By Thomas Egner, Secretary General, Euro Banking Association
Speed, as any racing driver will tell you, is not necessarily synonymous with success. A racing car, for example, is a masterpiece of technology. But the winning driver combines technology and speed with strategy, intelligence and an ecosystem of controls.
As with one high-speed technology, so with another. Europe is currently mapping out its potential road to instant payments – that is, real-time payments in euro, which can be sent end-to-end within seconds, 24 hours a day, seven days a week, 365 days a year, with instant notification to the payer and the payee. Yet as European Central Bank executive board member Yves Mersch has recently pointed out, this fast-track payments project is about “more than just a need for speed”.
Instead, Mersch added, for the speed of instant payments to make a real difference, payments will need to “meet the needs of today’s and tomorrow’s end users” – and it will require innovative, value-added solutions to pull this off.
Different speeds and approaches in the European market
As a result of the pace of digital transformation, an increasing number of European businesses are embarking on the journey to a real-time economy. In the financial industry, this is being accelerated by a number of drivers, from regulatory developments to new players and technologies – and, of course, new instruments such as instant payments.
National solutions for instant payments have been relatively quick to develop. But at the multinational, pan-European level, instant payments are now also gaining ground, thanks to collective effort on many levels. For example, EBA CLEARING’s RT1 system, which went live as the first pan-European instant payment infrastructure in November 2017, will have processed 10 million euro-denominated transactions around the turn of the year, and already reaches over 2,300 payment service providers (PSPs) in 12 European countries. And the European Central Bank has just announced the successful launch of TIPS, a central bank-driven pan-European infrastructure system, which will complement the private-sector platform RT1.
But while volumes are ramping up and business rewards are tempting – among them reducing late payments, speeding up point-of-sale transactions, allowing real-time reconciliation and liquidity management – successful mass adoption of instant payments is not yet a given. Businesses and PSPs alike have plenty of changes to make and input to give before instant payments can become an integral part of corporate life, across Europe.
What corporates and SMEs want
One pressing issue is user experience. Retailers with a broad portfolio of distribution channels doubt whether instant payments will provide customers with a uniform experience, and the right level of convenience. Many believe that a pan-European ‘Request to Pay’ solution could be a missing link that helps integrate instant payments into the sales process. This topic is high on the priority list of industry players.
Solutions are also needed at the point where the customer interacts with a payment facility. To link technologies between the different applications seamlessly, development teams will want access to standardised application programming interfaces (APIs). And parallel to the technical interfacing, market players will want to ensure that secure customer authentication is as fast as the transaction itself – because there’s no point in having a real-time payment if the authentication needed to initiate that payment is slow.
Aside from a smooth customer experience, there are also challenges for both service providers and businesses to solve, in order to create a truly integrated real-time experience at corporate level – among them, putting in place the processes and tools that can add value to instant payments beyond the transaction of funds.
After all, when it comes to dealing with payments data, businesses today are in some ways like astronomers, staring back in time at light from long-dead stars. But if businesses could track and act on payments and other financial data in real time, across borders, they would be able to make informed and confident decisions based not on yesterday, but here and now. And this, in turn, could pave the way for better service levels, products and conditions for their own customers.
But to enhance processing speed for incoming flows, many businesses need to upgrade their own reporting software and internal processes. PSPs and other service providers may be able to provide support in this space – by creating customer tools based on the new generation of liquidity reporting and management tools they are putting in place for their own purposes.
However, it will take more than shiny new tools for businesses to reap the benefits of real-time payments. It may sound slightly paradoxical, but corporate treasurers are calling for the creation of bulk formats for instant payments. Combining speed with efficiency, certainty and predictability, these bundles of salaries or bill payments should not only be processed in real-time but ideally also at the precise time pre-determined by the treasurer. What these treasurers want is ‘right-time’ payments rather than real-time payments.
At the same time, instant crediting of a transaction has little value to treasurers without easily processable instant notification – which is another deliverable currently taken forward by PSPs in the collective space.
How does the EBA support these efforts?
But detailed solutions aren’t only needed at the level of corporate or retail customer products and processes. A smooth customer experience depends on highly tuned processes and practices between PSPs as well. For euro instant payments, this means as much harmonisation as possible across Europe.
That’s where a pan-European association such as the Euro Banking Association (EBA) comes in. The EBA fosters dialogue among payments industry practitioners, by hosting initiatives such as the SCT Inst Migration Round Table (SMART2), which focuses on operational issues and defining best practice on instant payments.
In summary, it will still take some action at all levels in the payments ecosystem to make instant payments a true success across Europe. This includes cultural change, technology innovations and a degree of collective thinking and engagement. But one thing’s for sure: enabling faster transactions is only the start.
For more on the Euro Banking Association and on SMART2, see www.abe-eba.eu