets, the Distributed Ledger Technology (DLT) has huge potential for financial services with many new propositions now based on DLT. Citing examples for the tangible use of DLT, Nick Pedersen referred to carbon trading platform Carbonplace which was built using DLT.  Another use case is the issuance of digitised bonds, however, this “hasn’t rippled through” as might have been expected, but the digitisation of bonds will definitely gain momentum as the cost savings are significant.
• While digital assets fall into two groups - native digital assets such as Non-Fungible Tokens (NFTs), Central Bank Digital Currencies (CBDCs), and Bitcoin; and non-native, tokenised securities such as bonds and shares – it is the tokenisation of existing securities that is now the centre of attention: US$16 trillion of tokenised assets could be around by 2030 (according to Boston Consulting Group), which would represent 10% of the global GDP, with a total volume of securities which could be tokenised totalling 327 trillion. 
• Nick Kerrigan confirmed that the adoption of tokenised assets is ramping up, mentioning that about 60 initiatives have been launched amongst SWIFT clients, with average team sizes of 75 people, indicating that digital assets are becoming a priority.
• A challenge that arises is the interoperability of tokenised assets which have been and will be issued on different platforms.  
• While a tremendous amount of innovation has already happened in the payments world, Central Bank Digital Currencies (CBDCs) can now be the tool to help modernise the settlement process in the back, making it more efficient and more sustainable.
• Talking about Visa’s partnerships for CBDC pilots with the Central Banks of Brazil and Hong Kong, Nicole Vandenberg emphasised the need for “an enormous amount of collaboration across the whole money ecosystem” to get CBDCs right.
• In the context of CBDCs, Nick Kerrigan referred to the ground breaking transaction this month of the Swiss National Bank settling tokenised bonds against wholesale CBDC on a delivery-versus-payment (DvP) basis.
• While retail has often led innovations, the experts see CBDC as a wholesale offering for now. Hence, wholesale needs to lead the way before CBDCs can potentially enter the retail space. However, the experts also stressed the need for much more communication and education about digital assets to inform consumers, traditional banks, and the wider public.
• Pointing out how TFL was the real driver for mass use of contactless, the specialists agreed that the readiness for digital assets is there, but “we are still waiting for the tipping point”. Nicole Vandenberg commented: “Think of it as an evolution rather than a revolution.”

To understand more about the risks and opportunities digital assets could present to your business and how they could affect your financial strategy, please check out our Digital Assets Insights and overview videos.  

If you want to find out more about our “Future of Payments” conference and the topics discussed, please contact Nick Dale, Propositions & Customer Journeys at NatWest.