Digital Currency Electronic Payment (DCEP): Modernizing Legacy Systems with AI, Robotics Automation and Machine Learning

This post is about payment modernization. First, I will present the fundamentals of payment from the perspective of banking. Second, I will review the what, why and how, like what challenges necessitate modernization, and how it is typically done, strategically but traditionally. Third, I will propose the new approach with AI, Robotics Automation and Machine Learning to digital transformation enabled payment modernization specifically in big banks. Fourth, I will apply the Banking Lab's framework on payment innovation, AI and Robotics product development and solutions implementation leveraging Machine Learning and Big Data Analytics to analyze two business cases in AiroBank. Comparative analysis will be made between payment modernization and legacy systems modernization in general, for example, investment platforms, wealth management, capital market, and security product systems including derivatives trading that relates to payment in large value transfer and cross-border clearing and settlement monitoring, compliance and regulations. Key words o watch for are TIMER approach, PayCoins framework, Digital Trinity customer behavior modeling, and GEAR governance Microservices, which Banking Labs trademarked and applied to clients solutions and implementation. Finally, I will focus on Digital Currency Electronic Payment and its impact to China and the world.

As a convention of my posting on LinkedIn, I will address common questions first: How is this post different from all other posts, articles, books and publications on similar subjects? And why should you read it? How should you read the post so that you can make best use of relevant content? AiroBank and AiroBar come into context to frame the business domain and technology applicability in addition to contextualize the products, processes and people. Before I dive in, I will ask you three questions in return.

• What if you were privileged to build a new bank?
• What if you are powered to reinvent digital currency?
• What if you are appointed as the executive governor to rethink about new laws and regulations about global payment in the age of AI?

From the perspectives of digital currency electronic payment enabled with AI, Robotics and Machine Learning, I will take you through the process of applying Banking Labs' TIMER approach for payment modernization in AiroBank. You will see how AiroBar helps paint the AI-augmented reality in near future where majority of consumers live and work. Customer-focused is always the best strategy, but never forget about your employees and shareholders. Why do you have to change? Because people will. AI is changing us in many aspects at work and at home. New consumers or new behavioral patterns necessitate new products and new services, new processes and perhaps even new business models. Banking is no exception. Currency and payments are the front runners because second to focusing on people, you should follow the money. I do. I think you will as well, and I invite you to join me. I will share my perspectives with you through AiroBar and AiroBank.

AiroBank is intended to not only respect current situation in large banks but also rethink about the limitations of the existing business model. Approaching legacy systems modernization, Banking Labs advocates the TIMER methodology, which I believe many business strategists are familiar with. TIMER stands for Transform, Invest, Modernize, Eliminate and Reinvent. In simple terms, this is our call to action in respect of time and timing, like setting a timer to time-box the strategy, to execute on a road map that has timely milestones, and specific goals not only long term, but for every stage of the implementation. Modernization is one of the five strategies, and in fact the balanced one. But if taken out of context, it will not have best impact. In this post, I will provide synthesized analysis on "why to modernize", "what to modernize" and "how to modernize" in the context of "why, what and how" of transform, invest, eliminate and reinvent for related lines of businesses, corporate functions and technical supporting vendor products. Like using five fingers of a hand, the best punch comes when you pull the five fingers together.

Figure 1: TIMER - Banking Labs' Payment Modernization Punch

This is a simple and literal way of looking at these strategies, but it's true. It is the same with other strategies, like reinvent. It can never be more riskier than blindly putting an innovative good idea into a payment product and expect miracle. Banking is all about risks. We underwrite risks for customers. Payments are especially so. Many people can come out with a good idea, and some dream to change the world. But an idea to products, and from solution to implementation, there are many steps to go through. For similar reasons, many large scale digital transformation programs fail, or at least not measurably successful viewing from the return on investment perspective. No strategy can become your silver bullet. No strategy should be undervalued either, not even the typically no-go "reinventing the wheel". For payment, many changes that are in nature "reinventing the wheel", for instance, ISO20022. It is debatable, and I will come to details in part 4. In recent engagements, we have applied the TIMER approach to design varied portfolio of strategic solutions for our clients on capital market, wealth management, investment platform, payment systems, financial reporting, fraud analytics, compliance and regulations.

Modernization is by far the lowest in technological investment but the highest in terms of business return in short to medium term. Long term results, however, depends on the overall strategic priority and business direction of the organization. Each one is unique in its own circumstances. People may have different opinions, and some questions why and how the legacy systems come to the current state they are in. We strive to see problems from perspective of our clients. In most cases, many talented people have made the best decisions at their time in the past. What looks awkward today cannot be disrespectfully dismissed. What looks smart today may become awkward tomorrow as well. Things change. No body can really predict the future. We have to work with clients on a case by case basis. However, Banking Labs' TIMER approach is simple, yet strategic and practical because we work together with our clients rather than superficially bestow abstract theories or strategies. Nothing can replace sufficient due diligence in discovering and defining the problems. Technology solutions must be customized to each business domain . Payment modernization is special because it cut cross many lines of businesses, and becomes a domain itself. However, real time reel is significantly different from bulk wire transfer. Payments for derivatives security trading are very different mobile payment that are nowadays trendy. But what's in common? Can we come up with a standard reference architecture and template solution framework instead of wildly customize designs that could become technical debt next quarter? Banking Labs proposes the PayCoins. I would like you take this point home, especially since we are focusing on payment modernization for big banks.

Again, it will be a base post for the subject topics, and for which many short posts will follow to lead you to specific aspects. Knowing about the subjects is one thing, accumulated plenty of experience at work is another. But writing all out in a form that readers can benefit from me is yet entirely another endeavor. I like the analogy that says data in business are analogues to experience of a person. Every bank has data, and typically lots of them, we call that Big Data in nowadays. Every person has experience, and typically plenty as one ages. But how much can a bank make sense of its data? How much can we learn from our experience? Sad, isn't it, let alone communicating to others and benefit them. For these reasons, I will selectively write out those that I think will benefit you. Following-up posts are necessary as readers will have questions hence I will need to elaborate on specific topics. I encourage you to read relevant content or sections of this long post. Assuming most readers will only glance it over at first. A couple of disclaimers are in order.

First, this post is not about crypto-currency discussions like those on Bitcoins or Blockchain though I will touch on it in Part 4 if it helps to develop the content. Second, if you are looking for cursory guide on payment concepts, news and future directions, please select a country and go directly to the payment websites, for example, Canada, where I live and work. I have participated in a number of discussions, but this post is not about the policy or standards for Canadian Payments. That said, I will also do a bit of house-keeping. Why? Because you need to convince yourself that my writing is credible.

What makes it credible is first of all, me, my skills and my experience on the subject topics: payment, banking, AI, Robotics and Machine Learning. Obvious and current, I am leading a team and developing products and solutions on AI, Robotics and Machine Learning. Many of the insights and know-how are from my team, and much of the credit goes to my colleague, Dr. Gedela, who is the co-author of our new book Enterprise AI Monetization. This is why I call it house-keeping. With my colleagues and my team, we research on the subjects, and we develop AI, Robotics and Machine Learning products; we engage clients and we implement large scale solutions. For the past year also, I have been designing solutions and leading implementation of ISO20022. This is very much a technology effort but nevertheless point-in-time example for payment modernization in banks. I would like to deliver two points so that you can register with what I am talking about. First point, payment can be viewed as a transfer of value and data from one party to another.

Second point, payment and currency are two fundamentally independent but operationally dependent financial instruments. By and large, both respect the boundary of the respective nation. Like Euro, it is a currency for multiple European nations, but each nation still operates its own payment processes systems. Coming to Frankfurt, Germany, say, if you travel with a tour based in Paris, France, then if you pay the tour guide in Euro. The payment in cash works much different from payment with a card or Apple Pay. You will need to read Part 1 of this post to get a good understanding. What ISO20022 offers, first of all, is the interoperability, and this is critical from the technology perspective. More importantly, ISO20022 offer data rich features for fraud analytics and risk management in big banks. Designing payment modernization solutions, with ISO20022 for example, and leading implementation for Canada and US banks have been my latest engagement. Successes are announced here and there, but something has been nagging me. I think we can do better with the help of AI, Robotics and Machine Learning. This aligns with the overall theme of our new book Enterprise AI Monetization. Hence this post.

Figure 2: Abacus Level 5 Professional Accreditation - Accountant for Commercial Banking

What about my business side? You wonder. I am with you. So let's spent another minute to complete the house-keeping. You are probably also wondering why you see a image of golden abacus. Well, this is the first thing, if at all related to payment or algorithms, in which I was "certified" for. Certification was awarded as professional accreditation as an accountant for commercial banking. My first degree was in finance, and I studied applied computing for banking. When I started my career, my first job was working as an accountant in branches f a commercial bank, Bank of Communications. In fact, I worked for the bank from China to UK for close to 10 years, on and off, before I changed path to technology, and worked since then, for 20 years. Time flies. Before I changed my career path to technology, for sure, I earned my masters in computer science. For now, let's go back to my abacus.

My job when I joined was to receive and collect checks from clients; most clients represent state-own enterprises or business organizations. First step was always entering them into the books, or bookkeeping in accounting terms. And then I would process the checks, for example, I would call up all sorts of agencies and parties to make sure the checks were not fake or tempered with. If any mistakes, I would get them corrected. If any confusions, I would clarify them. Only when I confirm that the check was genuine, complete and accurate would I initiate next steps. By the way, such experiences are gold because with real world experience, I intuitively know what questions to ask. For example, about five years ago, the bank I worked for went through the payment modernization on check, from manual processing to digital image. The fundamentals in terms of what business is looking for stays the same. Another engagement, about 15 years ago, also became relevant from time to time. That was developing applications for card payment at point of sales. Actually two engagements, one was with the POS device vendor to figure out the process flow and real time processing. The other was with a bank who deployed such devices and connect them through payment gateways. This was the value of experience. You never know when each piece will become incredible critical to solve a particular problem. You can imagine or stub up problems for testing purpose. The real world, however, is substantially more avid in creating complex problems you can never imagine. Why? Each person now has his or her personal reality nowadays. We all have our unique circumstances, and we are all very innovative. Nothing negative is intended; this is true always. Always, we are customer focused, whatever customers need, we will do. For now, enough for a good digression. Let's go back to my first job, again.

It was in China, by the way, at that time it was still in sort of Communism Society with a by and large planned economy. If you want to take reference, Russia was still part of USSR-assuming you are old enough to know. It seems to be a long time ago. It was. Back to work.

Second step of my job, which is also part of my job, was going to the clearing house in the central bank. This was payment in its full cycle, yes, with checks. I handle cash for sure, and also other forms of bank drafts. As said, I would focus on checks to illustrate my experience from the business side. I enjoy the second step, as I had the opportunity getting away from office. This was a long time ago. My best transportation was my bicycle. Typically, I would ride my bicycle to the clearing house, tallying up all the checks with my abacus. On the way, I enjoyed the privilege of running into my friends. I remembered that I also went back and forth over a bridge. It was a small river. Children were playing on their way to school. Bird were singing. Seasonal colors were pleasant and pleasing. Let's back to work. Now you see how important the abacus was to me.

Third step, I would do the check exchange with other banks and recording all remittance and writing up the documentations right on the spot. Digital Transformation? No, computers were only coming to the rescue later on when I finally converted the accounting system to automate bits and pieces of the checking payment process. Reflecting back, this was trivial to many of you. But at that time, it was significant before not many people every able to operate an electronic calculator or ever used a check. Again, this was 1990 in China. Those achievements earned me promotion in three steps that launched my career in financial industry. First, I became a member of special task force in starting security issuance, for example, government surety bond. Under the banner of national policy of "Open and Reform", financial institutions slowly embracing deregulation, privatization and commercialization. Later we introduced innovative debt and equity securities.

Second promotion was based on my contribution to the first. I was selected to develop insurance product, policy development and claim systems, and later on open for operation as Pacific Insurance. It was a subsidiary line of business within the bank I worked for. As the business grows, it became an independent company long after I left China. To my account, I could be the first not-fully-state-owned large insurance company in China. There are plethora of restrictions back then. Starting business as advanced as insurance was considered very risky and aggressive. Being part of it, however, was a privilege to a young bank employee like me. My title was not banking accountant or financial analyst but government worker. I do whatever the organization assigned me to do.

Most important was my third promotion. After I building up my reputation as a young but successful leader in multiple functions of the bank, I was promoted to become a manager in London Office, England, to start the trade finance lines of business. It was really a critical promotion because with physically migrating from China to the West, I started re-educating, re-training, and re-adopting into the Western style financial businesses. Equipped with years of on-the-job training, professional accreditation, and hand-holding sort of mentoring on top of real world work experience day-in day out in one of the most privileged financial centers in the world, I established many connections with financial professionals in London, England. I was specialized in trade finance, to which marine insurance, international trading offered, currency exchange, and cross-border payment settlement were all part of my job. This lasted for about five years with intermittent job assignments and leadership diversification. Like many new comers and young financial professionals, I diversified as much as possible and I mastered as much as possible about a long list of lines of businesses and operations. For example, I collaborated at work or tip-toed for short term in capital market operations, wealth management portfolio design, and investment with derivatives like options and futures, stock exchange and currency trading, large value transfer systems for bulk payment, clearing and settlement. In fact, I studied shopping and international law as my job required, and I studied Chartered Financial Analyst (CFA) and earned lots of security certification. As I discovering myself, I eventually changed my career path to information technology, and for which I studied my master's degree in computer science and to date, have been working for about 20 years. From London, I went to New York, and from Vancouver, I went to Montreal, for latest 15 years, I worked mostly in Toronto. Again, on daily basis, I work in or for large financial institutions like big banks, insurance companies, investment firms, government agency and regulatory offices.

My focus, however, have always been on customer. From the business domains to technology solutions, I have always been following the money. Law, compliance and regulations are the third dimension that I am acquiring. I am completing my master degree in law and once qualified, I will be fine-tuning my career path to leverage business insights and technology leadership. I am strong believe in practice what I preach. In Canada, and especially after the financial crisis of 2007-2008, I became ever more engaged in customer compliance and many type of regulatory programs, and the latest are Anti-Money Laundering (AML) transaction monitoring, name scanning and customer privacy protection in conjunction with legacy system modernization for payment, investment, financial analysis and wealth management. In part four, I will articulate and illustrate the architectural framework that Banking Labs use for payment modernization. You will see where and how the business, technology, compliance and more are coming together.

Figure 3: PayCoins - Banking Labs Payment Modernization Framework

Hopefully, by reading thus far, you are convinced that this post deserves a moment of your time. If you are only coming across this post for a cursory review of the subject topics, I guess you get the gist and main points of what you are looking for. Next sections are for decision makers, payment professionals, and practitioners engineers who need more details for solving real world problems. Read selectively, or invite me to connect.