Consumer and business lending during COVID-19
COVID-19 has had an unprecedented impact on our lives and it has caused significant economic hardship.
Banks in several countries are offering deferred payments on credit cards, loans and mortgages for consumers and businesses facing hardship due to COVID-19. UK Finance reported that financial providers granted 1.6 million payment holidays as of 24 April 2020.
COVID-19 has increased the financial industry’s focus on digital offerings and increased demand from consumers to use them. With bank branches shut and long waiting times for phone support, even previously nervous digital users have turned to these channels.
According to PYMENTS.com, the number of accounts opened through digital channels was up 200% in April 2020, and mobile traffic had increased by 85%. These are trends which could last, as only 40% of bank customers are intending to return to branch banking post-COVID-19.
Banks have to respond by putting increased efforts and resources into developing their digital channels. One of the key pain points for customers is the onboarding process where only part of the process has been digitalised. Many customers still need to go to a branch for ID and verification.
A recent study of financial institutions (FIs) in North America by ISMG and OneSpan highlighted that improving the customer experience is their top business objective for digital account opening in 2020. For 49% of respondents, the biggest obstacle for to digital account opening for FIs was legacy, manual ID verification and 35% found that knowledge-based authentication tools had become a point of friction to onboarding.
Banks are realising that partnerships with are critical to making progress with digital onboarding. Most lack the digital expertise and agility to achieve this in-house. 41% of respondents in ISMG’s survey planned to invest in new or existing partnerships to deliver a better digital onboarding experience.
The time to act is now and two Canadian banks have already announced they will be introducing biometric tools into their mobile onboarding processes.
The economic outlook is uncertain
Data from The World Bank has predicted a 5.2% reduction in GDP in 2020, making it "the deepest global recession for decades, despite the extraordinary efforts of governments." The OECD’s data suggests that the economies likely to be worst hit in 2020 are France, Italy and the UK.
At this stage, no one can accurately predict how soon the economy will recover from the effects of COVID-19. It seems more likely that we’ll see a new normal as lockdowns ease and finish, but some of the practices, such as working from home and reduced consumer spending, may continue.
It will take time for consumers to feel confident doing all the activities that they used to, such as eating out, going to concerts and travelling abroad. Businesses and financial providers must adapt to changing customer habits and ensure that their online offerings are robust and customer-centric.
This article was contributed by Fabrice Gouttebrouze, Managing Director, Sirma UK
BIS and MAS publish blueprint for cross-border payment idea
The Bank for International Settlements and the Monetary Authority of Singapore (MAS) has published a proposed blueprint for the multilateral linking of domestic real-time payment systems across borders.
The blueprint, titled Project Nexus, outlines how countries can fully integrate their retail payment systems onto a single cross-border network, allowing customers to make cross-border transfers instantly and securely via their mobile phones or internet devices.
The Nexus blueprint was developed through consultation with multiple central banks and financial institutions across the globe. It builds on the bilateral linkage between Singapore's PayNow and Thailand's PromptPay, launched in April 2021, and benefits from the experience of the National Payments Corporation of India's (NPCI) development and operation of the Unified Payments Interface (UPI) system.
The Nexus blueprint comprises two main elements:
- Nexus Gateways, to be developed and implemented by the operators of participating countries' national payment systems, will serve to coordinate compliance, foreign exchange conversion, message translation and the sequencing of payments among all participants. These gateways will be predicated on a common set of technical standards, functionalities and operational guidelines set out within the proposal.
- An overarching Nexus Scheme that sets out the governance framework and rulebook for participating retail payment systems, banks and payment service providers to coordinate and effect cross-border payments through the network.
“To achieve significant cost-reduction in cross-border payment transfers, enhancements must be made on two fronts: direct connectivity between domestic faster payment systems, and frictionless foreign exchange on shared common wholesale settlement infrastructures. The BIS Innovation Hub Singapore Centre is working on both. The Nexus project maps out a much-needed set of standards to achieve seamless cross-border payment systems connectivity.” said Sopnendu Mohanty, Chief FinTech Officer, MAS.
How do cross-border payments work?
Cross-border payments are currency transactions between people or businesses that are in different countries. The sender will choose a front-end provider, such as a bank or a money transfer operator (e.g. Transferwise), to initiate the payment. The receiver then receives the payment via the medium specified by the sender. Traditionally, cross-border payments flow via the correspondent banking network (CBN) which most front-end providers use to settle the payment. But, in recent years, new back-end networks emerged to optimise cross-border payments and enable interoperability between payment methods and provide senders with more possibilities to reach the receiver.
The increased international mobility of goods, services, capital, and people have contributed to the growing economic importance of cross-border payments. The value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years.