Two reports from BNY Mellon bank cite the need for integrated solutions if fintech is to unlock the next generation of the payments ecosystem and the evolution of digital currencies. The two reports are entitled ‘Multiple Paths, One Destination‘ and ‘A Spotlight on Digital Currencies‘. The first looks at the needs for instantaneous money movement; the second’s focus is self-explanatory.
“A key element of BNY Mellon’s digital strategy is to offer frictionless access to these innovative solutions through our open-architecture API enabled platforms“, says Saket Sharma Chief Information and Digital Officer for BNY Mellon’s Treasury Services.
“Each innovation – whether its SWIFT gpi, real-time payments, blockchain, or artificial intelligence – brings its own value and has a role to play in an enhanced client experience.”
Why is BNY Mellon interested?
As a leading US bank, BNY Mellon has to sit at the leading edge if it wishes to help clients and partners navigate innovations in payments and the future of digital currencies. This explains the research described in the two research reports which examine:
- the range of payment channels and capabilities that are becoming made available
- what their impact will mean for clients in the future.
The reports highlight that innovations in payments and digital currencies should (one day) enable banks to:
- make domestic and cross-border transactions faster
- be less friction-generating, efficient, transparent and cost-effective
- achieve interoperability among both old and new solutions to ensure streamlined transactions.
Multiple Paths, One Destination
‘Multiple Paths, One Destination‘ examines how industry initiatives and new technologies can enable money movements to happen 24/7/365 – and with full transparency. It notes that continued innovations should, collectively:
- facilitate a new era of payments, with different rails, channels and solutions delivering enhanced capabilities
- support many varieties of client needs.
While the destination seems obvious, it is also true there is no (current) single, fixed path to a 24/7/365 destination. As BNY Mellon points out, there are multiple paths. Real-time payments, SWIFT gpi, SWIFT’s transaction manager, artificial intelligence, blockchain and digital currencies are each providing banks with opportunities to make domestic and cross-border transactions faster as well as more efficient, transparent and cost-effective.
This report concludes that banks must look to navigate an evolving landscape. This means they must invest in suites of payment solutions which include legacy ‘rails’ to the latest technologies. The implication is that only by doing this can they ensure they will be able to cater to the varied needs of many clients into the future.
“Each new technology is acting as an important piece of the future state of payments,” explains Mike Bellacosa, Global Head of Payments and Transaction Services, at BNY Mellon.
“So many exciting developments are occurring in the industry, but no single solution is currently delivering optimized payments.”
A Spotlight on Digital Currencies
The report ‘A Spotlight on Digital Currencies‘ focuses on how digital currencies could change the payment model. It explores:
- how the coexistence of digital tokens and fiat money could meet a broader array of client needs
- how the finance industry looks at settlement speed, liquidity, reconciliation and risk
- the potential impact on the role of correspondent banking and intermediaries.
As this report argues, a key property of digital currencies is that – like using a physical $10 bill to purchase an item in a store – they are token-based. This means they can be held directly by the participants of a transaction. Importantly, as a result, digital currencies can transfer directly on a peer-to-peer (P2P) basis:
- irrespective of value
- without the involvement of centralised third-party intermediaries in the settlement process.
In BNY Mellon’s view this could:
- translate into an entirely new processing model and structure for some forms of payment and settlement
- have implications for risk mitigation, liquidity management and correspondent banking strategies.
It then proceeds to consider:
- how such transformative potential might open a way forward for digital currencies
- the impact on transactions.
Enterprise Times: what does this mean
The fintech market is expanding. At the same time, it is acting as a catalyst for innovation – by bringing industry players together through various collaborative approaches. Banks see themselves as playing an important role – for example by launching innovation centres – which facilitates collaboration with fintechs and clients – to optimise collective offerings.
Yet this is where these twin reports from BNY Mellon are both good and ‘bad’. Arguably, they are representative of a traditional bank seeking to understand the fintech changes occurring. In contrast, many fintech start-ups are throwing away the old rule books in their quest for novel solutions which satisfy customers and clients more than what they have today.