European banks balk at SEPA instant timelines

A majority of European banks (58%) that do not currently offer instant payments believe the timelines set out by the EU in the new SEPA Instant payments legislation are unrealistic, according to research from RedCompass Labs.

The report, “So, you think you’re ready for SEPA instant?” includes findings from a survey of 200 senior payment professionals at European banks, examining their views on the EU’s new instant payment legislation and where they are on their journey to instant payments. 

The research revealed that nearly one-third (33%) of banks that don’t currently offer instant payments were unsure or not confident they would be able to receive instant payments by 9th January 2025, as set out by the legislation. 

It also found that European banks underestimate how many payments they must process per second. On average, European banks aim to be capable of processing between 101 and 300 payments per second by the end of 2025, while just 5% said they were targeting above 1000. Given bulk payment files can contain hundreds of thousands of payments that need to be processed as soon as possible, banks should aim to be able to process at least 1,000 payments per second.

The top five challenges facing banks in offering instant payments are adapting to customer channels, including offering a confirmation of payee service (25%), implementing KYC and sanctions screening provisions (21%), processing more volumes and scaling throughput (22%), creating a business case for value-add instant payment offerings (20%), and 24/7 availability (20%).

The positive news is that despite the significant investment of resources and the challenges ahead on the road to achieving instant payments, 77% of banks believe the benefits outweigh the costs.

The research also found that the demand for instant is growing. Some 89% of respondents said they see a growing demand for instant payment products and services from their customers. This is spurring banks to plan significant investments, with around three-quarters (76%) of European banks expecting to invest in technology to meet the new rules. The average investment will be between €1m and €3m in technology, while 14% expect to invest over €3m, and 23% expect to invest under €250,000. 

The most significant benefit of the instant payment legislation for corporate customers was creating a foundation for new collection methods to displace card payments (33%). This was followed by improving customer experience (32%) and payment certainty (31%). In general, banks (55%) intend to offer instant payments as the default payment option for their clients in the future.

 

UK and US sign agreement on AI safety

The UK and US governments have agreed on a Memorandum of Understanding (MoU) on artificial intelligence (AI) safety. This follows an announcement in November last year where the two governments announced the creation of their respective AI Safety Institutes and confirmed their intention to work together toward the safe, secure, and trustworthy development and use of advanced AI. This MoU provides a more detailed basis for both countries to build upon in realising their shared goals on AI safety through a partnership between the two countries’ Institutes. The partners will continue to identify and develop new opportunities for collaboration on an ongoing basis, with a view to increasing alignment over time.

Through this MoU, the partners intend to work closely to develop an interoperable programme of work and approach to safety research to achieve their shared objectives on AI safety. Specifically, the Institutes intend to build a shared approach to model evaluations, including the underpinning methodologies, infrastructures and processes, perform at least one joint testing exercise on a publicly accessible model, and collaborate on AI safety technical research, to advance international scientific knowledge of frontier AI models and to facilitate sociotechnical policy alignment on AI safety and security.

The MoU will also see the two countries explore personnel exchanges between their respective institutes and share information across the breadth of their activities in accordance with national laws and regulations, and contracts.

The partners remain committed, individually and jointly, to developing similar collaborations with other countries to promote AI safety and manage frontier AI risks and develop linkages between countries on AI safety. To achieve this, the partners intend to work with other governments on international standards for AI safety testing and other standards applicable to the development, deployment, and use of frontier AI models.

 

Market rally drives new demand for Japanese equity research

Institutional investors are shifting their attention and trade commission payments back to Japanese equity research in the face of a long-awaited surge in Japanese stocks. This is welcome news for Japanese brokers and research providers, who are hoping for a sustained rebound in revenues after decades of weakness.

On 22 February 2023, the Nikkei 225 climbed to 39,098, topping its previous high of 38,915.87 reached on 29 December 1989. That record-breaking performance followed a 28% gain in the benchmark in 2023 - the fastest expansion in a decade.

The rally in Japanese equities is driven by a host of factors, including a weak yen, strong corporate earnings growth and key regulatory and governance reforms that encourage listed companies to boost valuations and earnings and to unwind “cross-shareholding,” or the equity stakes large Japanese companies hold in each other.

These tailwinds have attracted the attention of Warren Buffett and other international investors, and the resulting foreign investment flows have helped drive up equity valuations.

“Bullish forecasts for the economy and corporate profits for the remainder 2024 have convinced institutional investors in Japan that domestic equities are worth a much closer look,” says Parijat Banerjee, Head of Asia-Pacific at Coalition Greenwich and co-author of ‘Stock Market Rally Drives New Demand for Japanese Equity Research’.

Coalition Greenwich asked the institutional investors participating in the annual Japanese Equity Investors Study to identify how they use the commissions paid to brokers on Japanese equities trades across research, sales trading and execution, broker capital commitment, and other factors. In the 2023 results, these institutions, representing a sample of the biggest and most active investors in the Japanese stock market, increased their allocation to research, advisory services, sales coverage, and corporate access by 11 percentage points, to 55% of the total spend.

“While Japanese institutional investors overall have reduced the number of research providers, they use every year since 2019, they are now projecting an increase in 2024,” says Tarun Hariharan, Research Manager at Coalition Greenwich and report co-author. “As the year unfolds, we will be watching to see if this continues and whether it will translate to increased execution spend and a boost in revenues for brokers and other research providers.”

 

US Treasury targets Russian fintechs for sanctions

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned thirteen entities and two individuals for operating in the financial services and technology sectors of the Russian Federation economy, including persons developing or offering services in virtual assets that enable the evasion of US sanctions. Five entities were designated as owned or controlled by OFAC-designated persons.

The companies designated by OFAC have all either helped build or operate blockchain-based services for, or enabled virtual currency payments in, the Russian financial sector, thus enabling potential sanctions evasion. 

Many of the individuals and entities designated facilitated transactions or offered other services that helped OFAC-designated entities evade sanctions. These designations build upon OFAC’s 23 February 2024 action to target companies servicing Russia’s core financial infrastructure and curtail Russia’s use of the international financial system to further its war against Ukraine. 

As a result of the action, all property and interests in property of the designated persons described above that are in the US or in the possession or control of US persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50% or more by one or more blocked persons are also blocked. Unless authorised by a general or specific licence issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by US persons or within (or transiting) the US that involve any property or interests in property of designated or otherwise blocked persons. 

In addition, foreign financial institutions that conduct or facilitate significant transactions or provide any service involving Russia’s military-industrial base run the risk of being sanctioned by OFAC. 

“Russia is increasingly turning to alternative payment mechanisms to circumvent US sanctions and continue to fund its war against Ukraine,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson. “As the Kremlin seeks to leverage entities in the financial technology space, Treasury will continue to expose and disrupt the companies that seek to help sanctioned Russian financial institutions reconnect to the global financial system.”

 

Commerzbank begins strategic cross-border payments initiative

Commerzbank is updating its existing payment platform in Germany to process cross-border payments via the SWIFT network and to process high-value and urgent payments via the TARGET 2 or EURO 1 payment systems. To achieve this, the bank is using the TRAVIC-Payment Hub developed by PPI, which has native command of the formats that are now becoming common in international transactions as per the International Organisation for Standardisation 20022 (ISO 20022).

The plan is to complete the migration by the end of 2025. At that point, Commerzbank wants to use the PPI platform to process all payment messages in Germany for its customers’ global activities in foreign commerce, treasury and liquidity management in ISO 20022 format. This includes high-value payments within the Euro system for the TARGET 2 clearing system and the Euro Banking Association (EBA)’s clearing system with EURO 1, as well as correspondent bank payments or payments in foreign currency via the SWIFT network in the Cross Border Payments and Reporting (CBPR+) format. 

The PPI platform has been natively developed for the compulsory ISO formats, meaning that it should be much easier for the bank to introduce and integrate new products for international payments in the future. An ISO-native IT platform is indispensable now for reliably processing international payment mandates and expanding on existing offerings economically. Systems not consistently based on ISO 20022 cause high maintenance times and secondary costs.

“With the integration of the TRAVIC-Payment Hub from PPI AG, we will tap into the full potential of ISO 20022, and we will be able to offer our private and small business clients and corporate and institutional clients considerably better services for executing payments and important innovations for cross-border payments,” said Simone Loefgen, Global Head of Payment Platforms of Commerzbank.

 

Visa deploys AI-powered products for its services business

Visa has announced the continued expansion of its global value-added services business with the addition of three AI-powered risk and fraud prevention solutions. The products, part of the end-to-end Visa Protect suite, are designed to reduce fraud across immediate account-to-account and card-not-present (CNP) payments, as well as transactions both on and off Visa’s network.

Visa Protect is part of a broad suite of value-added services that have grown to nearly 200 products, spanning five high-demand categories: Acceptance, Advisory, Issuing, Open Banking, and Risk and Identity. To help clients navigate a growing number of complexities, Visa has combined decades of expertise and significant investments in both AI and fraud prevention, with US$10bn over the last five years in technology and innovation, to help reduce fraud and increase network security.

Visa says it helped block US$40bn in fraudulent activity last year, nearly double from the prior year. This announcement focuses on three Visa Protect solutions that are intended to address client needs and utilise the company’s AI expertise. The first, Visa Deep Authorization (VDA), has been developed to address challenges facing issuers as a result of increasingly sophisticated digital fraud, VDA is a new transaction risk scoring solution tailored to manage CNP payments better. Powered by a deep learning recurrent neural network (RNN) model and petabytes of contextual data, VDA is designed to combat fraud without disrupting digital transaction experiences.

The firm is also expanding its Visa Advanced Authorization (VAA) and Visa Risk Manager (VRM) for non-Visa card payments. The AI-powered fraud risk management solutions are now network scheme agnostic, allowing issuers to simplify their fraud operations into a single fraud detection solution that helps strengthen fraud protections while reducing costs.

The latest update also introduces Real-Time, Account-to-Account Payment Protection. This is Visa’s first fraud prevention solution built specifically for immediate payments, including P2P digital wallets, account-to-account transactions, and central banks’ instant payment systems. Powered by deep learning AI detection models, this service provides a risk score in real time that helps financial institutions prevent fraud by automatically blocking bad transactions before they happen.

Each product will launch in the first half of 2024. Availability will vary by product and market.

 

Modern Treasury looks to drive enterprise payments transformation

Modern Treasury has announced the launch of its Professional Services offering, which is designed to help enterprises scale modern payment infrastructure so they can innovate faster, reduce risk, and unlock new revenue.

The offering provides guidance and best practices to help enterprise customers implement the Modern Treasury platform. Professional Services includes premium support for stringent or customised needs, ongoing payments infrastructure support, and custom integrations of Modern Treasury into IT systems, including banks, card processors, internal systems, and ERPs. It also includes a custom solutions advisory focused on payment and ledgering strategy and long-term decisions related to unlocking value from payments and reconciliation systems.

“Finance teams need modern financial infrastructure to move, track, and reconcile money in real-time, but many, especially those handling high-volume payments, face ballooning complexity,” said Dimitri Dadiomov, Modern Treasury co-founder and CEO. “We’ve built the only payments platform designed to solve the challenge of money movement at scale.”

 

Deutsche Bank successfully issues Singapore dollar bond

Deutsche Bank says it has further diversified its investor base, successfully raising SGD400m in senior non-preferred notes. This marks Deutsche Bank’s second visit to the SGD market, following its inaugural issuance in September 2022 and investor roadshow in December 2023. Proceeds from this issuance will be used for general corporate purposes. 

The bank leveraged the positive market environment to execute the transaction, which received strong demand from investors both across Asia Pacific and abroad.

“This successful transaction reinforces Deutsche Bank’s standing in the Singapore Dollar market and is a clear illustration of the bank's strategy to extend its funding activities across different currencies and markets,” said Jonathan Blake, Head of Issuance and Securitisation, Deutsche Bank.