Instant payments in Europe: a recipe for success
There is intense interest in instant payments (IP) throughout Europe. Domestic schemes are already live in the UK, Denmark, Poland and Sweden. The success of these schemes shows what’s possible but also teaches many lessons.
Perhaps the most valuable lesson is the need for banks to strike a delicate balance between an IP solution that is cost effective but also meets evolving customer needs. Establishing a compelling business case is critical but challenging.
In practice a successful IP solution is about much more than payments – it is a strategic platform for the development of value-added overlay services. Until now, there has been no mandate to adopt IP and schemes have evolved along national lines, each with its own rules, message formats and currency. But the move to pan-European IP requires a standardised approach.
At a pan-European level, SEPA Instant Credit Transfer (SCT Inst) offers a real-time scheme for euro transactions based on the SCT scheme and the ISO 20022 messaging format. While this is a good start, the practicalities of instant payments are formidable: the investment required is substantial and there are many pitfalls for the unwary. So what are the key ingredients of a recipe for success?
Ensure maximum reach. On top of being easy and convenient to use, a successful IP solution must be ubiquitous. Achieving this is a strategic challenge for the entire European (and global) industry. SCT Inst has the potential to reach 500 million users but IP must attain a ‘network effect’ to drive uptake. The lack of true interoperability between European IP platforms represents an obstacle for payment service providers that may have to access multiple IP platforms in order to reach enough banking counterparts across Europe and beyond.
Develop value added products and services. While the deployment of pan-European IP is a major challenge, it also brings opportunities for banks to review what they do and how they do it. But developments are moving fast and there are plenty of new players with an eye on the payments prize, so the industry will need to be innovative and develop appealing products and services in collaboration with the right partners. This will be key to driving IP uptake and building competitive advantage.
Implement agile integration solutions. Payments touch nearly every bank system and IP requires 24/7 operations and immediate responses, so a successful implementation will demand major changes in banks’ systems and operations. Experience shows that around 90% of costs incurred in the move to IP relate to systems integration. Banks will be looking for a financial messaging platform that sits between their systems and the various domestic and cross-border IP platforms on one end, and acquisition and reporting solutions towards the other. It will also have to offer the necessary agility for banks to evolve their offer and retain relevance in this fast moving ecosystem.
Guarantee security and resiliency. The move to instant requires the orchestration of multiple layers of technology over disparate geographies. Banks will need to maintain an uncompromising approach to security to reduce exposure to cyber threats, fraud and system outages.
Contain costs. As banks build their IP business case, controlling costs is crucial. Re-using existing infrastructures will help to keep unnecessary investment to a minimum and mitigate project risk. And by leveraging existing connections, the transition to IP can be achieved more quickly and smoothly. In the same way, solutions that offer access to multiple IP systems will help to solve the ubiquity challenge while minimising spend.
The transformation of the payments landscape to the instant world is inevitable and desirable. It comes with many challenges for the industry, but also represents a unique opportunity for banks to re-invent themselves, building upon their strengths and capturing the unexplored benefits of new technologies. Selecting the right partners, providers and solutions will be key for the success of banks’ IP implementation projects and for their digital transformation in the coming decade.
By Isabelle Olivier, head of securities initiatives and payment market infastructures, EMEA, Swift
This article is also featured in the Daily News at Sibos 2017 – Day 3 edition.
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