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Key Treasury Innovations: Real-Time Payments & Blockchain

  • By Ira Apfel and Andrew Deichler
  • Published: 2/3/2017

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Chris Mager, CTP, is the head of the new global innovation group from BNY Mellon’s Treasury Services business. In an interview for the AFP Conversations podcast, Mager discussed the type of innovation his group is looking at, such as real-time payments and blockchain technology.

AFP: BNY Mellon’s a pretty large financial institution, and now it has a whole group designated to innovation, which you are heading up. Can you talk to us about the group and what its aim is? How is it going to help your corporate treasury and finance clients?

Chris Mager: Let me start by saying that even though we’ve formed this new group, innovation’s not a new priority nor a new activity for us. In our global product management group, it’s everyone’s job to innovate, to continue to meet the evolving client needs and to keep our products competitive in the marketplace. We’ve had for many years a well-structured innovation process and have had some roles specifically focused on supporting the innovation process in different groups.

What is new now is that we’ve created a single group to pull all of our innovation support resources on one focus team. This creates greater opportunity for best practices adoption, cross-project coordination, and greater and more fungible resource capacity for the business. Our goal is really to bring more innovative solutions to market and faster in order to enhance our client satisfaction and competitive position, and accelerate growth for our business.

AFP: So there was an ‘ah-ha’ moment where people at BNY Mellon just said, ‘We got to really make this a central focal point and a central group’?

Mager: I don't know if it was an ‘ah-ha’ moment, or maybe just we are in an ‘ah-ha’ period of time where there’s just so much transformation going on with payments like the industry has never seen. It's been going on for a few years now, and we’ve got a lot of innovation projects underway. We’re trying to do so much and it made sense to create a focus team to screen our best ideas and best priorities, and then to have the best possible team to execute the highest priority ideas.

One of those things is real-time payments. That’s going to be the first new payment rail in this country since ACH was introduced in 1973. That and other new technologies and faster payment ideas are really creating an environment where a lot of new ideation and innovation is going on. We created this new team to best take advantage of that environment and ensure our leadership position in.

AFP: Regarding those faster payments initiatives—how much will the innovation group will be jumping on board then, to make sure that real-time payments further becomes a reality?

Mager: That’s one of the key strategic projects on my team, managing our real-time payment development in order to take advantage of this new payment rail that The Clearing House is creating. We are one of the 24 owner banks of The Clearing House and we plan to be part of the pilot group—one of the very first banks to offer real-time payments to our clients. We are pushing very hard internally to do the development and all of the testing that is needed in order to make that happen. I’ve got a project manager on my team that is almost fully deployed to managing this project. Now that’s just the project management role. Obviously, it’s a collaborative effort with core product management, with operations, with technology, as well as all of our compliance, audit risk and legal teams. New agreements are needed and a host of other things are needed when bringing a brand new payment rail and payment capability to the market like this. This is probably the most significant. Actually, let me take that back. It is definitely the most significant near-term capability that my team is working on.

AFP: Obviously if we’re talking about innovation in financial services, we need to touch on blockchain and distributed ledgers. We’ve heard about this technology for a while. What are your thoughts on it? Do you think blockchain is a truly disruptive technology? Is it too far away? Is it too obtuse or too hard to deploy? How are you and your organization looking at it?

Mager: We are exploring distributed ledger technology across a number of businesses at BNY Mellon, and it’s actually been deployed and is in production in at least one other business in a system redundancy role. Let me focus on treasury services and payments and trade. The way we see it, it's an interesting new technology and business construct really, because it’s a lot more than just a technology, with a number of attractive features including speed, its open source and shared nature, its resiliency, it’s immutability—at least on a relative basis; it is not absolutely immutable, but it’s relatively immutable. Like most other financial institutions, our potential interest is with the blockchain technology, like you were alluding to—distributed ledger technology in general and not crypto-currencies like Bitcoin.

We are involved in all the big consortiums and that is one of the avenues for learning and experimentation. We’re also conducting and have conducted some proofs of concept internally in our treasury services business in small groups with other external parties. We brought some of those proofs of concept to conclusion and they were a learning process, but we did not continue those concepts and put them into production. Then we have others underway and there will be a few other new ones this year. Depending on how those proofs of concept go, we might end up putting some of these capabilities into production. Based on what we’ve done so far, we see the potential benefits, but we don’t expect to see a widely adopted commercial grade institutional application. At least not for payments and trade in the near term. There are just too many open questions and things to resolve when you’re talking about payments and trade.

AFP: Do you think that if it did come to pass that the blockchain became more centrally regulated compared to what it is now, it would take off more?

Mager: Obviously that's important. If it's not going to have regulatory engagement and support, then it will either be a very difficult uphill battle or an impossible battle. The good news is in various jurisdictions around the world, the regulators have shown an interest and have created environments for this experimentation to take place and possibly move into production. Places like London. The UK and Singapore, for example, are two of the more I don't want to say permissive, but friendly, welcoming regulatory regimes to allow this experimentation to take place to see what the potential is and if these capabilities could be brought to the market in order to reduce cost and create faster, better and more robust payment solutions than the preexisting rails provide. Even here in the United States, I'm sure you’ve seen the fintech charter that the OCC has proposed. New York rolled out its bitlicense a little over a year ago.

In the U.S., activities and developments are starting to take place to at least facilitate the exploration and experimentation with this technology and hopefully, those activities will evolve into a regulatory environment that will allow large scale production, especially for commercial-type institutional payments.

Listen to the entire podcast here.

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