Voice of the Industry

Scones, scams, & stablecoins: insights from Financial Innovation Forum

Monday 30 September 2024 10:45 CET | Editor: Mirela Ciobanu | Voice of the industry

What happens when payment and banking professionals mix cross-border payments, stablecoins, blockchain, the new APP fraud requirements, AI, laughter, and scones? The 3rd Financial Innovation Forum.

 

On September 19th, the 3rd Financial Innovation Forum - Payments & Regtech took place at the Sheraton, a celebrated Art Deco hotel in the heart of Mayfair, London. The event had an ambitious agenda—covering a wide range of topics such as Open Banking, A2A payments, fintechs vs. banks, regtech, CBDCs, the digital euro, DLT, blockchain, crypto, fraud (especially APP fraud), new regulations, stablecoins, cross-border payments, digital forensics, and AI.

The Paypers attended the event and here are our key takeaways on the top three pressing issues: APP fraud and the new disbursement requirements, cross-border payment challenges, and the future of stablecoins and crypto.

 

Final countdown: PSR reimbursement requirements

In 2023, APP (Authorised Push Payment) fraud resulted in over GBP 450 million in losses, with more than 250,000 individual cases reported. Although around two-thirds of the victims were reimbursed, mainly due to voluntary compensation from banks, the focus is now shifting toward smaller firms, such as EMIs (Electronic Money Institutions) and PSPs (Payment Service Providers). These companies have seen a 53% increase in fraud cases, raising concerns about their preparedness for the upcoming mandatory reimbursement scheme set to take effect on October 7, 2024.

 

 

The scheme requires consumers, microenterprises, and charities to be reimbursed within 5 working days, unless they acted fraudulently or with gross negligence. The reimbursement cost will be split 50/50 between sending and receiving PSPs. A proposed cap of GBP 85,000 is expected, with a voluntary GBP 100 claim excess. Both Faster Payments and retail CHAPS are covered, with special provisions for vulnerable consumers. The scheme is enforced through amended rules for Faster Payments and CHAPS.

How will these changes impact both consumers and businesses in the UK payments market? Will Marwick of IFX Payments said that a key challenge for businesses will be handling the proposed maximum reimbursement cap of GBP 85,000. This cap could heavily impact smaller firms, especially when combined with the tight reimbursement timeframes. Companies will need to build cash reserves into their financial forecasts to meet these requirements.

 

Will Marwick of IFX Payments on the 3rd Financial Innovation Forum stage


Another key challenge is identifying and managing scams in general, as different EMIs and PSPs are targeted by different types of financial fraud, depending on their business models. Unlike traditional fraud schemes like romance or investment scams, other scam types often operate by embedding themselves within legitimate account structures for months before fraudulent activity occurs.

Payment providers must maintain a standard of care for customers, aligning fraud policies and analytics across the board. Having in-house experts dedicated to identifying fraud and understanding complex issues like gross negligence and civil disputes is essential. Gross negligence is a high legal standard, often debated in courts, and is not easily determined within the short timeframes required for reimbursement. Distinguishing between scams and civil disputes is also vital, as many disputes are unrelated to fraud.

With real-time payments on the rise, so is real-time fraud. The FCA has issued guidance on balancing fraud prevention with customer expectations for real-time payments. While positive friction is necessary for fraud prevention, businesses must ensure it doesn't interfere with delivering efficient services.



Will Marwick of IFX Payments on the 3rd Financial Innovation Forum stage


Ultimately, while fraud cannot be fully stopped, companies can implement effective controls and monitoring systems to detect fraudulent activities early. This includes improving transaction monitoring and customer onboarding processes to prevent long-term fraud from going unnoticed. EMIs and PSPs have a duty to protect their customers, ensuring they are informed and equipped with the right knowledge to make safe payments.

In conclusion, businesses need to adapt quickly to these new regulations, with a focus on preparedness, collaboration, and education to navigate the increasing challenges posed by APP fraud.

 

Latest advancements in cross-border B2B payments


Modernising the current cross border B2B payment infrastructure

The process of modernising cross-border B2B payments involves understanding both the end users and the banks that facilitate these transactions.

According to David Messenger from PingPong Payments, correspondent banking has been declining over the last decade. Customers increasingly demand faster payment solutions; however, these expectations often clash with outdated systems and infrastructure. Sometimes correspondent or clearing banks are reluctant to engage with new partners for cross-border payments due to the associated risks, including potential fines, loss of licenses, or even legal repercussions in certain jurisdictions. This aversion contributes to the sharp decline in the availability of correspondent banks over the past 15 years. Without addressing the underlying issues in the system and software, the problem will persist.

In agreement, Max Lehmann from Nium and Gary Palmer from Payall Payment Systems emphasised the need to modernise payment systems that have remained unchanged for 50 years. The last two decades have seen a surge in payment methods, with small and medium-sized enterprises (SMEs) expecting the same speed, security, and variety that large corporations enjoy. The global economy now caters not only to large businesses but also to many SMEs, which depend on overseas sales and supply chains. As the complexity of cross-border transactions increases, it is crucial to meet this growing demand effectively.

 

Aligning domestic payment system with cross-border B2B payments systems

Paul Bedford from the Bank of England highlighted the need to upgrade the infrastructure for cross-border B2B payments. While it’s unrealistic to expect cross-border payments to reach the same efficiency as domestic transactions, progress is possible through ongoing dialogue that translates high-level recommendations into practical regulations.

Also, compliance with varying regulations remains essential, particularly when national and global practices differ. Navigating multiple sets of rules across jurisdictions complicates compliance, with each country holding a distinct view on payment regulations; as a result, consumers and financial institutions face challenges as they expand from local to global markets.

Fintech service providers working alongside traditional banks can help ease the compliance burden and offer more seamless payment experiences for end users. Collaboration, rather than competition, is key.

 

Blockchain and cryptocurrencies panel on the 3rd Financial Innovation Forum stage


Making B2B cross-border payments work

David Messenger from PingPong Payments proposed a new collaborative model between banks and fintechs over the next five years. Historically, the relationship has been primarily transactional, with banks serving as vendors providing infrastructure to fintechs. However, a shift toward a hybrid model where banks will partner with a select number of fintechs, establishes high standards for collaboration. While banks will continue to provide essential banking capabilities, they may struggle with coverage, flexibility, data management, and risk assessment. In contrast, fintechs are expected to enhance risk management, leading to a more engaged and proactive partnership between the two sectors, which is an exciting trend to closely follow.

 

Managing fraud

Two key trends are converging in cross-border B2B payments: the push for real-time payments and the need to combat rising fraud. Fintechs and payment service providers (PSPs) have a crucial role in making real-time payments a reality, and it’s already possible to implement such systems using stablecoins and new technologies across multiple continents.

However, alongside this drive for speed, fraud is increasing—not just in specific types but also in its overall scope. Managing risk and fraud, particularly in real-time push payments, poses a significant challenge. As such there is a constant tension between the market's desire for faster cross-border payments and the need to build systems that protect customers while maintaining the high standards required by banks.

 

The use of AI in cross-border payments - can be used to prevent fraud, but human sight is still needed

Luciana Mosoia from Visa discussed how payments companies are deploying AI, sharing real-world examples from Visa's approach. Visa uses unstructured AI to analyse audio, video files, PDFs, and photos, extracting data to cross-check against sanctions lists and other compliance measures. AI not only identifies anomalies but also interprets inconsistencies in documents. AI can revolutionise cross-border B2B payments, particularly for complex, large payments requiring validation of multiple artifacts. Visa has shown that AI can reduce the time and cost of document analysis from days or weeks to just four and a half minutes. However, while AI is valuable in risk management and efficiency, it is not a complete solution, and other methods may sometimes be more effective.

 

Blockchain and cryptocurrencies: impact on payments and regulations

 

If you ask the average person on the street about digital assets, programmable money, or CBDCs, most of them don’t get it—and honestly, they don’t care. They don’t see how it’ll make their lives any better. Jonny Fry, ClearBank


That’s why, for companies building the infrastructure for digital currencies, the focus must be on bringing these solutions to the masses. These could boost cross-border payments, improve financial inclusion, cut costs for things like printing and moving money, boost economies (by influencing GDP growth and enabling access to liquidity to SMEs), and help banks.

However, some fear that digital money could lead to increased centralisation and control, with concerns about government oversight like what has been observed in China. Examples such as the freezing of Canadian truckers' bank accounts, have fuelled these fears.

 

Overall, it is important to distinguish between programmable money that controls how funds are used (the ‘China style’) and using smart contracts to program transactions—which is what we really want. The key is making sure we’re programming transactions, not the actual money itself.


Another key part of the digital money conversation is how to regulate this emerging space. Elise Soucie from Global Digital Finance highlighted how Facebook’s Libra/Diem announcement significantly influenced crypto regulation. Many rules stemmed from concerns that stablecoins could disrupt the traditional financial system. Reflecting on lessons from MiCA and other initiatives, Soucie noted that the UK’s use of sandboxes, particularly the digital security sandbox, offered valuable insights.

 

Sulabh Agarwal, Accenture on the 3rd Financial Innovation Forum stage


Jonny Fry from ClearBank, acknowledged that the UK has made significant progress in digital assets, surpassing the US, which he views as a positive development. A key lesson for the UK is to avoid being sidetracked by political agendas, as this is a valuable opportunity for the country to enhance business efficiency through a transformation of its tech infrastructure. Rather than being driven by the uncertainty in Europe, the UK should focus on the potential of this infrastructure shift and implement it accordingly. Fry stressed out the importance of adopting tech-agnostic, neutral regulations that target real risks from a resilience perspective, rather than regulating the technology itself.

Jovi Overo from Unlimit BaaS presented a contrasting view, questioning whether it’s truly feasible for regulations to remain tech-agnostic. Because many of his clients operate in both DeFi and CeFi, he wondered whether regulators fully understand the distinctions between custodial and non-custodial wallets, suggesting that applying one set of regulations to all types of transactions is problematic.

The overall conclusion was to not regulate the technology itself, nor holding developers responsible for how their code is used unless there’s a direct connection between the developer and the product or activity. Regulations should be more specific to each activity rather than blanket rules for all technologies.

Although achieving tech-agnostic regulation is possible, the need for open dialogue between the industry and regulators about the actual activities being conducted was stressed out. Many skilled developers may not even realise they are working on financial products, making this conversation crucial for shaping appropriate regulations. Jovi Overo, Unlimit BaaS


We had an insightful day at the Financial Innovation Forum, exploring the latest trends in payments like A2A, embedded payments, stablecoins, CBDCs, and the digital euro. Discussions around cross-border payments showed promising strides towards real-time, transparent transactions, while the upcoming PSR reimbursement requirements raised critical concerns for smaller payment providers. Regulation remained a central focus, highlighting the importance of continued collaboration between regulators and industry leaders. The event, hosted by QUBE Events, was not only informative but also a great opportunity for networking. We look forward to the next edition!

 

About Mirela Ciobanu

Mirela Ciobanu is Lead Editor at The Paypers, specialising in the Banking and Fintech domain. With a keen eye for industry trends, she is constantly on the lookout for the latest developments in digital assets, regtech, payment innovation, and fraud prevention. Mirela is particularly passionate about crypto, blockchain, DeFi, and fincrime investigations, and is a strong advocate for online data privacy and protection. As a skilled writer, Mirela strives to deliver accurate and informative insights to her readers, always in pursuit of the most compelling version of the truth. Connect with Mirela on LinkedIn or reach out via email at mirelac@thepaypers.com.



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Keywords: APP fraud, romantic scam, fraud prevention, cross-border payments, B2B payments, correspondent banking, stablecoin, cryptocurrency, blockchain, artificial intelligence
Categories: Banking & Fintech
Companies:
Countries: United Kingdom
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Banking & Fintech






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