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©2019 PTap Advisory, LLC; All Rights Reserved1
The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
Payments Revolution Part 1:Technology
Peter TaplingManaging Director, PTap Advisory, LLC
1©2019 PTap Advisory, LLC; All Rights Reserved
©2019 PTap Advisory, LLC; All Rights Reserved2
Agenda
• Framing the conversation about Payments Revolution
• Identify “new” technologies
• Choosing a few to explore
• Categorize them
• Business considerations
• Putting the pieces together
©2019 PTap Advisory, LLC; All Rights Reserved3
A Revolution – From What to What?
• What are “traditional” forms of payment?
– Cash
– Check
– Credit Card
– Debit Card
• Is “chip and sig”/”chip and PIN” traditional?
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• Most “revolutionary” payments technologies do not actually affect the flow of a payment through the bank
• Understanding where these technologies fit is key to helping understand their strategic value
• Many of them work together throughout a payment experience
Demystifying “Revolutionary”
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Banks Are Technology Companies
• Do they change the way your FI processes an ACH file? Wire?
• Does the FI even know they exist in a payment?
• Do they change the behavior or requirements of your payment systems?
• Do they change user (consumer/commercial) experience?
©2019 PTap Advisory, LLC; All Rights Reserved6
The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
What non-traditional payment means do you personally have at your disposal
today?
WORKSHOP
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Here’s What I Have…• ApplePay
– iPhone
– iWatch
– MacBook
• Visa “tap to pay”
• BofA mobile ATM
• BofA Erica
• Zelle
• Coinbase (crypto)
• What about Uber/Lyft/SpotHero?
– Are those payments “technologies”
How often do you use these?
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REVOLUTIONARY PAYMENT TECHNOLOGIES
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The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
In 3 minutes – write down 3 technologies you’d like to discuss.
DISCUSSION
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Let’s Start with These…
NFC
Bluetooth
QR
IoT
Tokenization
API
AI/ML
Chatbot
Blockchain
ISO 20022
Faster
10
And nothing has gone away!“More than 70% of banking corporate data still resides on the mainframe.”
https://www.allerin.com/blog/why-do-banks-still-use-mainframes
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Technology Elements
•Near Field Communication
•A radio communication protocol which allows devices to communicate when within very close range (~4mm max.)
•NFC devices can have self-contained computational capability
•Communication protocol behind contactless payments
NFC
•A networking protocol which allows devices to communicate over a range of 30 feet
•Part of what powers Amazon Go stores
•BLE – Bluetooth Low Energy – Limits range to ~3 feet
Bluetooth
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Technology Elements (cont’d)
• Quick Response codes
• 2D BAR CODE which encode information
• Used for crypto addresses, bill payment, some ATMs
QR
• A process by which sensitive data is substituted with information which is otherwise meaningless
• Used in payments to protect card information in certain applications
Tokenization
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Technology Elements (cont’d)
• Internet of Things
• The connection of everyday objects to the Internet
• Many applications in data collection driving masses of data for further analytics
• Events triggered by IoT devices could initiate payment activities
IoT
• Application Programing Interface
• In computer systems the definition of a function to be performed, the data required as input and the expected output
• When used in the context of banking and payments, these are not functions the bank will consume, but rather functions the bank will publish to other parties
• ALSO: PSD2; Open Banking UK; Open Banking Europe
API
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Technology Elements (cont’d)
• Computer systems which can imitate cognitive decision making processes
• AI systems evaluate a given transaction against a history of similar transactions and the context of the current situation to make a decision that is intended to mimic a human response
Artificial Intelligence
• Systems which use training data to ascertain from a variety of outcomes which is most likely to be the “best” outcome
• Machine Learning systems are used in conjunction with Artificial Intelligence systems with the goal of enabling the best automated outcome
Machine Learning
• Automated systems which react to human input in a manner which mimics a human response
• Could be via voice (telephone) or online (chat/email)Chatbot
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Technology Elements (cont’d)
• Blockchain is a term used generically to refer to:
• Any form of distributed ledger technology (DLT); and,
• Specific implementations of DLT which enable a public exchange of value (e.g. Bitcoin; Ethereum); and,
• [Mistakenly] to any form of cryptocurrency
• Blockchain enables the storage of information in an immutable ledger with agreement among a collection of different parties about the “correctness” of the data
• Blockchain implementations can be private, permissioned or public.
• Blockchain implementations may or may not involve the exchange of value (cryptocurrency)
Blockchain
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Technology Elements (cont’d)
• International Organization for Standards
• International standard for the exchange of electronic information between financial institutions or for financial transactions
• ISO 20022 specifies a meta-data repository which contains message descriptions agreed to between a collection of participants for a given information exchange purpose
• Given domains can define their own message descriptions (e.g., RTP messages are different than SWIFT gpi messages and different from other domains)
• Same concept as ISO 8583
ISO 20022
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Technology Elements (cont’d)
• Any mechanism or system that enables the exchange of funds between banks on behalf of bank customers where the availability of funds is “faster” than through traditional methods.
• “Instant” or “real time” payments are faster payments where funds are deducted from the senders account and and reflected in the receivers account in [near-]real time
• RTGS – Real Time Gross Settlement
• A system where funds transfers are cleared and settled in real time on a transaction by transaction basis
Faster
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Did We Get Them All?
• OF COURSE NOT!
• What others would you like to discuss?
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HOW ARE THEY GROUPED?
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All These Technologies Fit in the “4-Corners”
FI A
ReceiverSender
FI B
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The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
How would your team group the technologies we have discussed?
How do they work together?
WORKSHOP
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BUSINESS CONSIDERATIONS
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Using This Information
• An understanding of underlying technologies can inform your product decisions
– Features and capabilities
– Risk management
– Regulatory compliance
• Even things you don’t “do” will affect you
– Think of customer service experiences
©2019 PTap Advisory, LLC; All Rights Reserved24
Features and Capabilities
• Using new technologies creates a web of considerations– Some things *must* be done
• e.g., Tokenization with Apple Pay (NFC)
– Some things *can’t* be done • e.g., Faster with IoT
• Look at the technologies with a “product” lens– How can you improve the customer experience?
– Can you improve operational efficiency?
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Risk Management
• Anything “new” has unintended consequences
– Apple Pay (NFC) with Tokenization is safe, right?
• But what if I use Apple Pay from my Mac Book?
• Beware of “combination risk” – something alone is well understood, but in combination becomes a different animal
• Look at all risks, not just fraud
– E.g., AI for fraud against multiple card users
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Regulatory Compliance
• Any solution should maintain or improve your ability to stay in compliance
• Novel technologies risk not being understood by regulators
• There is no “do over”!
• (Come see the Intersection of Innovation session on Wednesday!)
©2019 PTap Advisory, LLC; All Rights Reserved27
The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA
Using the “4-corner” model an end to end process and the technologies used.
WORKSHOPConsiderations
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PUTTING THE PIECES TOGETHER
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Where Do These Technologies Fit?
• Now that we understand a bit about what these technologies do:
– How do they fit together?
– Where do they fit in a payments architecture?
– How can you derive value?
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• Wondering how all of this will change the overall Payments Experience?
• Stick around for Part II
Technologies are Building Blocks
©2019 PTap Advisory, LLC; All Rights Reserved31
THANK YOU!
Peter Tapling, Managing DirectorPTap Advisory, LLC
847-226-2038peter@thetaplings.com
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