Opportunities for innovations in
banking
Real Time Economy Innovations for Europe Conference, 9-10 April
Erkki Poutiainen
07/04/2015
Opportunities for innovations in banking
The art of innovation …
•  Innovation news often are about creating experience (=cosmetics).
•  Real value is created by connecting system islands and creating reach!
•  This can only be reached through collaboration!
•  Both layers need a direction created by common vision of what is really needed.
This session is about discussing this common vision.
•  And this creates the foundation to offering cosmetics!
2•
• 07/04/2015
Tricky questions for real innovation
What is and ’end-to-end’ in real-time economy?
Where does the end begin and where does the other end?
Who is interested in the complete end-to-end functionality?
Do it within the family or build a global solution?
Maybe include and ask the user???
3•
• 07/04/2015
Transaction banking balancing dilemma
Revenue opportunities
Globalisation
Sosiografic changes
Technology, Digitalisation
and Mobility
Regulation
Mandatory cost
4•
Ohjelmistotalopäivä
• 27/01/2015
Payments:
Megatrends and key regulatory objectives
Market megatrends
relevant to payments
Globalisation
(EU) regulator’s policy objectives
•  Growth and Jobs
•  Overall efficiency
•  Internal market for citizens
•  eGovernment
Technology, Digitalisation
and Mobility
•  Global competitiveness
•  Innovation through open competition
•  Citizen’s access to basic services
Sosiografic changes
•  Consumer protection
•  Security & anti-crime
Daily transactions from bank perspective:
Payment regulation and connections to the services
PSD2
Strong
authentication
SecuRePay
Guidelines
SEPA
end-date
Transparency,
reporting
One leg out,
Other currencies
Bank
account
Debit/
credit card
E-& mpayments
Online
credentials
Credit
transfer
Direct debit
Payment processing
Interchange Fee
Regulation
TPP access to
bank account
Funds Transfer
Directive (FATF)
Basic
payment
account
•  Electronic administration and
orders
•  Payment card (incl. Internet
payments)
•  No credit, no limits
AMLD4
Payment
Account
Directive
(PAD)
NIS
Network and
information security
6
13/4/15
Short history of local innovation in banking Finland
Two examples of innovation initiatives – not yet done
•  Bank of Finland Payments Council
•  Payment proposal
•  European Central Bank
•  Pan European instant payment for euro
7•
• 07/04/2015
Short history of local innovation in banking Finland
Solo, etc..
• 
Electronic banking for consumers and corporates – widely in use in the 90’s
LMP, ULMP,
TS, …
• 
Standardization and digitalisation of the data process and contents
Maksuviite,
Creditor
reference
TITO
Finvoice
• 
• 
National standards for local and xb payment files incl. return messages
Matching accounts receivable automatically against incoming payments
• 
Need a reference code with standard check-digit to identify an invoice related to
payment
• 
Batch process for or x number of invoice payments and credit notes referred in a
file.
• 
As all data is already in the receiver’s systems, you only need a invoice identifier
and legally required information.
• 
Enables batch processing of account credits (efficient) and shorter account
statements (easier bookkeeping)!
• 
Standardized structured electronic account statement – further support for
automated bookkeeping/accounting
• 
To close the circle: standardized e-invoice and e-invoicing transport
schemes
8•
• 07/04/2015
BoF Payment Council initiative -> ’Payment proposal’
•  The Bank of Finland’s Payment Council mandated in 2014 a working group to
analyse future trends and current frictions in payments.
•  Without exproring the full content, the main conclusion was that there is plenty of
room to improve in the
•  user friendliness,
•  simplicity and
•  efficiency
of the complete payment chain.
•  One of the outcomes was a concept of ’payment proposal’ which provides
•  Standard structured digital messages
•  Suggestion for acceptable payment methods (m-pay, card, credit transfer, dd…)
•  Feasible for proximity and distant payment situations
•  Adaptable for P2P, B2C and B2B contexts
•  Supports automated processing of the transaction both at payer and payee ends.
•  Provides real-time experience
9•
• 07/04/2015
Payment proposal – digital and versatile
Ready to deliver!
The parties agree on a deal,
the value and the conditions
• Standard options to choose from,
data feeded from receivers
’catalogues’ and ledgers
Payee’s confirmation and a
proposal to pay (=’invoice’)
Automated match
• May include a ’hidden return address’
for payment confirmation in case of
delayed payment process.
The payer validates the
proposal, chooses an
acceptable method to pay
and clicks to pay
The payer’s PSP
executes the
(irrevocable) payment
• Right when the payer’s account has
been debited, the confirmation
message is sent to the ’hidden return
address’.
Clearing and
settlement
Amount
Ref code
Etc.
Payee’s PSP
Credits the receiver
account
10 •
• 07/04/2015
Real-time payment – what on Earth is going on?
…and where
is euroland?
11 •
• 07/04/2015
ECB initiative on instant payments for euro
•  The European Central Bank launched an initiative December 2015
•  Call for the supply side to collaborate and design a new infrastructure on three layers:
user access, clearing of payments and final settlement of funds.
•  Preferably one or several pan-European solutions with inter-operability
•  Asks for feasibility assessment from the industry by mid 2015
•  Builds on principles and achievements of SEPA
•  24/7 real-time irrevocable credit transfer in euro with pan-European reach
•  Instant confirmation, instant availability of funds.
•  Multi-channel availability
•  Current working initiatives (all eporting a milestone mid 2015)
•  Euro Retail Payment Board working group
•  European Payment Council working group
•  EBA Clearing RTP initiative – supported with expext task force
12 •
• 07/04/2015
•  Let’s talk!
13 •
• 07/04/2015
Tricky questions for real innovation
What is and ’end-to-end’ in real-time economy?
Where does the end begin and where does the other end?
Who is interested in the complete end-to-end functionality?
Do it within the family or build a global solution?
Maybe include and ask the user???
14 •
• 07/04/2015
Focus on the commercial transaction
To satisfy the complete commercial ecosystem? The stakeholders…
•  The consumer, the merchant, the supplier, the procurer, the distributor, the
wholesale, the sales agent…
•  And, and, and…
•  National, (regional) or global scope?
•  How does the service provider landscape look like?
•  What is their motive to think across the silos?
•  How to create win-win models?
•  How to motivate collaboration of stakeholders to
•  Create a common end-to-end picture and targets?
•  To work together to solve the areas fit for collaboration
•  Etc…
15 •
• 07/04/2015
Thank you!
[email protected]
SVP, Strategy manager
Wholesale Banking Strategy and Planning