What are the biggest challenges facing the payment sector, and the largest ones Temenos is addressing?
There are four categories people are trying to address, the first being regulation. That is one of the big factors that is driving change, and challenging organisations to keep up with the latest regulations. It is not just about payment standards, but it is also connected to things like tax reporting, and the different standards in different countries, and compliance reports. The second is optimisation — better straight-through processing (STP) ensuring that your organisation is efficient, including around data management, validation, and enrichment.
Thirdly, the very big thing is protection related to cyber threats, but also your own operational resilience, and how you manage that. This is connected to new technologies, and how we are all moving to the cloud, and leveraging that. The fourth one, innovation, is the big driver. People are looking at innovations in the payment space because it accelerates growth. Examples of this include real-time payments, APIs, and AI.
Obviously the big one we are talking about now is stablecoins – the effect of that on the payment rails, and how if you talk about crypto, there are almost two different payment markets — crypto, and the standard fiat. How do we start to merge these things together, and how do we start to cross-asset across both of those?
How is Temenos adapting its payment strategy to stay agile in a fast changing landscape?
Obviously the most important thing is a better return on investment, and a better total cost of ownership for our customers. And in the payment space – it is not just the payment space, but the product servicing space – that efficiency is driven by seamless integration between various functions. We have seen a big opportunity in the market for integrated seamless accounts, and payment servicing, especially with the number of regulatory changes that are happening, the new clearings that everyone is trying to keep up with.
It is also about low latency. As volumes are going up, payment volumes around the world are growing at about seven per cent per annum, and in the cross border space, it is even higher. It can be up to 17 per cent in some years. With that growth comes pressure on systems for scalability, efficiency, STP, but also how you service the customer.
One of the key things that we all want to see is customer centricity. One size does not fit all, if you are servicing a certain asset servicing group, retail customers, or a small to medium-sized enterprise (SME). They are all looking for different things, and so what you need is a platform that allows you to create products that are targeted, and segmented at those target spaces.
That is one of the key things that we build into our products, the ability for the organisation to configure customer-centric products, and then manage those, in other words, monitoring them through service level agreements (SLAs) that you have committed to your customer on. Those are some of the key aspects where we believe that we differentiate both in terms of efficiency and actually better customer services.
How will T+1 affect the payment space?
It absolutely does affect the payment space, because we are never going to deliver within T+1 unless we have the correct information, the right destinations, and the compliance checks that are coming in now. Across Europe, we see verification of the payee. In the UK, it is confirmation of payee.
We see more and more of those services being introduced around the world, so it is incumbent on the organisation to be able to do that work in the time frames to deliver against T+1. But payments are just one element and only one part of the chain.
I use the phrase, “it takes a village to raise a payment”. That village is like all the other systems, whether it is reference data, or legal entity identifiers which are a huge part of how we automate things, and we need to ensure that is in the information, with all of those things being required for T+1.
Where do digital assets fit in with Temenos’ payment solutions?
In the digital asset space, we have a number of partners that help to plug in gaps where we do not have components for that, managing some of the digital assets in the payment space. It is obviously to be able to rail on and rail off stablecoin and crypto, but also those networks that are based on blockchain, and distributed ledger technology (DLT).
So we have those components to enable our customers to quickly integrate. We have one example, an Electronic Money Institution (EMI) customer, FINCI in Lithuania. They were up and running in four months from signing. They were processing their first transaction. They onboarded things like Ripple in four weeks, because they have all the components of the building blocks, the tooling from our platform to be able to do this.
One of the things we are trying to do is enable our customers to consume and manage digital assets. Also think about digital wallets.
Historically, we have talked about accounts, but ultimately we see it moving towards digital wallets, where people can have more than just their specific currencies, they are also going to have digital assets within that wallet. We do recognise that the idea of an account is expanding, and needs to contain more.
And also what we have to do as a platform is enable our financial institutions to engage with all of these changes, because there are just so many of them now — every day someone seems to be coming out with a new stablecoin.
This week, Swift has announced that they are going to start to offer that kind of service to enable the market to do that. We are going to look to build our integration with that service so that any of our customers can connect to that.
What are you working on at the moment that you can share with the industry?
Temenos launched a new product called the Money Movement and Management platform at Sibos.
That is really taking the core essence of what people need when they’re looking at doing payments-led business.
As we move more to real time, one of the things is low latency between account and payment servicing.
Another thing is the flexibility in your account servicing to manage your multicurrency in Vostro, your virtual account management, which is a huge part of what people are looking for.
One of the things that we have done is to talk about AI and how we are using AI models with our Money Movement and Management platform that elevate the processing to reduce fraud and reduce the false positives.
We have one customer that has implemented the models we have created, and it has been passed by the regulator.
The other thing to consider is while AI can be great, it has to pass the regulator. It has to be transparent, explainable, and secure.
One Tier 1 European bank has implemented Temenos FCM AI Agent and had it signed off by the regulator in the market, and that has helped them to reduce false positives.
The industry average is around six percent and it is down to below two percent. That is a huge saving for any organisation. We are also putting AI in for things like payment repair to come up with new rules. We also have it in the co-pilot within the inquiries that the users within the financial institution can use to get better access, quicker access to data, using natural language to be able to get their information with AI infused.
I use the metaphor that we are baking a cake as our solution. If you think about a fruit cake, and you slice a fruit cake, those pieces of fruit in that — that is AI.
We’re infusing our cake with fruit, and that is the AI elements within the cake that improve the taste, that enhance the cake.
So if we are talking about one thing that we are doing on top of all those other things, it is leveraging AI and working with partners like Microsoft and Nvidia to learn from them as well, because they are key leaders in the space, and then bringing in our business acumen, and our technology acumen to create better products for our customers.
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