Payments Q&A with Dave Smith

Meet Dave Smith, Payments Specialist with Lusis Payments’ European team.

Q: Let’s kick off with a direct question - the payments, and more broadly the financial sector, is facing a myriad of challenges, would you say you’re optimistic about what the future holds?

Dave: Definitely. I’ve been in the financial sector for a long time, and I’ve seen waves of economic, social and technology events that all threaten to completely rock the sector.

But this is an incredibly resilient industry - one of the pioneers of technology in business. We’re at our best when we’re putting customers first, developing products that help them in their lives, and enabling the global economy to function - payments are central to that. That makes me very optimistic about the future of payments - powered by technology.

At the end of the day, payments are at the heart of the way we live, and that makes them central to an organisation’s reputation. 

Q: You say that payments are at the heart of the way we live, do you think banks recognise that enough as they look for new revenues and business models?

Dave: There can be a mindset within banks that see payments as a commodity or utility. I think that’s a big mistake, because if you take payments away then the rest of the banking infrastructure loses a sense of purpose. 

Banks can sometimes see it more as a chore that the central bank makes them handle than what it really is - a direct connection to the customer. 

That’s when they run the risk out trying to outsource it to another institution. Big mistake. Consumers want banks to handle payments. It’s one of the most trusted aspects of banking - that you help me move my money, pay my mortgage, get cash out or buy goods and services.

The trick is to turn that into an effective business model, which, with the right infrastructure, is very achievable for almost every financial services institution out there today. 

Q: What challenges do you see banks facing in terms of their business models? 

Dave: There was a massive acceleration pre-pandemic of online only banking - not just the challengers we see in the UK and Europe, but also traditional banks who would offer you an extra half a percent of interest in order to bank online and not use a branch. So managing a physical footprint is certainly on the list. 

On top of that, you have a new generation of consumers who will live very differently than those before. More subscription services and less ownership, more renting homes and less buying. That has a knock on effect for the range of other financial services products banks typically facilitate - from mortgages to insurance.

There has been a continued depression of interest rates which means the classic business model of banks taking and lending money is more difficult than before. On the other hand, transaction volumes have gone up hugely in the pandemic. However, banks haven’t necessarily been the quickest to respond with new products and services (and I include challengers in that too to a certain extent), in part because of regulation but also because they didn’t have the right infrastructure in place to move rapidly.

Q: What role do you think regulators do, and should, play in the development of payments going forwards?

Dave: Regulations can create opportunity for the financial services sector, often in how they govern consumer service levels. Faster Payments is a great example of that - people want to get their money instantly (and in a 24/7 world why would they not!) and so it helps focus technology and innovation on meeting those wants and needs. 

Q: What’s the big infrastructure challenge that’s holding banks back from seizing these opportunities?

Dave: At the end of the day, too many financial institutions are using technology that is seriously outdated, and wasn’t built for the range of scenarios that we see now. 

Challenger banks that only came onto the market a few years ago are already rebuilding their infrastructure, so it makes no sense that you’d have a big name bank that’s using technology someone purchased in the 70s or 80s to run significant parts of their systems. 

The name of the game is flexibility. You need to put infrastructure in place that can survive any unknown scenario. No one in banking predicted the challenges that 2020 would bring - but too often they only build technology that copes with the scenarios they know about. 

Banks need a new approach - they need to build for uncertainty, for flexibility and for an unknown future. Then you get resilience. Whether they rip and replace, or  take a bit-by-bit approach, is completely down to their needs, but something needs to change. Quickly.

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Q: How do you see emerging technologies like AI and blockchain help banks thrive in the future? 
Dave: Certainly these technologies are creating a huge amount of noise in the financial space, and wider society too.
We’re seeing lots of proof-of-concept projects at the moment. The next stage for banks is understanding what value and return on investment looks like at this stage of their innovation journey and how they identify the right place for them in their bank’s tech stack. 

Each bank, FinTech and service provider will have a different answer. 
For me, there’s a big role for AI in combating fraud - that’s one of the areas I find most exciting.

Fraud is now becoming so clever, so sophisticated. And the pandemic has exacerbated that dramatically, because there are just so many new ways and so many new people to attack and new means of doing so. Deploying technologies like AI in this battle is essential, because the attackers are using technology to scale their attacks to unprecedented levels. AI can recognise the patterns that humans wouldn’t pick up on and flag them quickly.

Q: What would your main piece of advice be to someone tasked with preparing their financial services institution’s payments infrastructure for the next decade of challenges?

Dave: Don't delay change, because the longer you leave it, the harder it's going to become.

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Find out more about why payments are still crucial to the financial services business model and how failure to adapt became the biggest infrastructure risk facing payments businesses, in our new whitepaper - Preparing your payments infrastructure for the next decade: a guide for financial services institutions.