Speaker 0: The Payments Podcast from Bottomline. 

Owen McDonald: Welcome to The Payments Podcast. I'm your host, Bottomline Managing Editor, Owen McDonald. It's that time of year. Industry experts are being asked to make prognostications about the future of every trend in payments.

On The Payments Podcast today, we'll be more focused. We're keeping our conversation to four main topic areas, the progress of instant payments, major technical deadlines banks and corporates face in 2025, movements of generative AI in business banking and payments, and the uptake of B2B embedded finance. We may take a couple of side trips, and that's okay too. Joining me are two widely recognized experts on the complexities of business payments and B2B banking. Jessica Cheney is Vice President of Digital Banking Solutions and Head of Product Management at Bottomline.

Frederic Viard is Principal Product Manager of Financial Messaging at Bottomline. Jessica is covering the North American perspective today. Frederic will give us the UK, EU, rest of world outlook. I'm not going to waste one more second of my good fortune that both of these people were available today. Jessica Cheney, Frederic Viard.

Welcome to The Payments Podcast.

Jessica Cheney and Fred Viard: Thanks, Owen.

Owen McDonald: You both have strong opinions on instant payments. For example, Frederic, you've said that all new payment methods carry risk, including instant payments, and that part of introducing new payment types is mitigating that risk upfront. Jessica, I've asked you a couple of times, and you're adamant that that faster payments do not equate to faster fraud. Fred, to you first.

What are the major risks of instant payments, and how do we mitigate them?

Frederic Viard: I would say that, yes. As soon as you have a new payment method, a new rail, then it it will come with new risk, with new attempts of fraud - and this is the case for any new payment method. It is not typically related to instant payments. So each method has its own risk. I would say in instant payment, one of the major risks is about speed because you have the notion of settling the payment in ten seconds.

So, you can reformat the payment to another place. So, you can have a very long chain of payment, which are very instant. And then since they are settled in in a very short time, so it becomes difficult to track the chain of payments. So, the payment can disappear from your radiance quite soon because it has bounced back across multiple account on multiple rates. So, I think this is one of the big risks is to not be able to have an intervention in the middle of the flow because the flow is going very fast.

That said, we see that there is new, let's say, new tools to mitigate risk that goes together. This is not one single thing that will help prevent and hold. So you need to have some tools, some indicators at several levels. Of course, you can have sanctions screening, but you need also to monitor the payment. Is it the usual payment with the usual destination?

Is it the payment which has been processed by your usual IP address? The amount, is it something that you are doing usually? So we will need to monitor the the the payment as a whole, not only from one angle, but from multiple angles with multiple indicators and the global score. Will it tell you if it's a fraud or not. But for instance, in Europe, we have seen that some market infrastructures, when SEPA (the extended payment mechanism in Europe) was started, we saw at the beginning up to six times the number of failed attempts compared to traditional payments, which is quite high.

So it it there is a need to to add, additional rules and tools to to prevent that. One of them in Europe is VoP, Verification of Payee. Then you can control the IBAN, the beneficiaries. But again, it goes with other tools to monitor the the global risk, in terms of payment behavior and user behavior. So I would say, yes, new risk new risk.

Speed is one of them. New tools to mitigate this risk, to derisk the transaction, and we are still building new tools to really, let's say, have a global overview of the payments in order to to mitigate all aspect of the fraud that had come across this payment.

Owen McDonald: Ok. Derisking the transaction. I love it! Jessica, I've asked you a couple of times, and you've been adamant that faster payments do not equal faster fraud. So, Fred just told us about some of the pitfalls of it.

But what I'd like to ask you about is the benefits that we're gaining as instant scales, but we know better liquidity is one. I hear that all the time. What are some others? What's your outlook on on this? You're an optimist.

Jessica Cheney: I am. But before I jump into answering that question, I want to respond to what, Frederic mentioned. And I do think that he highlighted why I don't think faster payments means faster fraud: because it is an operational mind shift, there is no reason because a payment actually settles, within seconds that all of the best practices around fraud mitigation, go out the door. As long as we as an industry continue to practice all of those best practices around fraud mitigation and continue to think about how new tools need to be introduced to help offset the potential, for fraud getting into any new payment type, then faster payments don't necessarily mean faster fraud. So having said that, I will move on to answering your actual question.

There are a lot of benefits to instant payments that have been proved out, in the rest of the world, and the U.S. are now just starting to recognize this. We've talked about liquidity. Improved cash flow is really what that comes down to. Having the ability to hold on to your funds to the absolute last minute before they need to be paid, or to be able to hold on to it till the absolute last minute that you could take advantage of a trade discount. I also think that on top of that, there are a couple of other things, customer experience. Right? 

We all expect immediacy now in our consumer lives. There is no reason that shouldn't translate into the way that businesses pay and expect to get paid. So being able to utilize that immediacy in that context is really important. I also think that there are benefits from an operational perspective that go beyond just cash flow.

One of the big use cases in the U.S. that has really emerged first for real-time payments is instant access to payroll. So, being able to attract employees or just operationally support more of the gig economy with these new payment types is really important. 

So, the last piece that I think gets a little lost, but I know one of the other topics that we want to talk about is ISO 20022, is real-time payments, at least in the U.S., because they are based off of the ISO format and one of the benefits is the conversational aspect. Meaning that there are both more data fields as well as more message formats that are supported around real-time that allow the exchange of information between a payer and a receiver to be done not only instantaneously, but from a deeper, richer perspective.

I can ask a question that I have about a receivable or a payment that I've received that doesn't match an outstanding invoice within the payment rail. That is an amazing benefit that I don't have in any other payment type today.

Owen McDonald: Right. Well, you jumped into ISO, and I'm glad you did because technical deadlines in 2025 are going to be a big deal and a heavy lift for some people, it seems. So, ISO 20022 was a talking point for years. Now banks and financial institutions are facing urgent 2025 deadlines. They're bound to create disruptions.

The industry is learning a new common digital language, ISO 20022. But let's start with another deadline and get back to that, Jessica. For example, what if I'm a commercial bank or even a PSP who's worried about meeting the March 2025 cutover from Fed funds to Fedwire? It's four months away. Give me a quick background on the cutover itself, if you would, and then tell us what's the smart move if you've fallen behind on that.

Jessica Cheney: Yeah. It is a definite, high priority deadline. So in March, the Federal Reserve is switching its format from the Fed funds traditional format that's been in place for decades, to the ISO format. I think at this point, banks are scrambling to meet that March deadline. And if you are in that position, there are a couple of things that you really need to do, and that's prioritize the things that you have left to get completed.

Whether that is end-to-end testing from any of your front-end solutions that originate wires, to your wire systems that actually enter the wire instructions to the Federal Reserve, that really needs to be prioritized. And, at this point, the biggest tool I can give you for that is taking a step, and getting on a tri-party call with both your origination system providers as well as your wire system providers, and identifying and outlining the steps and the order in which you are going to conduct this testing, because all aspects need to be absolutely streamlined at this point in order to get to March.

Owen McDonald: Right. And we're going to come back to that. Frederic, I'm going to switch over to you. Parts of the EU and rest of world got a jump on instant payments, but you've said that the complexity and urgency of ISO 20022 deadline has been "largely underestimated". I'd like you to explain that along with your concerns for rest of world when it comes to technical deadlines starting with ISO, but there's also CBPR+, and Swift next November, and regions like Switzerland with mandatory instant payments.

So if you're a bank concerned about your monetization roadmap, what are smart ways to catch up?

Federic Viard: Okay. So there are several items in the question itself. But one common thing is all the new initiatives in payments, they are all based on ISO 20022. So this is the new format for any new initiative, whatever it is: cross-border, domestic, wherever in the world. This is always based on ISO 20022.

This is really the new language that everyone has to accommodate in order to be ready for the next initiatives under a new payments environment, which is growing for now. I would say that, back to the point around fraud, ISO 20022 being much more structured in terms of data and more rich, will help to better mitigate fraud because the details of each transaction is much more precise. It is machine readable, so you can implement systems that will auto learn what has to be done and so on. So, I think that the underlying standard is really important for any, let's say, new initiatives. And if we go to artificial intelligence, this is the same.

So, the richer data, more structure, will help to build much more ad-hoc solutions, much more on-purpose solutions. I think it's really the key element of that. When I said that it has been underestimated, because, let's say, every year at Swift there is a new release, which is a format release. So, you have new feeds which are, let's say, new formats, new lengths, new types. But this is an ongoing thing, which is more or less the same for the last twenty years.

So, everyone is very used to these changes, but inside an existing empty format, which is the format used today. ISO 20022 is much more than this! So, it has been perceived, at the beginning, as just another standard release as it is usually on a yearly basis, but it's not. It's much more than this, because this is a new syntax, new content, new way of structuring fields, a new way of capturing information. So, this is something which is not only at the messaging interface or at the wire interface. This is something which has ramifications across multiple systems that need to understand ISO 20022, for instance: reconciliation, matching, or sanctions screening. A lot of systems are impacted by ISO 20022, and this may not have been perceived since the beginning. So, now that all the people know that ISO 20022 is not just the messaging interface, it's something which has ramifications inside the bank, it needs everyone, as in service compliance, messaging, payments, to be aligned on the same goals, which is to support ISO 20022 because it will have ramifications.

And then if we go to instant payments, which are based on ISO 20022, then you have the notion of having the availability of your instant payment system on a 24x7 basis. So, it needs to revisit a lot of systems which are not 24x7. Cash management, liquidity management, all of that, at one point, will need to be able to cope with the 24x7 requirement. So, we can see that ISO 20022 is one building block of a bigger transformation around availability, speed, user experience. So, this building block is here to stay, it will be groundwork for any new initiative, whatever it is, for payments, cross-border, domestic, but also for the user experience, also for artificial intelligence, also for having better, machine-readable information, so faster and less friction. So, all of that will come on top of ISO 20022, which is really a basic building block for all of that in terms of transformation in the payment industry.

Owen McDonald: Understood. Jessica, any thoughts to add on that, on ISO20022 and technical deadlines?

Jessica Cheney: I think Frederic covered almost everything I would have to say about that other than the time is ticking! I know a lot of banks have talked about the Federal Reserve going to extend this deadline. My personal opinion is that they are not going to. They we have literally kicked this can down the road for over a decade in the U.S., and this is really an impetus to get us up to the global standard. So, I don't see the Fed extending this deadline.

Frederic Viard: So, just with regards to Swift CBPR+, we had a webinar with Swift last week, and they clearly stated they will not change the deadline. November 25th will be the date where you will be on ISO 20022 for CBPR+, so the date will not move.

Owen McDonald: Right you are, Frederic and Jessica. So, there's no getting away from that! 

Moving on, we'd be remiss if we didn't discuss generative AI. We can't even have a conversation and it's already come up three times. So much press has been devoted to GenAI. 

Starting with you, Jessica, you recently told me that most banks are still trying to figure out what they would even be comfortable using GenAI for setting it loose on their banking data, noting some of the biases and hallucinations still found in AI tools, generative AI tools, even credit decisioning, new account acceptance, etc. using GenAI is concerning. But the banks that figure it out first will have a powerful differentiator. How does this impact banks in North America in the near term, Jessica?

Jessica Cheney: Yeah. Thanks for asking this question. It was really important for us to understand where our bank customers were thinking. So, at our recent customer advisory forum, I posed the question. And, frankly, I got a lot of blank stares, but then some shared that really AI is being explored within every single one of these banks. However, it is not necessarily generative AI. What they are looking for AI to do is really help in some of their automation tasks, some of the fraud investigation, anywhere where automation can help increase their efficiency, they're very comfortable with it. Where they're not comfortable is in, right now, utilizing AI to make complex decisions that may have an influence or bias may have an influence or where there is a nuance that they're not comfortable with the AI tool completely understanding. So, there is sort of a bifurcation of the way banks are thinking about AI. 

They absolutely see it as a huge efficiency gain. Communication can be improved easily by utilizing AI in the right manner. But when it comes to making decisions, they're still very cautious about things that they're going to introduce it for. Now your question was, will the banks that first embrace this have a jump start in the market? I think absolutely. But it's going to take a while not only the banks, but all of the regulatory agencies associated with banks, to be comfortable with AI being used in complex decision-making. So, I really think that's where this is going to play out.

Owen McDonald: It's interesting. Our experts have alighted on the same opinion here because, Frederic, you've mentioned that there is still great deal of reluctance in the EU business banking circles to allow GenAI to make complex decisions about money, like Jess was just saying. But you also said to me that GenAI can be linked to data using APIs to create new B2B payment experiences. So, what do you see happening in the short term, Fred?

Frederic Viard: So, I completely concur with what Jessica just said. So, I think in terms of efficiency, making sure that you can reduce the number of false positives in some areas, to automate processes that today require manual interventions, to decrease the number of exceptions, and to use machine learning to go faster, why not chatbot? So, it will depend a bit on the service in the bank that will use AI, yes or no. So, yes, efficiency, definitely, yes.

I think as Jessica said, it is about taking a decision about investments or defining a new route, or whatever. There is still some psychological reluctance to give this responsibility to an algorithm instead of giving it to a human. Even if statistics show that the machine is doing better than the human! But definitely AI will take a call inside the world in general and in the banking world in particular. So, it will come. It is already here in many aspects, many services. It will probably percolate into other services, but there is a need to really make a transformational mindset in terms of how AI will really take decisions about investments, about routes to payment, and things like that. So, I think it will take some time to give this responsibility to artificial intelligence in the future.

Owen McDonald: Our last talking point today is B2B embedded finance. Embedded finance for corporate banking is a hot trend, allowing people who live inside their ERP systems at work to make payments and have access to that data inside the ERP, where they want it, where they live. Jessica, what are your thoughts on delivering this experience?

Jessica Cheney: Owen, I think that this is another one of those channel extensions that banks have really started to focus on. This embedded finance channel extension has really leapfrogged or has utilized the open banking concept and taken that and run with it. Because it's really open banking is the concept that really helped support embedded finance. Embedded finance really changes the relationship between the bank and the corporate that's utilizing it from an everyday interaction perspective. The embedded finance tools basically allow a corporate customer to do everything that they need to without having to have the friction of toggling between multiple systems or multiple websites to gather information to do daily tasks.

So, the banks that take advantage of this and embrace this and, the term we've used is, bring their brand into the ERP are really the ones that are going to have a lot more success with this. Those that continue to sort of fight it, corporations will find ways, and the ERP systems themselves, will find ways to make the data capture much more efficient with or without the bank. So, our thought on this is to fully support our banks in providing a seamless channel experience. There are times where a corporate that is even a very heavy user of an embedded banking solution or embedded finance solution in their ERP may need to continue to go to the bank's website for a piece of information that the ERP just doesn't have. So, it's really important that that experience stay in sync. Right? 

The worst thing that can happen and can potentially be a risk if the bank is not participating in the embedded finance, with the ERP, is the data can be out of sync, and that will just be a customer service nightmare for a bank. So, that's why I think that banks that embrace this new channel extension, not only will increase their customer satisfaction and customer success, but the likelihood of having a data sync problem is drastically reduced.

Owen McDonald: Frederic, you have said you believe personalization will be a big force in B2B banking. Is B2B embedded finance one way to personalize and create a beneficial experience around performing payment tasks from inside the ERP, as Jessica was talking about? What are your thoughts on the importance of embedded B2B payments?

Frederic Viard: As Jessica said. The notion of open banking is something which is really moving. So, it started with the banks, but of course it will reach the corporates and the end users, so the global ecosystem. We sometimes talk about composable finance, so the possibility to take several services, most probably via APIs, to consolidate some information, to integrate information from other platforms, other systems within the workflow, to create a new experience. And based on that, we can drive personalization, or suggestions to propose rates which are more efficient, and so on. So, I think it will come with the aggregation of multiple data sources, information sources, in order to really compose an experience that's helps to go faster, to remove friction and, at the end of the day, to improve the customer experience.

So, embedded, composable, something that you can take easily from other providers, other platforms, other SaaS services, is definitely something that will grow in the near future to help remove frictions and to improve customer experience. 

Owen McDonald: I hope you were paying attention because the ideas and opinions we just heard will be extremely useful to your operations now and in the immediate future. Luckily, you can replay this episode. It'll be worth it. A very big thanks to Bottomline's Jessica Cheney and Frederic Viard. To our amazing audience that grows every day, thanks for listening.

Don't forget to subscribe, and catch us again on your favorite podcast platforms, including Apple, SoundCloud, and Spotify. Bye for now. 

Speaker 0: The Payments Podcast from Bottomline.