Balance is key
Economist Leo Cherne said, "The computer is incredibly fast, accurate, and stupid. Man is incredibly slow, inaccurate, and brilliant. The marriage of the two is a force beyond calculation."
Often misattributed to Einstein, the quote strikes a relevant chord in the world of technology today. It reflects the growing tide of collaboration across the financial services arena. Awareness of one’s strengths and weaknesses is a critical ingredient in the delivery of meaningful innovation and success today. Collaboration and interoperability are both required to enact change in a sustainable way.
At Earthport we focus on cross-border payments, specifically, the execution of payments for Tier 1 banks, MTOs, PSPs and, increasingly, large international eCommerce businesses. While improved technology is at the heart of our sector, having in many ways disrupted the incumbent players (retail banks, P2P remittance and FX companies) it is still wanting at a B2B level.
A survey taken by EuroFinance involving over 300 companies showed that over 90% of respondents were not using an alternative to their bank for cross-border payments*. The correspondent networks are expensive, lack transparency (though the SWIFT GPI initiative claims to be addressing this) and operate on a legacy system many decades old. Added to this, as a result of de-risking, the number of providers, the routes they serve and the categories of payments they will facilitate have all been shrinking as well. International payments would therefore seem to be an ideal place for technological advancement and disruption, right?
Well, the introduction of potential alternatives to SWIFT such as Ripple / R3 and a few others have made a lot of noise and may offer real and exciting alternatives, though very little actual transactional volume is sent via these rails today. There are a number of reasons for this, I believe, none of which is based on faults in the tech or a general resistance to change in the sector, rather that the focus on technology alone has resulted in other areas of the transaction journey being neglected.
"Collaboration and interoperability are both required to enact change in a sustainable way."
The sending of money is the equivalent to the sending of a message (the tech part); this has been the focal point. Increase the velocity of the message and the money transfer will inherently be quicker. While this is factually true, the message itself is only a small part of the total journey. McKinsey suggests that the real cost of a cross-border payment for a bank is on average between $25-$35, of which nearly 40% can be attributed to compliance, claims and treasury operations**. Risk, regulatory and compliance issues are increasingly a real barrier to international expansion for businesses with billions in fines issued each year for missteps.
In a global regulatory environment with very little consistency or common rule sets, detailed local knowledge is required to navigate the challenges this creates. Regulatory technology or ‘regtech’ is an interesting development over the past few years but focuses mainly on domestic requirements as the rule sets are clear and stable. We are able to automate some of the base requirements but there is a non-technical barrier to true progression here.
In the light of what at times seems to be complete and blind faith in technology’s ability to solve our problems, do we run the risk of ignoring real issues which, left unattended, will challenge the technological solutions’ effectiveness? I am a technologist, a firm believer in the use of technology to drive improvements in our lives. However, it seems I am constantly reminded that technology alone will not only fail to solve the entirety of the challenge, but may exaggerate or mask it, as it fails to address the most challenging 'manual' processes associated with payments, for which often require a human touch.
I have no doubt by improving technology and taking a holistic view (technical and non-technical) we will improve our environment greatly. But in doing so, we must ensure that our focus on technologically innovative solutions doesn’t blind us to the continued need for the personal interactions that make them effective. As in all things, balance is the key.
* The future of payments: a corporate treasury perspective – EuroFinance - 2017
** Global Payments 2016: Strong fundamentals despite uncertain times – McKinsey & Company 2016