Track 1: Innovation in Digital Payments

Transcription:

Guru Sahajpal (00:08):

Please pay attention. We also have the distinctive honor of moderating the sessions for Track One for this afternoon. It is certainly my honor to be representing Cognizant as one of the sponsors that is hosting the Track one sessions. Let me introduce my distinguished colleagues here. To my right I have Sanjeev Jha from Truist. To his right, Allysun Fleming from Comerica. Sanjeev and Allysun, let's start by having you introduce yourselves to the room please.

Sanjeev Jha (00:54):

Hey, good afternoon everyone. Excited to be here. I work for Truist and I manage the foster payment engineering team, which includes real-time payments, Zelle, RTP, fed Now et cetera.

Guru Sahajpal (01:07):

Thanks.

Allysun Fleming (01:09):

And Allysun Fleming, I lead the payments organization at Comerica Bank, which includes all types of payments from consumer wealth to our commercial payments, product ops, risk, et cetera.

Guru Sahajpal (01:22):

Thank you. Allysun. My name is Guru Sahajpal, as I said already. I'm with Cognizant. I'm the industry lead for our financial services and FinTech business unit. And I again want to welcome all of you for joining our session. Allysun, Sanjeev. As we've seen over the course of the sessions that we've participated in since the beginning of the day, a number of sessions have touched upon topics simulated the one we're going to spend some time talking about, which really is innovation in digital payments, right? So we've talked about the fact that there's been real constant innovation that's been driving change. We've heard a number of our prior speakers talk about the increasing optionality that has increased at a faster pace than ever before, especially since the advent of the pandemic. We've talked about the fact that customers are increasingly demanding frictionless payments, that they can make an access anytime anywhere, such that they are ubiquitous, but they're also secure. So from that standpoint.

(02:38):

With all the optionality that's out there, there's obviously other form of payments as the both of, as I'm sure our colleagues in the room know that are wine for attention, crypto, blockchain, biometric payments, person to person payments, including central governments that are starting to look at cbdc. These are some of the topics from an innovation standpoint that I think I'd like for us to touch upon. So Allysun, if I may, I'll start with you with the vast number of options that are available out there, and we've heard some of the prior sessions touch upon some of those as well. How do fis, in your view, how should fis go about thinking about how what they're investing in is directionalized and or prioritized to ensure that those investments are lending themselves to delivering value to the stakeholders that they care about and obviously those stakeholders would be their customers, their shareholders. Thoughts on what are sensible ways in going about identifying which investments should be made more importantly and or more urgently than some of the others?

Allysun Fleming (03:56):

It's a good question. I don't know that there's a silver bullet, but I can speak to my experience at Comerica and previously at a money center bank. I think when you think about your trade-offs to deliver on some of the newer experiences, you also have to think about modernizing your platforms to be able to be nimble. And maybe you disagree, but historically banks have not had a good track record when we try to take on these very long modernization efforts that don't deliver incremental value along the way. And so the way that we've been thinking about it is what are our customer priorities or in some cases even our risk management priorities or our operational efficiency priorities. And then as we map out our target state, we're also thinking about how do we do that build in a way where we could start to build out some of the microservices that we know that we need.

(04:43):

Long-term. Give you an example. So a year ago, many of us, I'm sure in this room we're living through some pretty significant market disruptions. Out of that came a lot of new reciprocal deposit and syndicated deposit products and services for customers. Whilst we were working on delivering new liquidity solutions, we also took the opportunity to build out a more modern way to do cash settlement. Well, on its own, you're probably not going to win a business case to go and reimagine cash settlement. It doesn't get the C-suite very excited most of the time. But when you do it in context of something that's important to all of your external stakeholders, there's a lot more energy and appetite to be able to do the right thing so that you can be more nimble in the future. And so even, I'm sure we'll talk about some of the other things going on right now in the industry, every single one of those, we're trying to be pretty intentional to figure out how we wrap in the infrastructure enhancements that we'd like to see into an actual customer value or into an operational value that we're also delivering at the same time.

Guru Sahajpal (05:49):

Gotcha. Sanje your thought.

Sanjeev Jha (05:51):

Yeah, no, I think in fact I agree with you. There are a couple of things I think I want to add on top of what you just said. One is when I think about investment or modernization, I really think about future proofing. How can we build something that allows us to deliver a open banking, API for example? So maybe a lot to do with how to keep payment frictionless, how to keep customer experience, new experience like you want to go to checkout, you just want to wave your hand. So these things do not come with legacy solutions. So you've got to think about that. So obviously customer experience, customer centricity becomes number one criteria in malvin. And of course you want to have the architectural runway thinking from tech perspective that allows you to then this is a modernization always a long road and none of their line of business people will ever be happy if you say, Hey, you know what?

(06:49):

Come back three years later. They want to move quick wins. So having thinking around modernizing something that quick wins, which allows new capability, I think that's where I think your focus, that's how I think we try to decide. Does it make sense?

Guru Sahajpal (07:09):

Sure, it does, sure does. One of the modernizations that we've talked about in the prep coming up to this discussion was related to modernization around payment messaging formats. I'm speaking of course of ISO 2022. I know we've had conversations about this over the last several days, couple of weeks. But as you think about some of the investments that you are making in ISO 2022, one way to think about it is it's a requirement. There was a compliance session that proceeded us. One way to think about it could be, Hey, this is something I have to do because it's a mandate. Another way to think about it could be, I need to do this, but am I doing this in a manner that allows me to monetize some of the benefits that I would then expect to be able to realize from the richer structured data that I expect ISO 2022 will provide over and above the, let's call it the unstructured data that supports payment messaging today.

(08:15):

Are either of you thinking about some of the specific aspects in which are you thinking about leveraging that richer, more structured data that ISO 2022 investments will enable you to be able to take advantage of?

Allysun Fleming (08:30):

I'll jump first and you can add on. It'll be kind of an interesting perspective here as we sit in different seats. So listen, I think that this is the biggest thing that's going to impact payments in my career. That's a pretty big statement to make and I'll tell you why. So when I think about all the different formats that payments are in today, if you wanted to make it really easy for customers to not have to manage the nuances of a CH versus a real time payment versus a Fed Now payment versus wire, and it goes on and on, if you're a consumer, you add Zelle in there, you add some of the card networks can have payment capabilities to, that's a lot of complexity for consumers and commercial customers alike to have to navigate. And when you start to get things in the same format, it allows you to start to auto route and take that complexity out for customers where they don't have to choose a rail.

(09:24):

You're starting to orchestrate it and make sure you're delivering what's most important to them. So maybe it's that it's non revocable or maybe it's when the payment gets there. And so what I think it will do is be an enabler of new experiences and then I switch my thinking to think about large corporates and their need to be increasingly efficient. And I think about the ability for customers to be able to reconcile their payments instantly, but also track their payments. And so the ability for banks across borders to share information about where a payment is, because we all can read the data in the same format and there's more data to read. I think there'll be some nice new value added services. I would say one other thing that we need to think about, which is for a long time we've enjoyed a really deep stickiness with our largest customers because each bank has a nuanced format that they're receiving a file of payment data in. And now we all have this same format. So if you make your customer sad, they can break up with you really fast. And what that means for us, I think, is that ISO will not only be something that forces us to commercialize differently and offer new experiences, but it's going to force us to improve the consistency in the way that we deliver the onboarding experience, the servicing experience, because it's just becomes that much easier for our customer to move to another bank and their bank group.

Sanjeev Jha (10:49):

Yeah, I think a couple of additional points I think on top of what you just said, because those are all valid, super useful point in my mind, one hyper-personalization. I think the granular data that you get, the data richness that you have, cliche as it goes, data is new oil. I think we all want to leverage that, right? So the point is, if you are starting to feed this granular data set in your, let's say fraud system or your MO system that is going to give you the result much better result and control. And to Allysun's point where if you are not giving that kind of experience that your large treasury client want to look at or any small business client, even individual client, that actually also will be able to make it real for you, this hyper personalization because of the kind of richness it has in dataset.

(11:42):

In addition, if you look at industry, we're moving as a native iso, like RTP for example, as a native ISO solution fed now coming in, it is going to get more traction. So in my mind, new solutions, whether it is using isom S to do a bill, so for some of the other partners in the room that I think that's for real, it might come in sooner. So as far as monetization is concerned, I think there are many ways that we can monetize it. And again, I think it is going to pay for itself because of the kind of efficiency you gain through rationalization. Settlement process may become much, much easier. Interoperability will become easier. So you also have to sort of guide your interest because now somebody is not sticking to one exclusive choice format and therefore will always be the choice, right? As ISO format inter repeatable, right? So yeah, I think there's a lot of innovation that is going come as a result of this ISO format that industries adopted.

Guru Sahajpal (12:51):

Makes sense. So you both touched upon the interoperability that comes from that defacto industry wide standardization that something like ISO 2022 is expected to drive, right? I'm hearing there might be a potential related concern around does that weaken my ability as an FI to differentiate myself or continue to differentiate myself related though as you both know, real time payments also hold the promise of greater financial inclusion.

(13:26):

TCH'S RTP has been around for a while, the federal reserves Fed Now service is obviously the US entrant on that block, if you will, potential for fraud, for consumer harm, especially given the irreversible nature of faster or real-time payments is higher than in other time delayed sort of payments such as a CH as an example. How do both of you think about the, let's say the heightened burden of ensuring relevant fraud prevention procedures and practices are in place as more and more fis adopt faster payments?

Allysun Fleming (14:17):

Want me to go first?

Sanjeev Jha (14:19):

Sure.

Allysun Fleming (14:20):

If I was to give you an estimate, I spend almost half of my time thinking about how to outsmart the fraudsters because they've just gotten incredibly good at finding the newest hole in exploiting it. And so it's all about how do you plug the holes. What I would tell you is, and kind of went there with in the ISO conversation is that the data that you get with a real-time payment or with a Fed Now payment is so much richer and the way that we're starting to as an industry in an anonymous way, but share our fraud learnings through some of the industry tools now is allowing us to be a lot smarter. I worry less about fraud to be honest in some of the newer rails where you've got that data and there is good data sharing in some pretty good rebate rules across the banks being formed with a lot of thoughtfulness versus in some of the older payment mechanisms IE checks, which I wish we could get rid of, but they're sticking around, it's a lot harder in some of the non-data centric payment mechanisms to get ahead of the fraud. And I think that's kind of what we're seeing right now in my opinion, is that more as we get smarter on the electronic side, this migration to the older mechanisms are really being exploited. And I don't know if you have a different perspective coming from technology, but I worry less about our ability to model out and protect on the real time side than I do the legacy parts of the business.

Sanjeev Jha (15:49):

I think we're all invested together in preventing fraud scams, especially when it comes to real time payment. It's less about fraud, more about scam, which is a little bit more trickier. I was just talking to Mike about it, his action, what he does in virtual world, because everybody's as smart as it can get. They have the information almost in real time and trying to layer into someone who is now knowing that Mike is looking at the say Mexico vacation, all expense paid and they offer 250 bucks and might be like dime to buy. How do you prevent that from happening? So I think collaboration is the key and what Allysun was hitting, I think it is about, for example, EWS coming together providing you cross-industry information, giving you what other banks are seeing versus what we are seeing. So as a financial institution will have to come together, we'll have to fight this together, we'd have to share more information and then we sort of recognize the pattern that, okay, if you are sending something like which is an art transaction, we block it rather than let it go. So I think with real time solutions coming in, which is irrevocable, you've got to be more careful. So your infrastructure, your operating model all has to then evolve to sort of support and react to that. And I think collaboration is the key besides modernization.

Allysun Fleming (17:18):

You touched on something I would just add too. I think it's kind of an interesting point, which is the tools are actually pretty sophisticated in the newer rail space, but what's more challenging is you have to have people 24*7 available to work some of the alerts that occur. And so what's more interesting to me to think about as leading the organization is how do I adapt this operating model that's been relatively nine to five across all our time zones, but nine to five Monday through Friday to 24*7 inclusive of holidays. And when it comes to fraud, if you're a consumer and you've had an instance of fraud and we get an alert, how do I work that in a way where it's more real time is I think we're just starting to as an industry figure out what that actually means in practice as we start to accrue more and more volume.

Guru Sahajpal (18:07):

Okay. No dialogue and innovation can be had without talking about. And I think a couple of prior sessions as the day has evolved, have touched upon regulation. I know some of our colleagues in the proceeding session talked about compliance specifically, but when you think about all the large companies that are out there that have announced their intent to become a payments company, I'm thinking of course of the likes of large merchants like Walmart and then there's Amazon, Twitter, or the former Twitter now known as X, they are all vying very actively to become payments companies and morph in many ways away from some of the historical merchant centric only kinds of things that they did. So as you see regulators respond both from a anti-competitive and antitrust regulation standpoint, or for some of the FIS that are out there that have historically gotten dead via some sort of MRA or MRIA or consent order for certain practices that their regulator thought should have been in place, but were not. How should institutions find what a healthy balance, if one can be found, should be between how much time you spend focusing on and doing things that are innovative versus ensuring that those innovative things that you are doing aren't necessarily lending themselves to certain risky practices that might otherwise put your customers at risk. So stream of consciousness, how do either of you or both of you rather think about how you balance one versus the other?

Sanjeev Jha (20:07):

So I think innovation in regulation, if I may, I'll say this is very complimentary force. It's not like mutually exclusive. It helps you think through serving what is actually good for the customer. At the end of the day, the goal of regulator is to protect the customer As a regulated entity, what is my goal to protect the customer and come to think of it, if I have to trust my money with any given day, I've always trusted with regulated entity, a bank for example, because I know that I'll be secured safe. My hard money is not going to go anywhere. And so the good is really to, if you look at what regulation brings us, I think many times it is transformative. Whether you look at, for example, UK started this, Europe, EU started PSD two, we saw started innovation around open banking today, open banking, everybody's trying to get it because there's ton of services that we can provide to our customers, meet them where they are.

(21:19):

Similarly, even in the case of let's say CCPA, for example, privacy, the slew of initiative around data encryption, consent management, all of that started. So innovation is sort of sometimes you cannot say that you first regulate like ride apps. Somebody was talking about Uber earlier today, they didn't even know what to regulate because there's nothing to regulate begin with. So innovation will always come in. And then regulation has to be coming as a guard rail to sort of protects everybody's interest. They trust us without their hard and money. So it's sort of a balance in terms of use this as a transformation to drive what is going to help meet the trust. I think this a very positive thing in my mind. It shouldn't be taken as a very negative. I think there's some instance where people may get a little bit, I would say sometimes can be even political, but otherwise I think it's a very positive thing to have. And I think we are proud of taking these revelation and taking to next level bring the trust back.

Allysun Fleming (22:31):

Yeah, it's interesting I think about some of the maturation that we've seen in the US market in playing in the innovation space alongside a rapidly changing regulatory environment. And what I see is us being a lot more intentional to make sure as we're innovating, we're truly designing end to end and that we're thinking through not only the happy path of how this amazing new product service, what have you is going to work, but also all the unhappy paths and ultimately you develop a better solution as a result. So weirdly, I would say that I think regulations made us more innovative because we have to be that much more intentional. The other thing I would just say, and I know you weren't going exactly here, but look, the big technology companies that also want to be in payments, they're good partners to the banks and we partner together and we both have a role in the ecosystem and it's an important partnership because unless a big retailer wants to go out and hold deposits, which is a whole huge undertaking, they have to play nicely with the bank.

(23:34):

And what I think is interesting is a lot of the retailers, they really know their customers from a data perspective. They know their customer behavior. And so when we partner together, they bring that to the table with an intensity and an accuracy that I think all the banks aspire to get to. And we bring a discipline in how to think through the risks and the controls that they need to understand because the regulators do look at technology companies that become payment operators. And so I would just say even when you see these companies start to dip their toe into payments, I lose no sleep over that. I get actually excited about the things that we can actually deliver to customers together because it's a pretty powerful union.

Guru Sahajpal (24:14):

Gotcha. So it sounds like you both are seeing a pretty happy marriage, if I may call it that, between the customer advocacy that they would typically call for vis-a-vis the ensuring things from a consumer or customer safety and soundness perspective that an FI would call for that those kind of go hand in hand. And those partnerships for those reasons make sense because those are complimentary to some of the things that you are able to do for your customers both from an advocacy as well as from a safety and soundness perspective. Okay, that makes sense. Questions from the room for our distinguished panel?

(25:05):

Anyone? Okay, well then I'll keep going with a few of the other questions that I have for our panel

(25:18):

Innovation in that context, CBBC specifically, let's spend a couple of minutes talking about those. There's especially in the US and both of there are several other countries around the world where countries like India as an example, others in Latin America have been that much more active in not only looking at but actively considering the adoption of a central bank digital currency. Thoughts on whether a government or central bank regulated and it might be seen as mandated sort of digital currency, whether that's a good thing, a bad thing, do either if you even see that working in the economic and let's phrase a political environment that we live in here in the us

Allysun Fleming (26:19):

You want me to go first?

Sanjeev Jha (26:19):

Sure.

Allysun Fleming (26:20):

I probably have a controversial opinion here. So I think it's important for national security purposes that we continue with the pilot that's underway with a select few players and the Fed. So I think it is important that we're doing exploration here, but the US market is really different than some of the countries that have been aggressive in this space in that we have a currency that's used globally as kind of the currency to do trading in. And what's really interesting about the US that's different than most of the globe is the diversity of banks and institutions and sizes that exist within the us. If you look to our neighbors to the north, they have less than 10 that they have to play with. In this country we have thousands and thousands of banks and credit unions, et cetera. And so I look at ISO as a good paradigm for this.

(27:08):

So just to get to a common payment format has been incredibly difficult for the US banks to adopt and it's been a lot of work. And I think about things like chip and pin, right? As another example, it was incredibly difficult to get us to convert because of the number of terminals that we have. And if you use those as paradigms, all the work that would need to go on for us to be able to support a digital currency and move off of US dollar processing from your core accounting platforms to your core processing itself to the reporting that you use off of both of those things and it goes on and on. I just think that it will take, I might be retired and I have four kids yet to go through college before we get there, unless there is some sort of external trigger that forces us to kind of come together and move a lot faster.

Sanjeev Jha (28:01):

Great. I think I have a little bit a different perspective on CBDC. In my mind, this is yet another opportunity. If you unpack CBDC a little bit from FI perspective, it is going to be helping improve your operational expenses. It can help reduce your counterparty risk. But the problem that I see with this one where we stand right now, one hand you have CCPA other hand if you have CBDC, central Bank will have very rich detail about your data. How do you sort of balance it? So I think one of the important point here is regulation clarity is going to be important. So Fed or Converse has to with some sort of framework that helps identify far how do we balance this, right? Where you actually are looking at privacy almost like infringing somebody's personal privacy because they have the information. So I think once we get that framework out, I think we can think about making this real.

(29:09):

Until then, this is going to be a pilot. And of course this is not a simple solution as Allysun talked about, it's going to take time, it is going to take a minute for people to sort of adapt this new technology. But I think a lot of work on regulation front has to be done before we can actually take step forward.

Guru Sahajpal (29:28):

I would agree with both of you. Plus the other difference that clearly exists in the US versus some of the leveraged GOs is the central bank cannot, and I think I've read a statement from the power himself gets said that they were not going to move forward unless this is something that is approved by Congress. So maybe unlike some of those other GOs, the CBDC, I'm sorry, the Federal Reserve in this country's case is clearly not going to do anything that is not sanctioned by the Congress on behalf of the American people. Whereas certain of those other geos, probably the government has had that much more of a maybe not mandatory role to play than here in the US but certainly a role that they were that much more in the driving seat to be able to take on.

(30:29):

The other thing I'll talk about, I know we've talked about a number of things related innovation, and again, I'll offer the, I see a hand raised, so go ahead.

Audience Member 1 (30:40):

So both of you guys are pretty significant card shows. So what are your thoughts on relative to.

Guru Sahajpal (30:58):

Could you maybe articulate that a little differently? Thoughts on pay by bank?

Audience Member 1 (31:08):

One of the big questions obviously is with Capital One buying Discover, certainly CFPB 10 33, right? Is pay by bank bypassing the card networks or potentially leveraging the card networks using real-time payments. Whether an RFP or some other method regardless of MasterCard or Visas, giant concession of five basis points really could save merchants a ton of money. And so when we talk about the advantages and opportunities in real-time payments, how do you think about the balance between a large issuing portfolio or acquiring portfolio and the opportunity in something like what a SO 222 could potentially do to disrupt the payment ecosystem?

Allysun Fleming (31:59):

Yeah, actually I think about this a lot because if you go to some countries, and I think about Singapore in particular, right? Most transactions at this point are migrating to a QR code and they're moving off of a card as a prevalent payment mechanism. I think quite frankly we're addicted to points in this culture. And so one of the things that's a precursor, and I think we'll start to see this with some of the compression we've seen on interchanges, the points dynamic has to change, the rewards dynamic has to change or we have to be willing to invent new ways of incenting the consumer to change their behavior. So that's the first thing I would say. And then the second thing is there's a large business at Comerica, so we provide 3 million cardholders almost access to funds for the federal government on behalf of the federal government.

(32:51):

And when I think about those consumers and how do you get them off of a card? Well many of those consumers are on a card because they have a difficult time getting access to the US banking system. And so another prerequisite for us to be a little more inventive in using some of the newer rails for payments is also increasing the access that the consumers have to the banking network in the first place. And I don't know that we have the perfect answers yet in either one of those spaces, but I think it's one of the things that we'll see change pretty rapidly here, especially with Gen Z behaving a little differently than some of the previous generations. And Gen Alpha is still too young, but maybe is what changes in terms of importance to the consumer we'll start to have more demand that forces us to innovate and become maybe a little bit more like Asia where you see more creative wallet driven payment rail solutions for consumer payments.

Sanjeev Jha (33:45):

Yeah, I think this is paying for your day-to-day. This is really a sticky behavior and oftentimes you don't really think much why to change unless there's an incentive. So I think for example, banks are right now launching page to this is EWS Wallet where you sort of first experience where you can now feel that these banks have the wallet that's different from Google and Apple Wallet, Zelle. I think Zelle is on the rise. Zelle is basically busting all the numbers every quarter. RTP there are different use cases. Like me to me is coming in Fed now with Fed now who knows, all of this will take another leap. So I think it's a little bit of time that it takes for people to change the behavior, but I think this is coming. I think this is well on the way.

Guru Sahajpal (34:40):

Great. Thank you both. I think we are at a lot of time, so I maybe take one final question if there is any from the audience, in fact, just so we can stay on track. Let me go ahead and thank our panelists for their candid views on our discussion. Thank you Allysun. Thank you Sanjeev.

Sanjeev Jha (35:09):

Thank you.