Stephan, you’ve joined Broadridge from Commerzbank where you were a divisional board member responsible for transaction banking. From your experience, what are some of the biggest trends that are taking place in the European transaction banking landscape?
In the short term, I think every bank is busy implementing the ISO 20022 and CBPR+ changes by the November 2022 deadline, which I don’t think will be delayed unless a major market participant isn’t ready.
In addition, the R2P (request to pay) solution will gain market traction and possibly change some business processes in the internet payment landscape. For example, consumers often use debit or credit cards as a method of purchase online – but with R2P, a transfer of money could occur within 10 seconds with merchants receiving the money before any products are exchanged with the consumer. Overall, we will see further consolidation in the market as not all participants can afford to invest in the business because they don’t scale, and they need other options.
I think instant payments (IP) will become the “new normal,” and many banks are underestimating the implementation costs involved. Connecting to RT1 or TIPS is not the challenge, but preparing your own IT application environment, e.g. OFAC sanctions screening, is a huge effort, and domestic systems need to be connected to SWIFT solutions, as IP will not stop at the SEPA border.
What are the biggest challenges facing European banks? Does it vary greatly from country to country?
We are currently seeing rising interest rates, which, on the one hand, may be good for the banks as it allows them to increase their interest income. But considering that we could also see a difficult economic climate with high inflation rates due to the energy crisis, we could also see more customers not being able to pay their debts and we may see higher loan loss provisions, which are a huge burden on the balance sheet of banks.
Overall, the economic uncertainty we are expecting over the next 12 months is one of the biggest challenges for banks, and that applies across Europe.
In terms of payments, European banks are still challenged by services such as PayPal, WeChat Pay and credit card companies, especially in the consumer market. If you lose access to individual customer payment transactions, you lose your “golden nuggets” in your data lake for business intelligence/AI that can help you avoid risk or identify business opportunities.
How can technology help banks to address these challenges?
I think technology is always good for analysing big data from the past and giving advice for the future. On the one hand, it helps to avoid risks and, on the other hand, it can be used to identify business opportunities. Payment data is an important source for this because it is up-to-date, but the data must be handled carefully so as to avoid data leaks and also to ensure that your clients aren’t uncomfortable with you accessing these kinds of insights.
In terms of process automation through technology, it enables smarter automation of processes and helps reduce any back-office costs. High STP rates combined with good workflow tools for handling exceptions are key to keeping your costs under control.
What are your views on emerging payment methods, such as cryptocurrencies and BNPL? Is there an opportunity for banks to tap into these trends?
For cryptocurrencies, we should distinguish between cryptocurrencies as an asset class and those that are really used as currency for payments. For Bitcoin, I think it will end up more as an asset class, e.g. like gold in the physical world. I think that CBDCs issued by governments will take over the role of currency for some transactions, but governments will not allow the loss of control over money authority for various reasons, anti-money laundering being one of them. Currently, we are very much in a try-and-fail period with governments closely monitoring what is happening. But I think there will be more regulation introduced as time goes on.
In terms of BNPL, it depends on the quality of risk assessment systems in place. Considering the upcoming economic situation and the burden on consumers, I would be cautious about overdoing this. At the moment, BNPL is an easier way for consumers to obtain a loan, which can lead to problems in the long term, especially as we’re potentially heading into a difficult economic climate, with consumers not being able to keep up with repayments. Either you have a very strong and efficient risk assessment in place at the start, which is fully automated, or you run the risk of seeing greater failures further down the line.
What are the latest developments in the different service lines that you oversee?
We launched a Payments as a Service BPO solution which is now operating live for Hamburg Commercial Bank, for which we are now supporting both SWIFT and SEPA Payments. ISO 20022 and IP will be the next steps that follow.
But we have a far wider spectrum of solutions and services for which I have market-level responsibility in Germany, such as our solution for the trade lifecycle which has been extended to the front office through our recent acquisition of Itiviti – adding advanced front office order management, trading and connectivity services to our established post-trade capabilities.
We have also seen great interest in our regulatory solutions. For example, we have extended our trade and transaction regulatory reporting solution, which helps us support clients with their multi-jurisdictional reporting obligations, most recently by helping firms prepare for the EMIR Refit in Europe.
The SRD II requirement to support proxy voting services has also been a significant area of investment, and we have helped many banks, brokers, wealth managers and other intermediaries throughout Europe to respond to their new obligation to provide a voting service.
What kind of conversations are you having with clients in Europe? How is Broadridge supporting them?
With the current uncertainty in the market, we are discussing with our customers how we can help them to transform their efficiency levels and cost/income ratios, while reducing risk and helping them meet their regulatory responsibilities such as for the EMIR Refit, SRD II and SFDR. As market developments are difficult to predict, our customers are interested in flexible models that help them adapt their business case, volumes and transactions to the fluctuating situations.
To what extent have you seen a take up of Broadridge’s solutions in Germany?
Our Payments as a Service BPO solution is now fully operational and ready to onboard the next customers. Also, our SWIFT Service Bureau is very well established and is growing internationally at a significant pace, year-on-year, amongst asset managers, banks and corporate clients.
Furthermore, our capital market solutions for the trade lifecycle, such as for reconciliations and confirmation matching, regulatory trade reporting and securities processing are in high demand due to underlying market conditions and the challenging regulatory environment.
What are your ambitions for the business in Germany over the next 12 months?
We are firmly committed to maintaining the momentum we have built and delivering what we promised to our customers, with the backing of our resilient level of service. We’re also looking to expand our team, which is essential to Broadridge as a business as we look to attract new and ambitious talent to further enhance our solutions and services for our clients.
