* The views expressed in this article are solely those of the authors and should not be attributed to the European Payments Council.
Fifteen months away from the launch of the Instant Credit Transfer ( ) scheme, the total number of European Payment Service Providers ( ) which have joined the scheme has grown to 2,049. With 1,297 on board, Germany has more participants than any of the 16 European countries already taking part. We asked Martin Holtmann, head of product management, payment and accounts at DZ BANK to share the lessons DZ BANK has learned from implementing the scheme.
How would you describe the first months of processing transactions and the lessons already learned?
The cooperative financial network has been available for passive transaction services under the scheme since 27 November 2018. In other words, banks affiliated to DZ BANK can receive incoming real-time transfers from other participating banks and credit them to their customers' payment transaction accounts. Our organisation is thus only partially operational in the instant payments scheme, but this will change when both active and passive transaction services are offered from May onwards. But one thing we can already clearly say after these first three months is that we are surprised at the consistently high number of incoming transactions.
Our systems process a daily average of around 10,500 transfers on weekdays and 5,200 at weekends. Right from the start, the instant payments scheme has been doing full justice to its 24/7/365 claim. Instant payment transactions are carried out around the clock. The number of transactions is only significantly lower between two and four in the morning. The average turnover amount for all processing days is around 800 euros. We at DZ BANK in collaboration with Fiducia & GAD IT AG are now looking forward to the next step of enabling our local cooperative banks to actively participate in instant payments across various customer channels.
What were the main obstacles encountered during the implementation of , and how were they overcome?
In the course of implementing the instant payments scheme, DZ BANK had to cast aside and then completely redefine many of the basic principles of mass payments. For example, instant payments processing means bidding farewell to batch-oriented processing. In the old system, orders were collected as bulk payment transactions and cyclically processed.
Now individual orders are initiated and received within a few seconds. Another new feature is that positive or negative confirmations are exchanged between the banks for each transaction.
The 24/7/365 availability also presents banks with major technological challenges because not only must the core instant payments application be available around the clock, but other systems involved in the overall process, such as the bank system, must also meet the new requirements. One example in this context is the order handling process that has to comply with the throughput, availability and stability requirements for instant payments processing. Another is the fully automatic embargo/sanction processing system, including fraud detection, that also has to take place in a fraction of a second to meet the time requirements for overall processing.
Do you think instant payments will become the ‘new normal’, replacing standard credit transfers ( )?
I am convinced that instant payments have the potential to become the ‘new normal’ and replace in the medium to long term. After all, Instant Payments belong to the digital age. In a world in which consumers are used to having digital services and goods available at all times, instant payments are the right response. Payments can be made in a matter of seconds anywhere in Europe, around the clock, 365 days a year. Nonetheless, no one knows exactly where the journey will take us. For instant payments to be a success, a very large number of banks in the region will have to join the system, and these banks – together with their customers (corporate customers, retailers, etc.) and the technical providers involved in the process – will have to develop interesting fields of application for instant payments that can generate genuine added value for users.
How do you see the scheme evolving in the future in Germany and more generally in Europe?
The instant payments scheme is gradually taking shape in Germany. The first application possibilities have been created and the foundations laid for further developments. Many banks in Germany have already joined the instant payments scheme or are planning to do so in the near future. This development is crucial in enabling the system to make headway because, ultimately, the only guarantee for the long-term success of instant payments is very high accessibility in Europe. Corporate customers in particular will only consistently use this product if most banks in Europe offer instant payments. This is the only way for the application areas I mentioned earlier, like e-commerce or card payments, to have their full effect. The issue of increasing the amount limit, which is already being specifically discussed at level, can also create new application areas in liquidity management in the enterprise sector.
All in all, the potential for instant payments to transform the entire payment transactions infrastructure should not be underestimated. The fact that the introduction of instant payments is a European initiative is significantly broadening the sphere of influence.
The cooperative financial network has therefore decided to actively promote the further development of instant payments. One example is the network’s involvement in the foundation of the Westhafen Expertendialog Instant Payments. This forum of experts pursues the goal of establishing a uniform system for processing euro real-time payments for banks, and corporates. It aims to ensure smooth execution by finding joint solutions for issues arising during the introduction phase and in the course of developing euro real-time payments. The overall goal is for all participants to benefit from the shared analysis and exchange of information and views.
Finally, based on your experience, what’s the one key piece of advice you would give to European planning to implement ?
My most important piece of advice to the is, that an active participation is a correct and meaningful decision. Even though participation is not mandatory for , it is an important step towards creating a payment transactions system that is crucial for Europe’s future.
Another piece of advice is that each project team should take an open-minded approach as they enter the inevitably uncharted territory of instant payments in the course of implementation. When developing a solution, each company needs to completely rethink and consistently face up to the new challenges. As already described above, these include issues such as permanent availability and preparing systems for what is likely to be an enormous volume of transaction throughput per second, etc. Equally important is not underestimating the liquidity management process overnight and at weekends. This is particularly relevant given that, under TARGET2, the European Central Bank can only transfer liquidity into the world of instant payments at the specified target time slots. Despite all the challenges, there is one thing I would really like to stress: the effort will be worth it.
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Martin Holtmann
Since 2006 Martin Holtmann is head of product management in transaction banking first at WGZ BANK in Düsseldorf and later at DZ BANK in Frankfurt. Before that he was responsible for electronic banking and card payments at WGZ Bank. Martin Holtmann has a degree in business administration.