With a rapidly approaching deadline and a clear call to banks to take action by 2017, industry leaders gathered today in Geneva to discuss the potential of, the barriers to implementation and benefits of both domestic and cross border real time payments. Standardising the solution is proving to be difficult in the Eurozone region and it is even harder to step away from fragmentation as we heard from Pascal Augé from Société Générale, Stefano Favale from Intesa Sanpaolo, Rodolphe Meyer from STET, Christian Rhino from Commerzbank AG and Patrick Tans from KBC.
Are legacy players putting the customer first?
Thierry Chilosi, Head of Markets and Initiatives EMEA, SWIFT chaired the session and started off by questioning the panelists about what success looks like to them and said that focusing on a long term vision is always beneficial when adopting instant payments. The client expects more in this day and age, and also expect everything quicker, which means that bankers should manage their flows at a faster pace. Unfortunately, for the banks, new players are putting the customer first and customers are beginning to bank with them.
Augé said that “we have to defend ourselves against the new players. If we are not there, others will be.” He highlighted that there is a trend in banking where individuals flock like sheep and if a legacy financial institution where to provide a service that met customer expectations, it would cut out new challengers from the equation. Tans provided three reasons why retail banking needs to change: with the rapidly evolving world, financial support is slower than other facilities that customers have –“speed and convenience have become the new normal”.
The second reason is the ever increasing threat of fraud and the third, because it gives financial institutions the opportunity to increase income and in turn, reduce costs. In the corporate world, however, despite treasurers’ worries about increasing investment, what the instant payment also means is the treasurer would also get an instant notification, as Favale mentioned. “Life would be easy for treasurers if instant payments were executed,” Favale predicted.
Deadlines and definitions
The Euro Retail Payments Board (ERPB) has defined instant payments as "electronic retail payment solutions available 24/7/365 and resulting in the immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer (within seconds of payment initiation). This is irrespective of the underlying payment instrument used (credit transfer, direct debit or payment card) and of the underlying arrangements for clearing (whether bilateral interbank clearing or clearing via infrastructures) and settlement (e.g. with guarantees or in real time) that make this possible."
It’s all about ensuring that this definition of instant payments is what banks and financial institutions in Europe implement. Meyer suggested that moving in the direction of instant payments was a normal evolution for European payments because of this reason of the customer needing services faster and this is due to being used to sending instant messages through Facebook and WhatsApp. The most important takeaway from Meyer was the realisation that France still uses cheques and instant payments could be used for the types of transactions that cheques are used for.
Augé framed this move to instant payments as a “quantum leap”, similar to that seen when the debit card was introduced into the market. Tans continued to speak on this topic and said that if it works then customers will use it. He explained that banks need to look into the quantifiable characteristics and then a business case needs to be calculated, but it also depends on your degree of optimisation. “In the short term, you’re not going to make any money and changing more is not realistic because the cost will be huge on average, but this depends on the technical solution you choose in the short term.”
“Banks do not have a business case; they have a staying in business case,” Augé said. When it comes to taking action and implementing, Chilosi asked the panellists what the main success factors of instant payments would be. Favale provided the answer:
- Providing an AML security blanket to customers with a common framework.
- Interoperability is key – build common rules to value-added services.
- Broad domestic adoption – there is no business case at the moment but banks will enforce adoption.
Acting on what we already know
Rhino expressed that cost would be a problem and the only way to reduce it would be to share the pain. This would make it a cheaper platform to use, if many were paying for it and this is where big data is the saviour as we are clever enough to use this in the right way. Tech allows someone to be available 24/7 and 365 days a year and when implementing new tech, you only have one chance to make a good impression, Rhino said.
Augé picked up on the topic of sharing and said that with the rise of instant payments, this led financial institutions to outsource and share the burden, which is why you should work collectively and design step by step. At the moment, 95% of payments in France remain in the domestic category which means that moving from local to pan-European would be easy. Rhino reminisced about discussions when SEPA was about to be implemented and said that it is similar to what bankers are experiencing now.