Payments On Fire

Glenbrook

Episode 160 – Innovation in Payments Workshop – Russ Jones, Glenbrook Partners

The new year is coming with lots of innovations for the payment industry. Some of them will impact some companies and/or all the industry, changing how things work on the marketplace. George welcomes back Russ Jones to Payment on Fire and they will uncover the lens of the game-changing innovations, including talking about the upcoming events and changes that really matter to the arc of the payment industry. Glen is a Payments Consultant, Analyst, Co-Author of “Payments Systems in the U.S.” and partner at Glenbrook Partners.

In this episode, Russ will discuss the Webinar presented by him and Yvette Bohanan between December 15th and 16th about innovation and payments, with topics like types of payment systems and technologies, how the different use cases lay out what’s unique about each, variations and differences around the world and how the payments industry is structured.

You’ll also hear about core system modernization, systems running 24/7/365, strong customer payment authentications and several other topics. Let’s hear George Peabody and Russ Jones talk about what to expect for the payments industry in 2022.

George Peabody, Host, Glenbrook Partners:
Welcome to Payments on Fire Podcast from Glenbrook Partners about the payments industry, how it works and trends and its evolution. I’m George Peabody, partner at Glenbrook and host of Payments on Fire and it’s my pleasure to welcome back to Payments on Fire my partner Russ Jones. Russ, glad to have you here.

Russ Jones:
Yes, George. Hey, how are you doing this morning?

George Peabody, Host, Glenbrook Partners:
I’m doing really well and I’m really happy that we’re back together again, I always enjoy these conversations. Yes, we’re talking about the workshops that we’ve got coming up but what’s so cool is the topics that we cover. I’m just looking at our schedule next week and I believe it’s Yvette or is it you who’s doing a webinar on systems networks and schemes. Oh my.

Russ Jones:

Yeah, that’s Yvette doing that, and you know, that’s it actually is going back to fundamentals on that webinar we talk all the time about different types of payment systems and technologies and how the different use cases lay out what’s unique about each we look at variation and differences around the world but we’re going back on that webinar all the way to how is the payments industry structured, what are the fundamentals if you’re just completely new, you know when you don’t know up from down in the payments industry that’s that’ll be a great starting point.

George Peabody, Host, Glenbrook Partners:

That’s cool. Well we’re here to talk about a couple more in-depth ones I will cast out until February the 22nd 23rd 24th, that’s our first payments bootcamp of the new year, but we’re really here to talk about what’s happening december 15th and 16th where you and Yvette are going to be talking about innovation and payments. This is kind of the annual, look at what’s happened right?

Russ Jones:
That’s right, George. We like to at the end of the year sort of take stock of what’s going on in the payments industry through the lens of innovation and not everything that, you know, there’s a lot of innovation in payments but also not everything that happens in payments is innovative. There’s things that happen all the time that quite frankly are just white noise in the industry that don’t really matter, there’s things that happen that impact individual companies but don’t really impact sort of the arc of the industry if you will and then there’s true innovations that just change how things work, the position of the different stakeholders in the marketplace and so we’re going to try to put the innovations that we’re looking at, we’re going to try to put them through that prism of sort of game-changing innovations.

 

George Peabody, Host, Glenbrook Partners:

So you’re looking at not only what is it but is it necessarily disruptive or not?

 

Russ Jones:
Yeah, yeah and disruptive sort of.

 

George Peabody, Host, Glenbrook Partners:

Well, it matters who you are.


Russ Jones:

It’s an overused term today. It is very overused and we’re going to try to tease that part we’re also going to look at what did not happen this year going back to the start of the year there was a lot of anticipation in the payments industry about how the industry was changing and big things that were shaking up the industry, just to mention four of them you know we were all excited a year ago about Visa acquiring Plaid, didn’t happen, blocked by the Department of Justice, we were really excited about AliPay’s IPO, AliPay going public.


George Peabody, Host, Glenbrook Partners:

Bad year for Jack Ma


Russ Jones:

Yeah,one of the major payment companies in the world who today, 12 months later, is excited to be a regulated financial holding company in China, under tight supervision of the Chinese government, what a breakthrough innovation that was. And of course the Diem Association, there’s big anticipation 12 months ago that Diem blockchain was going to launch this year in a Novi wallet and we’re going to see a global really what was going to be the first global person-to-person system in probably 20 years and that hasn’t happened this year for all sorts of reasons. So we’re going to be looking at what has happened, put a prism of is this really just incrementalism or is it true innovation and we’re going to be also looking at things that sort of didn’t happen and we were disappointed to see that they didn’t happen.

George Peabody, Host, Glenbrook Partners:
But so give me an example of one of the innovations that actually did happen.

 

Russ Jones:

Yeah so we’re looking at really five big themes if you will in the workshop George, and it’s a two-day workshop, it’s two half days, so about eight hours in total. So the first thing we’re looking at is core system modernization we’re looking at how systems are increasingly shifting from running some of the time to running 24/7/365. One of the things that has completely fallen under the radar screen in the United States is the Federal reserve’s pledge to make Fedwire expand to 24/7/365. That’s a huge, huge thing in the States…

 

George Peabody, Host, Glenbrook Partners:
That changes B2B payments in a big way.

 

Russ Jones:

Well, it could have big reverberations because these systems today oftentimes if you want to be truthful about them they’re 16/5/265.

 

George Peabody, Host, Glenbrook Partners:

Oh I’ve never heard those stitches strung together quite like that.

 

Russ Jones:
Yeah they don’t run 24 hours a day, they knock off in the evenings, they only run five days a week and they take off on federal holidays. Who wants to move money on a federal holiday?

George Peabody, Host, Glenbrook Partners:

Quite a few people.

 

Russ Jones:
Yeah, so India has done something very similar so the systems are getting faster, credit transfer systems around the world are shifting to usage cases, usage and use scenarios are shifting over to fast payments. You know in the last 12 months we’ve seen PIX explode in Brazil, just absolutely explode, and the same thing happening in in South Africa to the degree that South Africa gets an award, a Glimbroke award for 2021, which is, we believe for the first country in the world to actually shut down their checking system.

 

George Peabody, Host, Glenbrook Partners:
Wow, all right, so I can’t wait to see what that award looks like

 

Russ Jones:

So we’re going to be looking at core system modernization, we’re going to look at cross-border revamping itself, there’s just major changes going on in the way cross-border processing happens, there’s been some new innovations in correspondent banking swift is really off to the races with that’s it’s a GPI payment system if you will, and of course we’re starting to see fast payment systems on a regional basis start to link together to instantly move money between two different bank accounts in different countries and there’s a lot of talk of how central bank digital currency might interoperate on a country to country basis. So a lot of stuff to look at there in the world across border we’re also going to go back and look at one of, I know your favorite topics George, which is digital currency, digital cash more appropriately I think, and everyone’s been so caught up over the last 10 years on cryptocurrencies as an asset, as investment vehicles, we’ve as an industry taken our eye off of digital cash and payments and there’s a lot of stuff going on there, most importantly probably the we’re seeing digital banks that work specifically in digital cash emerge we’re starting to see Visa and Mastercard layout and articulate very clear strategies of how they’re going to clear and settle digital cash, we’re going to be going over and reviewing all that and then of course all the incumbent digital wallet providers like Cash App and Paypal and Venmo they’re all dealing in digital cash now so we’re going to go take a look at that and see in particular how the major players in the payments industry are setting themselves up for success in a world of central bank digital currency.

 

George Peabody, Host, Glenbrook Partners:

That’s really, I’m hearing that you’re presupposing that that’s actually going to be what the new world looks like.

 

Russ Jones:
Well, if you want to point your ship the way the wind’s blowing, it’s not going to happen next year, I’m not going to be spending digital cash at the grocery store in March but it’s something to keep your eye on because it’s going to have a big impact in the industry and the incumbents think it’s going to have a big impact on the industry and they’re making, their establishing partnerships now they’re setting up alliances and they’re making product changes to position themselves to do so it’s not just someday we might have to it’s let’s get ready now.

 

The two other topics we’ll be looking at in the workshop very broadly is sort of the rise of digital identity and the importance it plays today and it’s really become sort of a table stake sort of thing and the real sort of thread of implications there is around strong customer authentication which is now and has been for a couple years a legal requirement in the EU that all payments be strongly that the account holder behind all payments be strongly authenticated. A lot of people mistakenly think that’s something that’s just a cards thing it’s it’s not it’s all payments across all payment systems in Europe require the sender or the account holder to be strongly authenticated and that’s a trend all over the world and we see it most vividly as a trend in India right now, which a couple months ago turned off from a regular point of view turned off the ability for online merchants to do recurring card transactions without the customer’s permission. So we’re moving to a world where it’s going to be different, you’re going to have to have permission to take money out of bank accounts and it’s going to be a little bit of a safer world probably, but it’s going to be very frustrating for businesses that are sort of built on the premise that they should be able to take money out of customers bank accounts and I’ll tell you George, the you know when you talk about strongly authenticating customers the technical requirement there is two-factor authentication and we were talking in a workshop one time about how now in Europe two-factor authentication is required for all payments and someone raised their hand and said in the US how many factors of authentication are required and the answer is zero. It’s not like we only have one factor of authentication, we don’t have any, and so two-factor authentication could spread around the world the same way that ship cards have spread around the world, you know we could easily find ourselves doing a strong authentication on all purchases in the United States five years from now.

 

George Peabody, Host, Glenbrook Partners:
And I hope we have a better method than SMS, text messaging for doing it because that methodology is pretty easy to spoof. Well, this sounds like it’s gonna be a lot of fun.

 

Russ Jones:

Yeah, and and we’re also gonna talk about I know a topic you’re really point on which is sort of hyper specialization in fintechs what you like to call multiplayer fintechs, we’re going to take a little bit deeper view about that and see how fintechs are enabling fintechs to build really interesting solutions in the marketplace.

 

George Peabody, Host, Glenbrook Partners:

This is such a fundamental, so this is disruption to me, where not only how enterprises have merchants accept payments or actually then they have the ability to expose new services through partnerships to their customers, you know said for the first victims has been the traditional merchant acquiring business and now boy what what a small firm can bring to a specific vertical market beyond their core role of automating an individual business function to be able to bring along all these other financial capabilities whether it’s insurance or payments lending of course it’s extraordinary.

 

Russ Jones:

Anyway, it should be a great workshop. It’s personally, my favorite workshop that we do of the year because we get a chance to really reflect on what are the big arc stories about how the payments industry is changing.

George Peabody, Host, Glenbrook Partners:
I’m getting it’s your, you know, it’s not just here’s what happened but it’s here’s what it could mean looking ahead.

 

Russ Jones:

Yeah and in our workshop it’s not the what, yeah we talk about the what but we also talk about the why, a whole lot, and we talk about the implications of what things mean. So we take that general approach across all of our workshops and so when we look at innovation it’s not just what’s innovative but why it is innovative what are the implications of that innovation.

George Peabody, Host, Glenbrook Partners:
Great. Well, I’ll probably look, I might attend by looking over your shoulder, I know what this is you and Yvette are going to be running it and I can’t think of a better pair to deliver the workshop so I know you’ll enjoy it, great to have you back on Payments on Fire, we’ll talk again soon.

Russ Jones:
Alright, thank you for having me George.

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