Rising to the challenge of digital payments


As payments continue down the digital journey, the industry is being forced to re-invent payment technologies to continue offering secure and efficient services. From increased collaboration to the industry’s need for combatting fraud, efficiency increasing and standardisation, today’s challenges offer a wide avenue for innovation.

In the UK, a record £754 million ($1 Billion) was stolen from financial service organisations in the first six months of 2021, a 30% jump from the same period in 2020 and a more than 90% spike from three years ago, according to the latest data from banking industry body UK Finance. 

Banks are working to modernise their systems and combat fraud, but the industry also has to come together to develop solutions and strategies. Indeed, one of the biggest challenges for banks is the fragmented data landscape which makes it difficult to determine the other counterparties along transaction chains. Data standards and formats vary between different jurisdictions, systems and message networks, making interoperability and automation difficult.

One solution the industry is putting forward is the new ISO 20022 standard that is due to be deployed in November of this year. It’s an international standard for relaying electronic messages between financial institutions, created to give the financial industry a common platform for sending payments messages and exchanging payments data. In other words, greater control and traceability throughout the payment chain.  

But this is only the beginning. The industry is primed to be revolutionised by a combination of new technologies that will enable a stronger, faster, and cheaper corporate payment system. Paul Beecham, Societe Generale’s crypto expert, envisions a future where ”treasurers will store all their personal details as digital ID cards in highly-secure NFTs or digital wallets”. Once done, they will be able to reuse them as often as needed with their suppliers, clients, etc. Authentication would also be completed with biometrics for greater security.’ With blockchain technologies as the backbone of such core processes, future payment systems will be able to offer a secure digital ledger that allows each component within a transaction to be tracked and approved by everyone who is party to the transaction, mitigating the risks of manipulation in payments.

In tandem with the challenge of fraud is that of standardisation. For political and regulatory reasons, and due to the diversity of players the payments market is fragmented. On the one side we have the afore-mentioned variation of data standards and formats. And on the other, we have a myriad of markets players – banks, fintechs – that are not necessarily subject to the same rules and regulations.  

To achieve a simpler, more secure, and a more transparent payment world, the industry needs more collaboration amongst players. This would, in turn, lead to cost synergies and foster innovative solutions – the afore mentioned NFT based digital ID being only one of the many promising new applications of blockchain. 

For this to happen, regulators must apply the same policies to all industry players, according to the principle of ‘same activity, same risks, same rules, and same rigorous verification of the application of the rules’. Banks and new players must also cooperate rather than compete with each other in order to capitalise on each other's know-how and to accelerate the availability of new secure and efficient services for clients.

Gradually, banks and corporates will see distributed ledger technology – blockchain – in a new light with the potential to be the core technology for the future of risk management. That being said, one technology alone will not deliver a better and secure payment system. Indeed, the industry as a whole must work together to secure the future payments world. But for the immediate future, the challenge is the implementation of ISO 20022. As Stephen Donohoe, Societe Generale’s UK Product Manager for Payments and Cash Management is keen to point out: “November is not that far away. The clock is ticking and banks should have already started their engines for clients are likely to prefer organisations where they feel safe and protected.”