New technologies (e.g. smartphones and cloud computing) lead to changes in customer habits and expectations, including but not limited to the uptake of e-commerce and m-commerce, and stimulate innovation in payments. Customers make increasing use of these online and mobile channels to buy goods and services at any time and in any place. These developments contribute to the expectation for a faster, potentially real-time, finality and/or confirmation of the payment.
The Euro Retail Payments Board () – a high-level entity chaired by the European Central Bank (ECB) which brings together the supply and the demand side of the industry to address strategic questions concerned with retail payments – agreed on a definition of instant payments at the December 2014 meeting (see ‘related links’ below).
At that same meeting, the members also identified the need for at least one pan-European instant payment solution for euro, open to any payment service provider () in the EU. The invited the supply side of the industry (in close cooperation with the demand side and with the active involvement of the European Payments Council () as a potential scheme developer) to make an assessment of the issues related to pan-European instant payment solutions in euro, to be presented at the meeting in June 2015.
On 30 June 2015, the published the ‘ Report to the on Instant Payments’ (see ‘related files’ below) which has been submitted as a contribution to the debate on instant payments for the meeting on 29 June 2015.
Scope of report
The understands that the definition of instant payments represents a long-term vision for instant payments, setting out wide-ranging deliverables and milestones. However, one or more intermediate phases to reach that goal may be needed as payers and payees in different countries and segments might have differing expectations from instant payments.
The Single European Payments Area () is composed of a large number of countries with separate and diverse national payment systems, instruments and habits, even after the successful migration to payment schemes. The overall share of electronic payment volumes in the total volume of payments still greatly differs between countries. The market share of each electronic payment instrument within the volume of electronic payments can also be markedly different.
It is important to stress that instant payments may not be limited to retail payments stricto sensu and that they may substitute some existing electronic payment instruments, cheques and cash. Furthermore, instant payments can be subject to a form of processing cycle that will be different from the existing batch payment processing.
Due to time constraints, the has not entered into any formal discussions with representatives from the demand side or from other payment supply players at European or at national level on the topic of ‘instant’ payments in the production of this report. This report must therefore be seen as a preliminary contribution from only one stakeholder.
The report stresses that the expectation of both payers and payees must be the starting point to build the future landscape for instant payments and thus should drive the debate within the . The first action undertaken should be to understand what payers and payees actually expect from instant payments. The defined needs of the payer and the payee will determine the concrete features of any instant payments solution. Such input will also determine the clearing and settlement structure needs as well as the overall implementation and annual recurring operating costs.
Current technology developments, namely the adoption of the smartphone and the integration of sales channels open 24/7/365 by merchants, together create the conditions for a consumer to make a payment anytime (with immediate execution) and anywhere in the Person-to-Person () and Person-to-Business (P2B) segments. The use of instant payments in these two segments has the potential to reduce the usage of cash and cheques, and to facilitate e- and m-commerce payments.
For the Business-to-Business (B2B) and Business-to-Person (B2P) segments, the predictability and the timely execution of the payment transactions made will remain the most relevant factor for payers and payees (e.g. recurrent collections, salary and pension pay-outs). On the other hand, specific niches in the B2B segment could become early adopters of instant payments (e.g. to make or receive the payment for the delivery of goods within a just-in-time supply chain; replacement of large value cheques to allow an immediate transfer of ownership of goods or assets).
could use their instant payment infrastructure (where available or planned) as a springboard to develop other 24/7/365 financial services and products to serve their customers better and attract new clients. When using the instant payment services, the business customers can further develop ‘treasury and payment factories' to centralise their liquidity and improve their cash flow management. The availability of funds 24/7/365 will help to optimise their liquidity management.
The report also draws attention to specific issues. One issue the highlights to the is which “go to market” scenario would be the most appropriate to reach the full potential of instant payments in .
Broadly speaking, two main scenarios exist in which instant payments can be offered to payers and payees across : through interoperability between existing (national) solutions or by establishing at least one -wide instant payment solution. Each of these scenarios or a combination of the two as a means of launching an instant payment solution have advantages and disadvantages.
The roll-out of an instant payment solution supported by various will demand that , along with payment infrastructure providers and corporate payment service users, invest in the appropriate technology, allocate the required staff, and budget ahead of time for the costs of the solution development, implementation rollout and subsequent recurring run-the-business costs. It clearly appears that the time and investment needed for the implementation of an instant payments solution at individual , infrastructure and payment service users () level and then at aggregate level will be considerable. It will require time and regular coordination between multiple stakeholders to realise all these steps before an instant payment solution is rolled out across . Some may not be able to support such a service as of launch, therefore affecting the reach of the instant payment solution. This will be a gradual process within .
Another issue will be to ensure 24/7/365 availability for an instant payment solution, especially in case of system maintenance and in combination with the interoperability between various instant payment solutions. The part of the definition stating that instant payments are those made “within seconds of payment initiation” gives way to various interpretations on the timespan of an inter- instant payment execution. This aspect may determine if the settlement of the instant payment takes place instantly or is deferred.
Compromises will have to be found to address concerns regarding the value date to apply for instant payments made during evenings and weekends. Also the “within seconds of payment initiation” character of instant payments will need to be matched with various compulsory validation processes (e.g. anti-money laundering, sanctions) as well as the requirement disparities between national authorities for the execution of cross-border instant payments.
Suitable instruments for instant payments
The selection of an instrument that would be suitable for instant payments will depend on the needs and expectations expressed by payers and payees based on the various payment instruments’ features, including the related rights and obligations. Business requirements will also play a role in the selection of the underlying payment instrument.
Card payments and direct debit collections are initiated by the payee whereas for credit transfers and electronic money, it is the payer that starts the payment initiation process. The selection of the instrument will determine the set-up of underlying clearing and settlement infrastructure and the use of standards.
At this preliminary stage, with the current definition in mind and subject to the position and expectations of the other stakeholders from the supply and demand side, a majority within the consider that the credit transfer could be a suitable payment instrument, as a first step, for instant payments in . A specific scheme may be required in that context.
On the other hand, it needs to be pointed out that other payment instruments, notably electronic money and payment cards, are also suitable for instant payments. Certain existing instant payment solutions are based on these particular payment instruments.
The ’s recommendation
Based on its assessment of the market and the customer perspective, as well as the opportunities and the issues that instant payments may bring, the is of the opinion that there may be a need for an instant payment scheme based on credit transfer at -level. In view of the benefits of broadening the discussion in an multi-stakeholder environment, the has recommended the establishing of an instant payments working group with the mission of analysing what the end-to-end requirements for pan-European instant payment scenarios would be. For more information on details of the outcome of the 29 June meeting, see article entitled ‘Euro Retail Payments Board Meets for a Third Time’ in this issue of the newsletter (see ‘related articles in this issue’ below).
Anthony Richter is chair of the ad hoc task force on instant payments.
European Central Bank Website: Information about Euro Retail Payments Board (ERPB)
European Central Bank Website: ERPB Statement 1 December 2014
Related articles in this issue:
Related articles in previous issues:
Instant Payments – a Winning Bet? ( Newsletter, Issue 26, April 2015)
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