Six key takeaways from EBAday 2024

By Arthur Instone, Financial Services

When will we have a digital euro – if ever? How is AI impacting capital markets? Are banks ready for instant payments? And are fintechs out to replace banks, or work alongside them? These are all questions that attendees grappled with at this year’s EBAday in Lisbon, the Euro Banking Association’s annual summit for leading payments and transaction banking executives.

This year’s theme, ‘Orchestrating the dialogue on payments’, was chosen specifically to reflect the fact that now is the time to turn plans into practices that reflect the new payments era. Here are six of my key takeaways from the conference:

1. Collaboration is increasingly critical

Banks share the same pain points, and with so many new or updated regulations coming into force in the next 3-5 years, panelists were keen to emphasise that joining forces with other industry players can help them navigate this uncertain landscape.

Combatting fraud was one area that was identified where collaboration will be especially important. Simone Löfgen, global head of payment platforms and managing director at Commerzbank, said, “It is absolutely crucial that we are connected, and that we’ve defined common ways of combating this industry challenge, so there shouldn’t be any competition on fraud because it’s a joint attack that we’re all facing.”

This ‘joint attack’ approach is particularly important, since fraudsters are always finding new and increasingly sophisticated ways to extract funds. Cross-company, and critically, cross-industry collaboration will help banks detect these patterns and be more agile in their approach to fraud.

2. AI: a question of what, not how

Panelists highlighted that AI is no longer just a shiny buzzword but is very much a technology of the here and now, having a real impact on banking operations.

 It was interesting to see the range of applications for which AI is being used. In an audience poll during a session on ‘AI in capital markets and payments’, 31% responded that streamlining operations is the main use case, 29% voted for improving customer service, and 25% voted for enhanced risk assessment and fraud management.

There’s no doubt that AI is having a transformative impact on banking operations, but the challenge facing banks is how to adopt AI at scale rather than for individual use-cases. The question they’re grappling with is: should we build our own in-house solution or buy a ready-made model? Christian Sarafidis, chief executive EMEA financial services at Microsoft, argued the latter is more suitable.

This is because the technology is evolving so rapidly, and banks are unlikely to have the in-house skills, resources and expertise to create a solution that is better than what is available in the market, where solutions have already been designed to meet specific needs of the banking sector.

3. Divergence on CBDCs

CBDCs – a solution looking for a problem or a genuine monetary innovation? In a session on ‘The future of payments’, moderator Joy Macknight put the question to the audience, asking Do we need a digital euro, whether wholesale or retail? Interestingly, a majority of 62% said no, compared to 38% who voted yes.

Panelists were quick to point out, however, that the question was slightly misleading by grouping the wholesale and retail use-case together. They agreed that the wholesale CBDC development is at a far more advanced stage of development than retail, a hypothesis supported by the Bank of International Settlement (BIS). A survey by the BIS in late 2023 found that the likelihood that central banks will issue a wholesale CBDC within the next six years now exceeds the likelihood that they will issue a retail CBDC.

There was positivity about the role of blockchain in capital markets more broadly. Michael Reinwald, Head of Sales for JP Morgan Germany and Austria, was “convinced” that tokenisation will be central to driving capital market innovation, helping to increase market liquidity, reduce the risk of fraud, lower transaction fees and improve transparency and visibility across the trading cycle.

4. The road to instant payments is easier said than done

Instant payments are a massive priority for banks, especially given that SEPA Instant – set to apply from January 2025 onwards – will require Eurozone banks to offer instant credit transfers at any time of day and year. In an audience poll during a session on ‘The Instant Payments Revolution’, the overwhelming majority (75%) put instant payments regulation as their number one priority, followed by ISO 20022 migration at 58%.

Enabling instant payments is the aspiration for all banks, but it was clear that achieving this won’t happen overnight and there are still barriers that the industry needs to overcome, none bigger than fraud prevention. In a second audience poll, attendees cited Know Your Customer (KYC) and Anti Money Laundering (AML) as the single most overwhelming challenge in instant payment adoption. Although reimbursement schemes can compensate victims, faster payments mean there is less time to stop fraudulent transactions from being processed and settled.

Panelists also spoke about how the success of instant payments depend on more than  having the right technology infrastructure in place. Simon Eacott, Head of Payments at Natwest, said, “It’s not just about the technology, it’s about the whole end to end user experience.” Consumers value security, trust, speed and convenience, and having these building blocks in place will be key to instant payment adoption.

5. Fintechs and Banks… the special relationship

Banks and fintechs have a unique relationship. Once viewed as a disruptive force aiming to upend traditional banking, bank-fintech partnerships have become increasingly common and highly effective.

In a panel discussion on ‘Prioritising innovation in embedded finance’, panelists agreed that while fintechs can’t solve all the long-standing challenges that banks face, they can provide specific, targeted solutions to pain-points. For banks, this has made partnering with fintechs increasingly appealing.

Pietro Fragnito, senior innovation strategy and market outlook at Italian banking group Intesa Sanpaolo, explained how they partnered with a fintech to simplify transfer paperwork. He said, “We made a partnership with the fintech that solves compliance problems for our customers. They do a lot of work when moving from one utility provider to another. We integrated their services in a seamless way in our application and our customer can complete the journey without going out to switch context and then come back.”

These partnerships are seen as a win-win. Banks, with their established customer bases and regulatory expertise, provide a foundation for fintechs to apply their offerings at scale. On the other hand, fintechs can help banks stay competitive through their agility and customer-centric approach to financial services.

6. Women in Banking: building on progress

As the payments industry becomes more and more specialised, further opportunities for women are opening up in various areas such as technology, Open Banking, ESG or regulation.

In a lunchtime roundtable on ‘Women in banking and payments’, Katja Lehr, Managing Director of the EMEA Payments and Commerce Solutions Team at JP Morgan said, “I see lots of great women in the room today… ten or fifteen years ago it would have a different picture.” Over the past two decades, there was agreement that there has been a positive improvement in the representation of women in the sector.

However, it is still much harder for women to ascend the career ladder than men. McKinsey’s 2022 report on women in the workplace show fairly equal numbers of men and women at entry level, but far fewer women than men at the higher echelons of the banking hierarchy. Despite some hard-fought gains, women’s representation still lags behind at the manager and director levels.

Panelists agreed that cross-industry and cross-company support for women is needed to bridge this gap at all levels of the hierarchy and keep women in top positions.

Adeus Lisbon, bonjour Paris

The overwhelming feeling was one of resilience. After a global pandemic, high inflation and geopolitical uncertainty, global payments revenue grew by double digits in 2023 while the industry continues to attract top talent and skills. Regulatory reform will put banks under more compliance pressure, but this also presents an opportunity to innovate.

Wolfgang Ehrmann, chairman of the board at the Euro Banking Association, concluded the event with a fitting football analogy: “There is a golden rule from German football: After the game is before the game. So, after EBAday is before EBAday.” As we look ahead to next year’s event in Paris, we can be optimistic about the future of transaction banking.