How modern payments drive growth and resilience 

[Music]

Max Neukirchen: Welcome to JP Morgan Making Sense. My name is Max Norkashan and I'm the co-head of our global payments business. I'm here with my friend and colleague, Umar Farouk, who is also the co-head of the global payments business. And together we will break down for you what's happening in payments, what's changing, and what we are doing about it. So Umar, looking forward to the conversation here.

Umar Farooq: And Max, I'm also really looking forward to it. I think it'll be a great conversation. So Max, you and I are partners in running the payments business at JP Morgan. Do you want to give our audience a little bit of an overview of our business?

Max Neukirchen: We serve businesses of all sizes, the largest companies all the way to small businesses around basically any of their payment needs. This could mean paying suppliers, paying their employees, doing M&A transaction, paying their taxes, but it could also mean taking money from consumers who do shopping or financing their supply chain. So we truly take care of our clients' payments needs end-to-end, and we do that in more than a hundred countries. Umar, why has the payments business become such an important strategic topic for our clients?

Umar Farooq: So Max, I think as you and I look back over the last decade or so, and we've been in this business for a few years now, payments has really evolved to become core to our client's own business. So when we think about our clients, for the longest time, I think you mentioned it many times, payments used to be something the treasurer did or the CFO did or the cash management part of the business did. But in reality, as you now look at the evolution, and by the way, the evolution is both in terms of payments infrastructure, but also how our clients do business. The experience of payments is core to their offering, to their end customers. So if you are in a ride-hailing service, when you get out of the car, the payments just happens. No one actually thinks about making the payment. It's actually transparent. Similarly, if you're on an e-commerce platform, you click a button and you buy the thing. And that experience is a core part of the value proposition to end customers. So for our clients, payments is a core part of how they design their product, and I think this has made payments a core part of their value proposition and their products.

Max Neukirchen: I love your examples around the ride-hailing app as well as the e-commerce platform, because as we often say, for the e-commerce platform, it matters big time if it's a one-click checkout as you described, or a five-click checkout. Because with the one-click checkout, their revenue lines are just so much higher. So payments is no longer just an expense item, but a true revenue enabler.

Umar Farooq: We move on average something like $12 trillion a day, and at one point we even hit 17 trillion as I think our highest record day this year, which means that in a little bit more than a week, maybe a week and a half or so at that level, we are managing to flow the entire world's GDP through our pipes.

Max Neukirchen: And I think no matter if it's 12 trillion, 13 trillion or 17 trillion, we sometimes try to illustrate what it actually means. What is also important, it comes with a huge responsibility for us running a business that is so important ultimately to the global economy that the things we care about, stability, resiliency and trust are really important given that we know how many companies, individuals, and even whole countries rely on that service.

Umar Farooq: So as I think about our time in this business, and Max, both you and I have been in this business for a number of years now, we've seen some significant shifts in the overall payments landscape. We have seen an increasing level of digitization, frankly, I would say over the last decade or two, you've seen multiple countries go from a very cash-heavy society to an extremely digitized money society. So if you think about China was probably one of the original pioneers more than a decade ago, but then you have India and Brazil, Mexico, other countries. We see increasing digitization. That's been one of the huge tailwinds for our business because we are not a sort of coin and cash operator in many of these countries. And the other thing from my point of view is also the evolution of rails, whether that means going from what used to be batch-based rails or overnight processing rails to real-time processing systems in most of the big countries in the world, and then now even other rails like crypto-based rails, DLT-based rails. I feel these have been some very interesting developments that have really come together to make our business even stronger and bigger than it used to be.

Max Neukirchen: I agree, Umar. And just to add a little bit to this, I do think payments have definitely gotten faster over the last decade or so where there's now a real expectation that money can move real time almost anywhere in the world. And it is a big change for how we run the business because you no longer have downtimes to upgrade your technologies, but you truly need to be on twenty four seven, 365. And you also need to provide different client service because money is literally moving all the time, including on the weekends and including at nights.

Umar Farooq: And Max, can I play back one of your quotes to you by the way, because I think I'll give you credit for this quote that with real-time payments comes real-time fraud. And so while we've seen a speeding up of payments and many of these trends, I think there are also some unfortunate negative trends, which is just like payments have become faster, more digitized, more real-time, fraud has also become faster, more digitized, more real-time. And I think that's also somewhere where players like JP Morgan payments come in, where the infrastructure we have built basically based on everything from what used to be machine learning and now much more AI driven that detects fraud and prevents fraud and actually saves our clients hundreds of millions of dollars a year. I think that's another big differentiating factor for our business.

Max Neukirchen: I would add maybe one more. That is also the increased global integration that we see in payments. Because over the last 10 years there's been a lot of discussions around what is the end of globalization, but we see tremendous growth even in cross-border flows, in new trade flows developing, which is exciting and is also a key foundation for some of the investments we are making in order to broaden our footprint and help our clients operate in even more countries.

Umar Farooq: In my mind, when you look at many of these shifts, I do think businesses are still not fully getting their minds around I think both the globalization point, the complexity point and how important it is to actually operate with a large player that can provide them services across the world, but then also coming back to the original sort of fraud prevention and other sorts of complexities that come with payments. And I think obviously it's a learning cycle, but I feel businesses are still on that journey and we are helping them understand it in many ways, including reaching out to them and helping them understand how to fight fraud in an age of AI.

Max Neukirchen: Another example is a benefit of ultimately broad reach. We see a few hundred million accounts every month, including also accounts where fraudulent activity happens. Now through such a broad network, we can then share that information with our clients and help them avoid being attacked by fraudsters. We already saw this year more fraud attempts on our clients' money than all of last year, and that is a trend that continues. I think a second big piece of feedback is still around operational processes. Think about onboarding, KYC, document management. These are all still important parts of our clients' day-to-day lives as they open accounts, move money, and it continues to be a pain point.

Umar Farooq: And I think Max, I would actually reemphasize one point you made, which is the scale and the reach. Payments is one of those businesses. I think the more scale you have, the more data you have, the better you can do for clients, whether it's fraud or money movement or other services, frankly. And I think we now are, as we embark on the next step of this journey, especially as AI becomes an evermore present tool at the backend, front end, middle office, our scale will enable us to actually optimize.

Max Neukirchen: And I think your point about AI is also well taken, and I wouldn't say that the industry is underestimating AI, but it's still very hard to grasp how payments and how the global financial infrastructure will change with AI because intelligent payments powered through AI ultimately mean that a lot of the tasks that treasurers, CFOs, payments professionals do today can be enhanced or improved with new AI tools. A lot of discussions happens around agentic treasury, agentic commerce, to really think about how do companies and individuals change their buying behavior and how do also payments flow differently as a result of that.

Umar Farooq: And I think one thing, Max, I would add is again to something we discuss all the time, the innovation in the space is another thing clients don't really struggle with, but they're trying to make sense of. There's a lot of real change. There's a lot of marketing around changes. There's a lot of people out there, especially smaller companies that are telling them there's different ways of doing things, whether that's based on distributor ledger rails or some AI system that someone has just created. So I think the clients are also sort of coming to us and asking us how should this separate signal from the noise? Because it does seem like noise is quite high.

Max Neukirchen: It's a great point, Umar. And I do think clients wonder what does it mean for them and what do they need to do versus where can they partner with us to take advantage of all these new technologies and capabilities?

Umar Farooq: I mean, as I've spoken to clients, I think over the last three to five years, clearly clients now see a lot more options in how they operate their businesses. Everything from core rails that have evolved to digitization of money, to frankly, offerings like embedded finance, which is again, a big product for us and how they can bring that into their platforms. These are all things that are top of mind for clients.

Max Neukirchen: To add to what you said, we have seen many clients now have payments as a topic for the CEO and the board, not only for the CFO and the treasurer, how it was historically. Why is that? Payments does drive revenues, payments creates new business opportunities. Umar, you mentioned embedded finance, embedded payments. A lot of clients look to create whole ecosystems by having their customers captive in their platform and payments is a critical part of it, driving key revenues and key client engagement. And I think we've really seen a big shift in terms of the level where payments is on the agenda for many of our clients. Real-time payments and instant money movement has definitely been a key trend in payments around the world for the last 10 years. We now have instant money schemes basically in almost every economy and it comes with real implications. Umar, you mentioned already fraud as a key concern in that space because every fraudster can also move money out real time. So the question about safety and resiliency is much more front end, but it also changes how we operate our business given that we are always on and need to have a infrastructure and technology platform that is actually able to process tremendous volumes and numbers of payments within a short period of time.

Umar Farooq: I fully agree, Max. And I think on top of that, it's not just a consumer question, but a lot of businesses we serve by definition interact with consumers as their end customers or as participants in their ecosystem. Let's say you're running an e-commerce platform, you ultimately have consumers in that e-commerce platform. So a lot of our even large business clients are coming to us to actually build solutions that enable real-time money movement for consumers within their platform or as they push out payments to sellers across the world, et cetera. And so there's a lot of emphasis on now a real-time money movement capability, both within their platform, outside their platform across geographies, and also doing so with full resiliency, stability, and fraud prevention as you talked about.

Max Neukirchen: And what I find interesting is that a lot of the innovation around real-time payments has also happened truly around the world. I think Pix in Brazil is a great example of a real-time payment scheme with tremendous growth that innovated and pioneered the QR codes. We have seen the same as UPI in India, real-time payments infrastructure, and that has created a tremendous round of adjacent industries as well. We have seen it in ASEAN, we've seen it in Europe and also in the US. It's really interesting to see how that has as a global trend reshaped the payments industry.

Umar Farooq: I think technologies generally try to solve the same problem, Max. They don't try to solve new problems. At the end of the day, if you really think about what customers want, they want faster, better, cheaper, almost in any product category. So even when it comes to new technologies like tokenization, like blockchain, ultimately they're trying to solve the very same kind of problems for our end clients. Can you move money in a smarter way? Can you move money instantly? Can you move money with instant settlement, for instance? So all these technologies are trying to really aim at that problem because if you really think about it, when we move money globally, and again, you and I both being practitioners in this space, we know there are cutoffs, there are country infrastructures. They don't really talk to each other very well, for instance, real-time payments infrastructures across many countries. So how do you enable a dollar or a euro or any currency to move from one country to another country instantly for effects to happen instantly, for delivery and settlement to happen instantly? And I think all of those are problems that tokenization, blockchain, other technologies are trying to solve. And then on top of that, they bring obviously unique capabilities like programmability or settlement of other assets in an atomic fashion. So I think it's both solving existing problems, but frankly, also solving problems of the future.

Max Neukirchen: I think you raised some great points there, Umar, and maybe to just add a few examples of client needs that blockchain solutions can help solve. Imagine you are a client in the Middle East and you want to move money on Sundays. Still not that easy today. Blockchain can help. Or imagine you want to move money after hours at 8:00 PM, 9:00 PM, you are a treasurer with operations in 20 countries, not so easy today, blockchain can help. So there's a bunch of really tangible use cases that can now be better addressed with the Kinnexus solutions that we have developed.

Umar Farooq: And I would even add, I think on top of that now, if you go into the securities world, and I know we are obviously on the payment side, but on every securities transaction, there's always a payments lag. So we always joke about how you can do payments by themselves, but you almost cannot transfer anything else without the payment involved. So if you think about securities transactions, what blockchain allows you to do with the infrastructure we have built is you can actually transact in securities that are tokenized because the two legs get executed at the same time. So there's these new capabilities that I think are still nascent. We've scaled them quite a bit, but they're still nascent compared to existing rails. And I think we are quite excited about the future of this technology. I think clients should be looking to their partners in payments to help them navigate a world that is much quicker, much more real time, much more intelligent, whether it's because of AI or other tools, and frankly has many more choices of rails and many more choices of infrastructure. And how can a player that they partner with, someone like JP Morgan Payments, bring them that entire globe, help them move their money, store their money, utilize their money in the most efficient and effective way, and frankly, be ready for any innovation that's going to come their way, whether that be distributed ledger technologies or AI to make their company ever more successful.

Max Neukirchen: I fully agree, Umar. And when it comes to the question, what should clients expect from their payments partner, I will always come back to the three areas that we look to deliver for our clients. One is global connectivity done easy. Supply chains and business is now global, and clients are looking for a partner who is truly making it easy for them to operate and have business in so many countries, which is one of the key things that we promise to our clients. The second one is around innovation. You said it earlier very well. Clients are thinking about what does the innovation mean for them? And they look for a partner who can help them navigate innovative new technologies such as blockchain, such as AI, such as biometrics, such as real-time payments and make it usable for them. And then the third thing is clients are looking for stability and resiliency with all the fraud activity, cyber attacks, and uncertainties out there. Also from a macroeconomic standpoint, they want a reliable, stable partner with a fortress balance sheet that can help them basically manage all these uncertainties.

Umar Farooq: Max, I think that's a great place for us to wrap up. Thank you so much for joining us.

Max Neukirchen: Umar, it was great to spend some time with you talking about payments.

[End of episode]