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Europe targets more efficient banking industry data reporting - Industry roundup: 20 March

ECB and EBA target more efficient banking industry data reporting

The European Central Bank (ECB) and the European Banking Authority (EBA) aim to harmonise and integrate data reporting by the banking industry to improve efficiency and reduce the associated costs. To this end, the two institutions have established the Joint Bank Reporting Committee (JBRC), which is tasked with helping to develop common definitions and standards for the data that banks are required to report for statistical, supervisory and resolution purposes.

The ECB, the EBA, the European Commission, and the Single Resolution Board (SRB) will all be part of the JBRC, as will the relevant authorities with the power to issue supervisory, resolution and statistical reporting requirements in European Economic Area Member States. The banking industry will participate through a consultative body, the Reporting Contact Group.

One key tangible deliverable of the JBRC will be a common data dictionary for the reporting of statistical, supervisory and resolution data by banks. In this regard, the JBRC will establish common concepts and definitions used in new and existing reporting.

“High-quality data is essential to fulfilling our mandate”, said ECB Executive Board member Isabel Schnabel. “I am pleased that we will have a structure in place to simplify and facilitate data reporting by the banking industry in an integrated, efficient and standardised system.”


UK inflation drops to 3.4%

The UK Consumer Prices Index (CPI) rose by 3.4% in the 12 months to February 2024, down from 4.0% in January and well below its recent peak of 11.1% in October 2022. Our indicative modelled consumer price inflation estimates suggest that the October 2022 peak was the highest rate in over 40 years (the CPI Accredited Official Statistic series begins in January 1997). The annual rate in February 2024 was the lowest since September 2021, when it was 3.1%.

The easing in the annual rate between January and February 2024 was due to prices rising by 0.6% on the month compared with a rise of 1.1% a year earlier. Large downward effects from food and non-alcoholic beverages, restaurants, and hotels were partially offset by a significant upward effect from housing and household services.

Core CPI rose by 4.5% in the year to February 2024, down from 5.1% in January and below its recent high of 7.1% in May 2023, which was the highest recorded since 7.2% in March 1992 in the constructed historical series. The CPI all goods index rose by 1.1% in the year to February 2024, down from 1.8% in January. The CPI all services index rose by 6.1% in the year to February 2024, down from 6.5% in January and down from 7.4% in July 2023, which was the joint highest rate (with May 2023) since March 1992.

“These inflation figures indicate that the Bank of England is likely to hold interest rates for longer, especially with the green shoots we have seen in economic recovery, which should sustain inflation at this level,” commented Daniel Austin, CEO and co-founder at ASK Partners. “This is a positive sign for coming out of a mild recession but does mean that pressure will remain on those servicing debt.”


Swift to develop CoP service for Australian Payments Plus

Swift has been selected to build a service that will reduce the risk of misdirected payments and increase defences against payment fraud, providing Australians with more confidence when sending money. Swift, which built and runs the country’s New Payments Platform (NPP), was chosen by Australian Payments Plus (AP+) to build confirmation of payee (CoP), which is a security measure that helps protect consumers from fraud by confirming the identity of the payee before a payment is made. 

The CoP works by comparing the payee’s name entered by the payer with the name associated with the payee’s account. The service would be delivered via the NPP, standardised APIs and a centralised account matching service managed by AP+.

Swift’s selection to develop the CoP service for the NPP builds on its capabilities in AI and data services, including payments pre-validation for cross-border payments, which is already eliminating international payments friction with upfront account verification. Features of the new service will be progressively built and tested throughout 2024, and financial institutions will be able to integrate it into their banking channels from 2025.

“The development of an industry-wide Confirmation of Payee service will play an important role in reducing certain types of scams resulting in misdirection of a payment to the wrong account as well as avoid mistaken payments being made to incorrect account numbers,” commented Adrian Lovney, Chief Payment and Schemes Officer at AP+. “AP+ is committed to working with the industry to better protect consumers and businesses as part of a collective effort to combat fraud and scams.”


UK SME demand for finance returning

Some £3.5bn was lent to British SMEs in the fourth quarter of 2023 – the first quarter not to see a fall since Q2 2022. The is according to the latest Business Finance Review from UK Finance, which reports on the finance needs of small and medium-sized enterprises (SMEs) in the fourth quarter of 2023 and the year as a whole. Demand uncertainty, higher interest rates, and the impact of lending taken out during the pandemic all contributed to weakness in gross lending in 2023. However, the decline in gross lending over the previous five quarters stopped in the final months of 2023. Our fourth quarter data contains promising signs that SMEs are planning for the future and have more confidence to take on new or additional finance.

The second half of 2023 also saw greater sector variation in lending patterns. The manufacturing and agriculture sectors reported two consecutive quarters of increased borrowing in Q3 and Q4, with only real estate and construction continuing to see falls in borrowing throughout the second half of 2023, amid sharp falls in house-building activity. In other sectors, there are signs that demand for finance is returning, and lenders are meeting these demands with new loan finance.

In an increasingly competitive market, 59% of SME lending comes from outside the big banks. Lending to medium-sized businesses is the first to turn a corner, as these firms saw the first rise in gross lending in two years.

Approvals for new financing increased over Q4. The number of new loans and overdrafts rose by 3% and 7%, respectively, compared with Q3. The value of new loans approved was the highest since the third quarter of 2022. Medium-sized businesses saw a more significant increase, with the value of approved overdrafts rising by nearly a fifth and loan approval values increasing by 17%. Accommodation and food services and recreation and personal services saw notable increases.

The invoice finance and asset-based lending (IF/ABL) sector supported UK businesses with a combined turnover of £316bn, an annual record. This turnover drove record availability within IF/ABL facilities with lenders offering working capital facilities of over £50bn at the close of the year. The average value of advance per client was the second highest recorded, with the average client drawing down £584,000.


85% of tasks in financial services firms would benefit from GenAI 

Almost 85% of tasks and activities in financial services firms would benefit from generative AI (GenAI) technology, according to a research study from AI consultant Fifty One Degrees. The study analysed 311 tasks and activities spanning fourteen functions in banks, insurance companies and financial services firms, and considered which AI technologies would benefit each task and an expectation of how much benefit would be created. 

GenAI Assistants built to support team members with one or more specific functions will benefit three-quarters of tasks performed by financial services and insurance firms, the study finds. GenAI Assistants are trained on particular policies, procedures and regulations. They are most impactful for functions where large volumes of natural language information are processed, such as compliance, legal, risk management and underwriting. In some cases, AI assistants will make employees more efficient, whereas in other places, they will automate some of the workflows altogether.

The study found that other AI tools, which are also often powered by GenAI and large language models, will be the next most impactful, creating gains in 39% of activities. Examples of other AI tools include AI-powered training, AI-based legal tools, AI finance tools, and many more. 

The analysis shows that the analytics and data science, technology, customer services and underwriting functions can both increase efficiency and the quality of work delivered through the use of GenAI. Other functions such as compliance, enterprise risk and legal will benefit significantly from efficiency gains, but the quality of work is unlikely to increase at the same rate.

Recent research estimates that Generative AI will drive US$2.6 trillion to US$4.4 trillion annually in value for global companies. Within financial services and insurance, that figure is US$200bn to US$340bn, which is equivalent to 9-15% of operating profits.  The UK financial services and insurance industries produce £278bn of economic output. A 15% boost would generate a staggering £41.7bn of additional economic output. Further, the UK financial services industry equates to 8.3% of the entire UK economy and 2.5 million people are employed there. Therefore, any gains made by financial institutions would have far-reaching impacts across the wider UK economy.


Mastercard enables international remittances to Alipay Wallet

Mastercard has continued to expand its cross-border payment solutions with a connection to Alipay, the Chinese digital open platform under Ant Group. The move comes as consumers increasingly look for ways to send money across the globe quickly and securely. Insights from Mastercard’s Borderless Payments Report reveal that 68% of consumers would make more online cross-border payments if they were faster. In addition, they increasingly favour digital versus in-person cross-border payments, motivated by a desire for quick and secure capabilities to send money along with built-in confirmation that funds were received.  

Using Mastercard’s portfolio of international money transfer solutions, Mastercard Move, participating financial institutions can offer their customers international payments to over 180 markets, including a global payout network of over 150 currencies that reaches 95% of the world's banked population. 

“Mastercard’s connection to Alipay, a super-app serving over 1 billion users in China, is an important addition to its international payments offering, enabling its bank, fintech and corporate customers globally to offer their customers a connection to this popular e-wallet in near real-time,” said Alan Marquard, Head of Transfer Solutions at Mastercard. “Disbursements and remittances are a key area of growth for Mastercard, and the company continues to develop its solutions across geographies, always with the objectives to make payments faster, safer and more convenient and to foster financial inclusion.” 


Sygnum tokenises Matter Labs’ treasury reserves in US$6.9bn Fidelity MMF

Sygnum, a global digital asset banking group, is tokenising US$50m of Matter Labs’ treasury reserves onto the zkSync blockchain. The Sygnum-issued security tokens act as on-chain representations of units from Fidelity’s US$6.9bn Institutional Liquidity Fund (ILF) to generate a secure and transparent “Proof-of-Reserves.”

Matter Labs is a software development, engineering, and cryptography company focused on creating scaling solutions for Ethereum and contributing to improving zk-rollup technology, such as zkSync. zkSync is a layer 2 blockchain protocol designed to scale the performance of Ethereum, the second-largest cryptocurrency. The investment marks the first step of Matter Labs’ long-term strategy to move its treasury reserves on-chain with institutional custodians like Sygnum.

This is the first project to leverage the capabilities of Sygnum’s multi-chain tokenisation solution with traditional securities. By tokenising the investment in Fidelity’s money market fund, Sygnum says it further strengthens Crypto-TradFi connections and lays the foundations for a fully tokenised ecosystem.

Matter Labs’ strategic move to bring its treasury reserves on-chain is part of the growing Real World Assets (RWA) tokenisation trend, which increased 74% in 2023 to US$2.5bn. Their enhanced liquidity and accessibility – as well as the increased attractiveness of traditional yield-bearing instruments – is driving new levels of transparency, efficiency and new product creation in financial markets.


FIS targets greater card fraud detection through AI collaboration

Global financial technology firm FIS has announced that its SecurLOCK card fraud management solution could see an increase in accurately identified and prevented fraudulent card transactions through a partnership with Fintech FIS Accelerator alumnus Stratyfy.

With this anticipated advantage, customers may see a better and safer card payment experience for consumers as more fraud attempts are stopped, saving numerous hours of resolution time per transaction.

Through live customer testing, FIS estimated that the SecurLOCK product was able to deliver a significant improvement of accurately identified and prevented fraudulent activity. Reducing this friction, the firm says consumers can be less adversely affected by fraud rules and the disruption of “false positives” than ever before.

“With sophisticated fraudsters using new technologies to increase fraud attacks, both businesses and consumers are facing more risk than ever before,” said Eric Kraus, Head of Fraud Services at FIS. “This new collaboration is a continuation of a commitment to implement new technologies, helping businesses prevent fraudulent behaviour to protect the consumers they serve.”


Luxhub platform looks to support IBAN-Name check

A few days after the Instant Payments Regulation adoption by the Council of the EU, Luxhub’s shareholders - Spuerkeess, BGL BNP Paribas, POST and Raiffeisen - have expressed their support to the company’s Payee Verification Platform.

This initiative aims at mutualising the deployment efforts of the Verification of Payee (VoP) requirement, which shall be implemented by payment service providers (PSPs) for all credit transfers no later than September 2025. Even though this deadline might seem far, a Luxhub statement notes that PSPs should not wait to kick off their projects to be compliant on time. The shareholders of Luxhub are glad to see the development of the Payee Verification Platform and support the firm’s ambition of offering a solution to PSPs.

Through the new regulation, when a customer intends to initiate a credit transfer, whatever the channel, its bank will have to offer them a service ensuring verification of whether the name and the IBAN of the beneficiary match, do not match or almost match. This information shall be provided before the payer is offered the possibility of authorising the payment to enable the client to correct the data or to decide not to authorise the payment, should there be a “close” or a “no match”. 

Apart from professionals performing bulk payments, clients cannot opt out of this service. If the client decides to authorise a credit transfer despite a “no match” and provided that the PSP complied with all its obligations, the latter shall not be held liable if the credit transfer reaches an unintended beneficiary. Should the service be unavailable or return incorrect answers, the PSP of the payer or the PSP of the payee might be held liable, as the case may be.

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