Volume 9 (2024-25)

Each volume of Journal of Digital Banking consists of four 100-page issues published both in print and online. The issues, articles and authors published to date in Volume 9 are:

Volume 9 Number 3

Editorial
Simon Beckett, Publisher
Practice Papers
How the instant payment central infrastructure can be a payment solution at the same time — the Hungarian example
Róbert Kiszely, Director of Professional Services, Capsys Informatics, József Czimer, Manager, Capsys London Office, and Máté Biró-Lebovits, Sales Representative, Capsys Informatics

Instant payments are among the strongest growing technologies in the payment industry. Current trends and regulations indicate that instant payments will be ubiquitous in the coming years. That provides a solid foundation for a payment method leveraging modern technologies such as internet and smartphones. Instant payments, however, have not yet been used in all possible payment situations. Country-level projects implement the instant payments central infrastructure for interbank processing. All the existing solutions based on these infrastructures focus on a limited set of payment situations, using different technologies in different situations, thereby resulting in a diverse user experience. This paper is based on the results of the research and development project executed by Capsys Informatics Ltd. The approach of the research was to thoroughly analyse possibilities and find an optimal solution covering the most possible payment situations. First, it analyses what criteria a viable payment solution must meet: easy to use, cheap, fast, reliable, secure and widespread. The discussion examines in depth the three data transmission technologies that are most commonly used with smartphones (near field communication (NFC), quick response (QR) code and deep link), explaining how they serve user experience and how these three can be united into a unified data entry (UDE) method. The results of the research are summarised into an ecosystem blueprint (Capsys Smart Payment Solution). The project called ‘Instant Payment 2.0’ launched by the National Bank of Hungary (MNB) is a unique initiative. It will result in an instant payment-based payment solution, using NFC, QR code and deep link data transmission technologies in a unified manner, covering multiple payment situations, mandating the banks to implement the solution in their mobile banking application. ‘qvik’ (as MNB has branded this solution) has all the potential to become the next big thing in payments in Hungary.
Keywords: Instant payment; UDE; digital signature; fraud monitoring
The future of financial services is not what it used to be: How can incumbent banks compete?
Zilvinas Bareisis, Director and Bob Meara, Principal Analyst, Banking, Celent

A relentlessly quickening pace of change in both technology and consumer preferences requires that incumbent retail banks demonstrate mastery of transformative technologies and business models. Two aspects of the future of retail financial services deserve particular attention, in our opinion, for their certain ability to catalyse step changes in banks value delivery to customers: one of them is engagement banking, which is an emerging operating model that leverages artificial intelligence/machine learning (AI/ML) technology and customer behavioural, transactional and third-party data to deliver innovative and intensely personal value propositions to customers in real time. The other is leveraging the open ecosystem: skilfully choosing third-party products and services to integrate with a bank’s existing retail delivery mechanisms and selectively participating in third-party-curated experiences by enabling access to data and offering their products and capabilities via third parties. This paper describes the promise and risk of leveraging engagement banking and the open ecosystem. The benefits for enterprising banks are great, and yet so are the risks, if these aspects are not executed extremely well. They deserve banks’ full attention.
Keywords: Innovation; engagement banking; financial wellness; sustainability; embedded finance; partnerships
Beyond compliance: A new narrative for corporate banking with digital know your customer management — Navigating risks, unlocking opportunities
Marcus Heidenhof, Senior Account Manager, SCHUFA Holding and Jonas Manske, Professor, FOM University of Applied Sciences

In a rapidly changing economic environment, credit institutions in the corporate customer business must ensure their competitiveness by adapting to dynamic developments and using digital technologies, particularly for customer relationship management. One solution for modern adaptation and efficient customer relationship management is implementing a know-your-customer (KYC) process. Despite numerous studies on digitalisation, technology and sales, critical analysis of corporate customer sales remains vague. This paper aims to identify opportunities and risks through qualitative content analysis of 20 expert interviews. The results show that KYC not only fulfils regulatory requirements but can also be used as a differentiating feature in the competitive environment. Opportunities such as the digitalisation of processes, improved customer relationships and more effective sales opportunities are highlighted. However, the discussion also acknowledges the risks of complex regulatory changes and data quality issues. The discussion emphasises the significance of a comprehensive analysis of the KYC process, particularly in corporate banking. The paper provides managers with practical assistance in designing, forecasting and making targeted adjustments through specific courses of action.
Keywords: corporate banking; digitalisation in banking; know-your-customer process (KYC); opportunities and risks; regulatory requirements; sales approaches
Analysis of the current status and development path of digital transformation in Chinese commercial banks
Huang Kaihui, Research and Planning Expert, China Zheshang Bank Co., et al.

The transition to digital operations is identified as an essential catalyst and a vital strategy for commercial banks to elevate the calibre of services and achieve qualitative growth. This paper discerns that the digitisation of commercial banking is the outcome of a confluence of both intrinsic and extrinsic motivational factors. Yet as this transformation deepens, it has unveiled an array of challenges and issues, which might result in developmental missteps for the industry. To navigate around these digital development traps, the paper articulates well-defined objectives for the digital transformation of commercial banks. The study is positioned to offer beneficial guidance and reference points for the digital evolution of commercial banks in China, propelling them towards a more stable and enduring growth within the digital paradigm.
Keywords: Commercial banks; digital transformation; financial technology; development path
Can the Digital Euro be made attractive to all key stakeholders?
Michael Salmony, CEO, Payments Innovation Consulting

This paper explores the challenges and opportunities related to the adoption of central bank digital currencies (CBDCs), with a particular focus on the Digital Euro. It critically examines the motivations behind the introduction of the Digital Euro, addressing the often unclear problems it is intended to solve. The paper emphasises the necessity of motivating key stakeholders, especially commercial banks, consumers and merchants, to support and use the Digital Euro. It argues that simply mandating adoption is insufficient for success; instead, intrinsic motivation and clear business cases for each stakeholder group are essential. The paper also highlights the potential risks and unintended consequences of the Digital Euro, particularly its impact on commercial banks and the broader economy. Additionally, the paper proposes that an offline CBDC, resembling a modern form of cash, might offer a viable path forward, providing benefits such as increased financial inclusion and enhanced privacy. Ultimately, the reader can expect to gain insights into the complexities of CBDC adoption, the strategic considerations for different stakeholders and the potential models for making the Digital Euro a success.
Keywords: Central Bank Digital Currency (CBDC); Digital Euro (D€); payments ecosystem; stakeholder motivation; offline payments; finance innovation; digital finance policy; financial inclusion
COVID-19 has not killed merchant acceptance of cash: Results from the 2023 Merchant Acceptance Survey
Angelika Welte, Assistant Director of Research on Analytics and Survey Methodology, Bank of Canada, et al.

In recent years, the rise in digital payments has spurred a discussion in Canada and other countries about the future of cash at the point of sale. To better understand trends in payment methods accepted by Canadian businesses, including cash acceptance and the impact of innovations such as mobile payments, the Bank of Canada conducts the Merchant Acceptance Survey, a survey of small and medium-sized businesses. This report finds that 96 per cent of these businesses in Canada accepted cash in 2023. Acceptance of debit and credit cards has increased since 2021 to 89 per cent, and acceptance of digital payments has increased as well. The vast majority of merchants (92 per cent), however, have no plans to go cashless in the future. This paper concludes that cash and digital payments continue to coexist at the point of sale, and Canada is far from being a cashless society.
Keywords: Bank notes; digital currencies and FinTech; econometric and statistical methods

Volume 9 Number 2

Editorial
Simon Beckett, Publisher
Practice Papers
Essential requirements for central bank digital currency
David Chaum, Founder, xx network and Thomas Moser, Alternate Member of the Governing Board, Swiss National Bank

Any central bank digital currency (CBDC), regardless of the specific architecture and design, should fulfil the following three essential requirements: (a) the CBDC is protected against counterfeiting, and any counterfeits are irrefutably verifiable; (b) payments with CBDC maintain privacy without facilitating criminal activity; (c) CBDC withdrawals and payments can be made with a smartphone, and the smartphone application conforms to current smartphone and network capabilities as well as user interface paradigms. In this paper, we provide explanations, justifications and details of the three requirements.
Keywords: central bank digital currency (CBDC); cash; eCash 2.0; privacy
Development of optimised causal AI and its application in retail banking
Sai Chaitanya Molabanti, Associate, DBS Tech India, et al

Causal artificial intelligence (AI) has emerged as a promising approach in machine learning (ML), as it considers not only correlations but also cause-and-effect relationships in data, resulting in more human-like decision making. The pivotal stages within causal AI involve causal discovery and inferencing, each playing a crucial role in extracting meaningful insights from the data. In the realm of causal discovery, various algorithms have been developed to uncover the underlying cause-and-effect structures within data sets. A notable limitation, however, surfaces when attempting to apply these algorithms to data sets characterised by binary variables. This constraint prompts a crucial examination of the current methodologies and calls for innovative solutions that can seamlessly navigate the complexities of binary variable data sets. This paper proposes an optimised causal discovery algorithm that is integrated with the causal inference method based on the estimation of conditional average treatment effects (CATE) scores. The results present the potential of causal AI in terms of incremental impact on the predictive capability of AI/ML models. And the incremental impact is elucidated by comparing conventional propensity-based modelling and causal AI-based modelling by means of a use case in the field of retail banking.
Keywords: causal AI; causal discovery; causal inference; CATE
Navigating ISO 20022 maintenance in a connected world: A vision for harmonisation
Melissa Gauci, Program Manager, Australian Payments Network

The implementation of ISO 20022 in payment infrastructures has been hailed as a paradigm shift towards seamless transactions, heralding flexibility for financial market infrastructures (MIs) and enabling the creation of bespoke ISO 20022 variants. The initial allure of this flexibility, however, led to an unintended consequence — a proliferation of variants with different timelines, versions and market practices. This fragmented landscape has introduced challenges for organisations seeking to achieve high levels of automated ‘straight-through processing’. Different variants affect end-users’ ability to automate reconciliation processes and complicates endeavours to establish and sustain a cohesive ISO 20022 future. As we navigate the intricacies of a globally interlinked financial ecosystem, the role of ISO 20022 maintenance has emerged as a linchpin in the seamless exchange of standardised financial messages. This paper emphasises the importance of streamlining the ISO 20022 environment and messaging life cycle to facilitate efficient maintenance processes, foster broader harmonisation and usher in an era of truly frictionless payments. In proposing this shift, the paper advocates for a transformative approach. It posits two opportunities: the establishment of a unified, industry-led governance structure and the definition of a common message template. These initiatives are envisioned as essential to harmonising the fragmented ISO 20022 landscape, offering a path for end-to-end interoperability across the diverse payment chain. While acknowledging the ambitious nature of these proposals and timelines, the potential benefits are significant. The proposed initiatives could lead to more efficient maintenance processes, enhanced interoperability and a shared framework for ISO 20022 payments. The industry faces a crucial choice — whether to embrace this ambitious evolution or settle for the status quo. The imperative is clear: achieving a more interoperable and harmonised future for ISO 20022 payments is not just an opportunity but a necessity for the industry’s continued growth, resilience and operational efficiency.
Keywords: cross-border payments; harmonisation; ISO 20022; maintenance processes; messaging standards; high-value payments
Leadership evolution in the age of artificial intelligence
Aris Jerahian, FinTech Executive

Advocates of artificial intelligence (AI) envision a future where intelligent machines can perform routine tasks, allowing humans to focus on creative pursuits. Despite concerns about job losses, organisational think tanks believe that humans and machines can work together to achieve better results. This paper explores the interaction of AI and leadership to improve organisational performance. It inspires enthusiastic optimism in some managers and fear and scepticism in others. It is crucial to acknowledge and address these concerns as increased emotional tension always accompanies new phenomena. The paper explains that leaders who prioritise outcomes over technology can devise effective AI strategies that improve human capabilities, which could lead to a more productive, meaningful and fulfilling future of work. The paper uses pertinent tables to understand better the overall impact of AI on corporate culture and work style as well as its socioeconomic implications in the workplace. The paper concludes with a focus on hybrid models that combine human intelligence with machine intelligence to get exponential results.
Keywords: artificial intelligence; AI; corporate culture; future of work; human augmentation
The evolution of exceptions and investigations messaging and flows
Chloe Jenkins, Chair, UK Banking and Payments Committee

This paper aims to provide the reader with information concerning the migration of exceptions and investigations (E&I) messages from the FIN MT format to the ISO 20022 format. In addition to this format migration, there are improvements that Swift will implement as part of their Case Manager product, such as smart routing of E&I messaging, automated confirmation of receipt messages and automated reminder generation. These enhancements will bring many benefits for financial institutions, such as cost reductions, due to a decrease in the number of cases being raised (ie no need to raise a case when playing the role of an intermediary for some investigation types), increased automation due to the new, structured elements of the ISO messaging format and clear investigation types, speed of resolution due to the smart routing logic and reduction of messaging legs required and fewer processes for operators as generation of the confirmation of receipt and the reminder/chaser messages are initiated by the Case Manager rather than requiring an operator to initiate these. This paper provides an overview of the ‘As is’ and ‘To be’ message formats and flows to enable the reader to fully understand the benefits that this migration will bring and the changes that will be mandated within the industry in the E&I space.
Keywords: exceptions; investigations; camt.110; camt.111; E&I; ISO 20022
The new era of Bitcoin: Profits, progress and potential in the inscription-driven crypto industry
Hui Gong, Lecturer in Decentralised Finance and Blockchain, UCL Institute of Finance & Technology and Han Wang, Fund of Funds Investment

The introduction of the Ordinals Protocol and BRC-20 tokens, featuring the pioneering concept of Inscriptions, signifies a pivotal evolution in the Bitcoin network. Officially launched on 21st January, 2023, this innovation embeds a unique blend of tokenisation and non-fungible attributes directly into Bitcoin’s base layer, akin to engraving precious metals. This paper thoroughly examines the technical underpinnings and market implications of BRC-20 tokens, focusing on the stark contrasts with traditional ERC-20 tokens and initial coin offerings. Unlike ERC-20, Inscriptions integrate seamlessly into Bitcoin’s existing structure, offering a decentralised model that strengthens the principles of a true fair launch in decentralised finance. The study critically assesses the reception within the Bitcoin community, balancing the potential enhancements in Blockchain functionality against concerns regarding foundational principles. Furthermore, it explores the profound implications for stakeholders such as miners, exchanges and developers and evaluates the transformative impact on the cryptocurrency ecosystem at large. Ultimately, this paper elucidates the role of Inscriptions in redefining the trajectory of Bitcoin and shaping the future landscape of Blockchain technologies, emphasising their potential to foster equity and innovation in token distribution.
Keywords: Bitcoin; BRC-20; decentralised finance; fair launch; Inscriptions; Ordinals
Low/no-code and traditional code integration in digital banking
Yeo Kim Siang, Postgraduate Student and Alan Megargel, Associate Professor of Information Systems (Practice), School of Computing and Information Systems, Singapore Management University

This paper seeks to combine the merits of low/no-code programming (LNCP) with traditional programming (TP) systems for increased agility in digital banking software development. While it is easy to fall prey to shiny object syndrome in today’s dynamic banking technology landscape, it is not easy to select the right technology to suit the current and future needs of the financial industry. Instead, LNCP makes it possible to lower the technical entry barriers to technology development. Integrating TP with LNCP, when needed, compensates for the shortcomings related to LNCP and provides digital banks with a more comprehensive software development approach. The adoption of this approach improves time-to-market of new innovative financial solutions. There has been little progress in this direction, academically or in practice. This paper includes an empirical study, interviews with banking professionals, on the merits of LNCP and TP, as well as an experimental project implementation that integrates LNCP and TP in the development of a retail Internet banking application. In the context of digital banking solution development, the result of the experiment reveals the merits of LNCP/TP hybrid systems in terms of agility, scalability, change management and cost-effectiveness.
Keywords: low/no-code programming; LNCP; software development; agility; digital banking; Internet banking

Volume 9 Number 1

Editorial
Simon Beckett, Publisher
Practice Papers
Big Data in the financial industry: Applications, potential and regulatory approaches
Joachim Wuermeling, European School of Management and Technology Berlin and Nils Müller, Deutsche Bundesbank

In the financial industry, the volume and complexity of data is growing exponentially. These vast amounts of data can potentially offer valuable insights that can contribute to process optimisation, risk management and decision making. Many companies in the industry, however, face the challenge of how best to leverage this data. Despite a general awareness of the significance of Big Data, there is often uncertainty surrounding the optimal use of this data for practical applications. This paper summarises the existing real-world applications, especially those with implications for financial stability, and highlights the specific benefits of Big Data in the financial sector. The paper comments on the role and implications of Big Data regulation from the perspective of a regulatory authority. It shows that artificial intelligence (AI)-driven Big Data processing has expanded from customer interfaces to banks’ back ends. Numerous use cases exist along the value chain within the financial sector, including at central banks. Big Data offers both opportunities and risks for the financial system as a whole. The paper thus also emphasises the importance of striking a balance with regard to regulating AI. Overall, the paper argues that the effective use of Big Data has the potential to enable the financial industry to cultivate better efficiency in business practices and ensure greater resilience in the financial system.
Keywords: open banking; API strategy; platform banking; partnership ecosystems; data-driven insights; advanced analytics
Secrets to successful bank and FinTech partnerships for credit and deposits
Rebecca Bacon, VP Head of Financial Institutions, Upgrade

This paper aims to provide a road map to a successful long-term partnership between traditional financial institutions (FIs) like banks and credit unions with a financial technology (FinTech) platform. This is a summary of lessons learned from developing and launching over 200 bank/credit union partnerships with a FinTech lending platform. Drawing on experience with financial institutions of all shapes and sizes, this paper details best practices to create a scalable way of providing custom solutions to the problems faced by the modern depository institution. This includes a particular focus on lending/ credit products, and how the effect of FI and FinTech lending programmes can add value while mitigating risk. The paper focuses on depositories domiciled in the USA and the American banking system’s regulatory environment, but many of its themes will be applicable to international organisations.
Keywords: Big Data; financial industry; artificial intelligence; AI; machine learning; regulation
The journey towards a responsible AI future: Hype, fear and hope
Theodora Lau, Unconventional Ventures

This paper discusses artificial intelligence’s (AI’s) growing prominence in, and impact on, various aspects of our daily lives, with a focus on the financial services industry. It highlights the evolution of use cases in banking against the backdrop of the hype cycle that we are in today and discusses how the technology can be used to streamline operations, increase productivity, drive new business opportunities and improve financial inclusion. It also urges readers to be mindful of the multifaceted impact of the technology and the responsibilities that organisations must bear to ensure reliability, transparency, safety, security, explainability, privacy and fairness. The author emphasises the importance of trust as a cornerstone and advocates for diversity in AI development and data representation to avoid reinforcing biases and inequities in our society. The paper is a call to action for a more thoughtful approach to innovation — urging stakeholders to recognise the shared responsibilities in shaping a human-centric, inclusive and trustworthy future.
Keywords: artificial intelligence; future of work; responsible AI; ethics; FinTech; AI in banking
Data science in economy and finance: A central bank perspective
Douglas Araujo, Bank for International Settlements et al

Data science is fundamentally different from traditional data analysis, as it typically applies to large, complex and/or unstructured information sets. The role of data scientists, hence, lies at the intersection of three areas. The first is IT: central banks are increasingly aware that a modern technological architecture is crucial to reliably and securely deal with data. The second relates to the use of mathematical and statistical techniques to deal with the raw data at hand. This paper analyses how many different approaches can help support central banks’ operations, especially in the monetary policy and micro- and macroprudential areas, as well tasks related to the functioning of the payment system, financial inclusion, consumer protection and anti-money laundering. It presents how, in addition, the use of the new techniques could transform the whole production chain of official statistics, making it potentially more efficient, resilient and user-friendly. The third key area is to ensure close cooperation between data specialists and subject-matter experts involved in data science projects. Analysing statistics calls for an awareness of the way they have been compiled as well as of the complex factors that drive them — which are essential elements for transforming data into knowledge and taking informed policy decisions.
Keywords: IT; big data; policymaking; artificial intelligence; AI; official statistics
Reskilling for the future: Enabling colleagues with a digital mindset who are ready for a future global digital era and platforms
Helen Packard, Financial Conduct Authority and Louise Liu, SOAS University of London

This paper explores the effect of digital skills at the individual, company and national levels to meet the digital era. UK and European Union based case studies are utilised to fully understand how jurisdictions are preparing stakeholders with confidence and digital tools capability and mindsets. The paper explores how large financial services employers and EdTech are striving to meet the challenges of the accelerating digital era. Finally, it aims to further encourage momentum to close the gap in digital skills by preparing stakeholders for success in the digital age. It concludes that the option of not evolving with technologies and data through new digital skills is no longer feasible for successful careers and industries.
Keywords: digital skills; digital tools; challenges; skill gap; digital mindset; EdTech
Enhancing the quality of banking technology platforms through a hybrid AI testing approach
Iosif Itkin and Elena Treshcheva, Exactpro Systems

In the dynamic landscape of the banking sector, marked by increased operational complexity and regulatory scrutiny, the pursuit of innovation demands a strategic orientation. While offering advantages in cost, quality and speed, this strategic approach to innovation should mandate a cautious consideration of the risks inherent in the integration of emerging technologies. With the continuous advancement of artificial intelligence (AI), particularly generative AI (GenAI), as a method for emerging banking technologies, its wider adoption in the financial industry demands careful consideration of associated risk implications. This paper advocates for a software testing approach that delves into the complexities of banking technology platforms by leveraging generative algorithms to attain extensive test coverage and simultaneously employs rule-based analytics to refine the generated datasets, optimising coverage for faster execution and efficient resource utilisation. Such an approach is in line with a risk-averse innovation strategy, as it balances out the smart creativity of novel GenAI methods with a rule-based discriminative potential of more established symbolic AI methods. This paper serves as a position paper, contributing to the discourse on the integration of innovative testing methodologies in the banking domain.
Keywords: banking technology; software testing; artificial intelligence; AI
Case Study
Innovations and resilience in Thailand’s payment ecosystem: A comprehensive analysis — Connectivity initiatives, challenges and solutions
Budsakorn Teerapunyachai, Payment and Bond Department and Yanin Bawornkitchaikul, Bank of Thailand

This paper examines Thailand’s strategic initiatives to promote FinTech innovations, cross-border payments, individual and business payments. The primary objective is to showcase how Thailand is successfully capitalising on opportunities in the rapidly evolving payment ecosystem. Central to this adaptation is the modernisation of Thailand’s payment systems, which plays a crucial role in accommodating diverse payment preferences. A consensus on policy statements, guiding policies and collaborative approaches is deemed essential to increase competitiveness and consolidate Thailand’s position as a regional leader in payments. This leadership requires the dissemination of innovative and diverse initiatives focused on enhancing financial connectivity, thereby improving the quality of life and economic prosperity. The extensive use of Quick Response (QR) codes and PromptPay for cross-border transactions, which enable real-time international fund transfers, are important initiatives. Additionally, PromptBiz seamlessly facilitates the transfer of trade data and payment information, particularly benefiting businesses engaged in these processes. Concurrently, the integrity and security of the financial ecosystem are secured through meticulous risk management and mitigation efforts, ensuring a robust foundation for sustained growth and innovation.
Keywords: payment connectivity; FinTech; cross-border payment; Standardised QR; PromptBiz; resilience