In response, many Asian governments – most notably those of Singapore and Hong Kong – have launched well-received initiatives to encourage collaboration rather than competition between the fintech start-ups and banks. This has enabled banks to tap into the innovative solutions that fintechs offer, while the banks themselves bring to the table their considerable experience with data, resilience, reliability and customer protection.
This is in line with global business trends towards openness – which is characterised by business models and strategies that are non-restrictive, leverage partnerships to drive growth, as well as encourage transparency – but is a significant change for the financial industry which many see as being defined by closed standards and restricted access.
One of the biggest movements enabling this move towards openness is the use of open APIs (application program interface), which allow banks to integrate the services and capabilities offered by fintech start-ups into their own platform.
PORTFOLIO interviews Leslie Choo, GM & Vice-President of Asia, ACI Worldwide, a leading global provider of real-time electronic payment and banking solutions. Based in Singapore, Leslie is responsible for the management and direction of all aspects of the sales and services business in Asia.
Let’s begin with an assessment of how far we have gone from the old system where payments are concerned – have we seen tremendous innovation?
LESLIE CHOO: Despite having served as the foundation of all economic activity throughout human history, the concept of payments (whether for goods or services) has been relatively slow to change over the last few thousand years. After the evolution from barter trade to the use of currency, there was little further change until the 1950s when credit cards were first introduced.
And today, we have digital payment systems for nearly all transactions we can think of. At what point did it begin to change radically, and more importantly, what called for the change?
The need for digital payments was galvanized by the birth of eCommerce, when Amazon was launched in 1995 – its initial business being the sale of books online. PayPal then launched its digital money transfer services in 1999, which helped facilitate payments between buyers and sellers in online transactions.
Since then, the pace of innovation and change in the payments ecosystem has only accelerated, with payment revenues constituting 33 percent of global banking revenues in 2015. McKinsey has predicted that global payment revenues will increase at an average annual rate of 5 percent, exceeding US$2 trillion by 2019. There have been many major sources of disruption in the last few years, including, but not restricted to:
- the rise of alternative payment method providers
- the demand for, and rapid adoption of, faster payments
- the introduction of cryptocurrencies such as Bitcoin and Ethereum;
- the increased focus on positive end-user experiences and how payments fit into the grander scheme of the company’s business (e.g. Amazon One-Click, Apple Pay, Uber)
- the rising sophistication of fraud and the need to guard against it.
Fintech appears to be leading the way in global payments innovation. We see their input as being both radical and important – will it end that part of the business for traditnional banks?
While traditional banks continue to hold much sway in the payments industry with strong client bases as well as a wealth of experience in data management, resilience and reliability, fintech challengers are launching innovative services that can potentially match and exceed those of banks. Regulators are recognizing this, with sophisticated country regulators stepping in to support collaboration rather than competition.
Singapore, for example, has encouraged the use of open APIs, which allow different parties to ‘play well’ together and integrate services and solutions to create more well-rounded products that ultimately benefit consumers. With the diversity of payment options that now exist, companies need to ensure that their payment systems support consumers’ preferred modes of payment, rather than the other way around.
With the introduction of cards, the traditional payments landscape was organized, secure, and trusted, but the rise of new payment methods has highlighted that the landscape was also restrictive and inaccessible. Merchants and consumers alike are demanding more choice and flexibility, while technology firms and regulators are intensifying the disruption with new policies and standards. With the payments landscape becoming increasingly fragmented, new technologies and business models such as Open APIs and immediate payments will drive innovation in what we call the New Payments Ecosystem, which is fast, open, secure, and one that thrives on disruption.
Can you give us an idea of the size of the global payments sector, let’s say in terms of volume of transactions it typically handles? As a solutions provider, what is ACI’s participation in it?
ACI Worldwide enables electronic payments for more than 5,100 organizations globally. More than 1,000 of the largest financial institutions and intermediaries as well as thousands of global merchants use ACI’s solutions to execute US$14 trillion every day in payments and securities. Through a comprehensive suite of software and Software-as-a-service (SaaS)-based solutions, ACI delivers real-time, immediate payments capabilities and enable the industry’s most complete omni-channel payments experience, empowering merchants to create seamless shopper journeys across channels including brick-and-mortar, online and mobile.
In the ASEAN region, 15 of the top 20 banks use ACI software and solutions. ACI processes over 62 billion transactions annually in the region, and also helps to prevent online fraud for leading brands in the retail, telecommunications, travel and leisure verticals.
Despite the convenience and other obvious benefits, and despite the advanced technology that is in use, there is an ever-present concern over the safety of payment systems. Can you say that it is reasonably secure?
Security is one of the most critical aspects of modern payments systems. In ACI’s recent “Global Consumer Survey: Consumer Trust and Security Perceptions,” which drew data from more than 6,000 consumers across 20 countries including Singapore, only 36 percent of Singaporeans indicated that they trusted merchants to protect their personal data, with 65 percent saying that they would stop shopping with a given merchant if they experienced fraud or a data breach.
However, fraudsters are growing more sophisticated, and merchants need to make sure that they stay one step ahead of them at all times. In addition to this, the introduction of new innovations can result in many competitive advantages for businesses, but they also carry a degree of complexity and risk. This means that a business’s foundations must be reliable, available, and secure; only then can they shift to payment systems that are real-time, open and digital.
What are being done remain ahead of fraudsters?
Machine learning is one of the most exciting developments in this space that will help to beat fraudsters. This primarily refers to the use of algorithms to discover patterns in data and subsequently make predictions based on those insights. In the payments industry, historical transaction information from fraudulent activity can be combined with data from genuine customer transactions to develop predictive models that can assess the probability of transactions being fraudulent.
Machine learning algorithms enable the identification of patterns too complex for humans to notice, using vast data sets. Machine learning models can be fed data from multiple merchants within a sector, or customized for a specific segment, data strata, or merchant. Using algorithms to make automated decisions or to generate alerts for suspicious activity, the time needed for manual review can be slashed, false positives can be reduced, and most importantly, fraud attempts can be quickly shut down. However, data scientists, risk analysts and software engineering teams need to work in tandem to make sure that these algorithms and their rules engines stay updated and responsive to emerging fraud trends and business changes such as entry into new markets or channels.
Globalization and international trade have imposed important changes on payments. Name some of the more important ones, and cite how they have opened up opportunities for ACI Worldwide.
As I mentioned previously, the rise of eCommerce has been a critical impetus for the development of modern payment systems. Online shopping has allowed merchants to offer their products to a global consumer market, but consumers today expect to be able to make payments anytime, anywhere and through any channel. It is critical that merchants minimize any potential source of friction throughout the shoppers’ journey, in order to convert customer interest into actual sales. It is estimated that neglecting to optimize eCommerce conversion rates is costing merchants up to US$168 billion annually, with inflexible payments solutions being a major contributor.
ACI has an extensive global network of over 350 alternative payment methods and acquirers, across 160 countries, supporting over 25 languages and all currencies, meaning that merchants can expand easily and succeed anywhere in the world. The simplicity of ACI’s UP eCommerce payments solution, with underlying open API architecture, allows merchants to quickly and easily integrate a wide variety of payment options to a native app or website. Last but not least, ACI offers world-class integrated and country-specific fraud detection to help merchants achieve optimal conversion rates and the lowest chargeback rates, as well as the minimization of data breach risks.
Technology has caused major shifts in the payment ecosystem. Besides sustained reliance on technology – and the corollary improvements in technology that it implies, what else do you see in the horizon for global payment systems?
One of the biggest trends that is affecting a wide variety of industries worldwide, including the finance and payments industries, is the consumer desire for convenience. Technology is, generally speaking, of secondary interest to consumers. They want their experiences with their banks, or when paying bills, or when shopping online, to be convenient, fast, and worry-free. Merchants need to ensure that payments are completely secure while also disappearing into the background of transactions, resulting in a seamless experience for customers.