Instant payment solutions – the current landscape
When looking at the European payments landscape, and focusing on instant payments (or real-time payments), from a perspective of clearing and settlement operators, a few interesting observations can be made.
Payment habits, customer expectations, innovation appetite
Countries differ in terms of their payment habits, their mix of payment instruments in use, and their appetite to innovate within the national community. Whereas some countries seem to be largely content with existing payment instruments, others have jumped ahead, innovating at high speed and with rapid user adoption, adding new types of payment (for example mobile initiated, or using proxies like email address) and changing the mix of payment instruments used. Consumer research shows a general rising expectation of instant payments becoming the ‘new normal’ and, as such, they are high on the agenda of all payment communities in Europe. It is either consumers, banks or regulators that take the lead in calling for initiatives to create instant payment solutions.
National infrastructure reliance
Historically, many national communities have evolved to rely on a small number of infrastructures (often just one) for national payment processing, clearing and settlement. For infrastructures in the Eurozone, the preparation and support of the national community’s controlled migration to the Single Euro Payments Area ( ) has been a main priority in recent years. Payment communities outside the Eurozone did not have that priority (yet) and some worked with their infrastructures to realise other projects, such as Instant Payment Solutions (IPS).
Multiple national solutions have been launched over the past five years (for example in Poland, Sweden, Denmark), and the UK’s Faster Payments System has been live for eight years already.
These solutions were all designed in different environments, for local currency, on local infrastructures, under local governance and so understandably they are not a priori interoperable.
Regulatory call for pan-European solution
The Euro Retail Payments Board ( ), appreciating the reality of existing multiple solutions, and seeing the rising consumer expectations, identified instant payments as a priority in 2014. It stated that at least one pan-European solution should become available.
Noting the variations in definitions, the formulated, in December 2014, a uniform definition of ‘instant payments’ for the industry to work with:
“Instant payments are defined 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.”
This definition may not fit exactly with solutions already in place, but it provides clarity to new national or pan-European initiatives defining schemes or products.
For an infrastructure, or clearing and settlement provider, the definition leaves the way of organising clearing and settlement out-of-scope. Infrastructures therefore have room to look for suitable ways to support a scheme or a solution based on the definition.
In its June 2015 meeting, the called on the European Payments Council ( ) to produce a proposal for the design of a pan-European instant payments scheme, to which the has responded by creating a workstream to develop the design of a ‘ Credit Transfer Scheme ( )-inst’. Interoperability has been identified by the as a key requirement.
Importance of interoperability
With national communities either having already acted and launched a solution, or feeling the urgent need to act in response to national calls for the introduction of solutions, the current landscape of several co-existing solutions will remain. If cross border instant payments are demanded by users, then interoperability of these solutions becomes an important requirement.
In a nutshell, when surveying the landscape, the starting point for countries is different. The approach to responding to the market demand for instant payments is determined at national level – however, these national communities do keep an eye on pan-European developments, in order to stay aligned. The sooner there is clarity about a European scheme (‘ -inst’), the better so that national solutions can be aligned and geared to interoperability.
Uncertainties that will need to be dispelled
What will the scheme look like? The will work out a scheme rulebook, including specifications on message formats and implementation guidelines. Until these details are available, clearing and settlement models are difficult to develop in any detail.
Demands on existing infrastructures
In almost all cases, communities that have launched an IPS have worked with the incumbent providers to jointly create new solutions and processing platforms. But, new players have also entered, or announced their intention to enter the market to compete with the incumbents, using separate infrastructures. Existing infrastructures are actively reviewing their position and opportunities.
Examples exist, for instance in the UK and Sweden, of instant payment processing platforms supporting the launch of a whole eco-system of other services which are built for mobile Person-to-Person payments, or e-commerce Consumer-to-Business payments. Obviously, infrastructures, and their owners, take great interest in understanding these opportunities.
How fast will countries wish to move towards IPS?
The IPS’s which have been launched up to now have taken between two and five years to be developed. There are varying expectations on speed of development for solutions to come, with two-three years often being regarded as the minimum period.
Lack of business case
Although users (consumers, corporates and public authorities) generally see the benefits of convenience and speedy execution of payments, for banks the business case is not so obvious. Also, depending on the specific national payments instrument mix (high percentage of card payments, or high growth of e-commerce), there may be a perception of cannibalisation of other payment services. This factor accounts for further uncertainty about when, and at what cost, solution launch decisions will be made.
EACHA position and potential contribution to realise IPS
The EACHA members are clearing institutions which serve local user communities. They are governed by local communities and will therefore follow and support the initiatives launched by those communities. For those that have already launched IPS’s, as time goes by, valuable knowledge, expertise and operational experience is being built up inside those organisations.
EACHA established a working group on innovation in 2013, based on the members’ wish to jointly look at innovative trends post- , and to share experience and expertise in view of potential common interest for infrastructures. The group quickly decided to focus on real-time payments and in the course of 2014, produced a study which was published in February 20151.
Appreciating the development, now underway, of the -inst scheme by the , which will deliver scheme rules, message formats and implementation guidelines, EACHA considers that it is at this point in time too early to start developing a framework for interoperability. Hence, the working group will now endeavour to create guidelines, based on the idea that there will be multiple interoperable IPS in Europe.
Such guidelines, which are due to be available by the end of 2015, can identify areas that can be best covered in the rulebooks, versus those that should be left to the clearing and settlement space. The guidelines could serve as a checklist of requirements and features.
After the publication of a (draft) rulebook for -inst, expected in the course of 2016, the aim of EACHA is to evolve the guidelines into a proper framework for instant payments interoperability, as one of the elements to support the realisation of pan-European reach for the envisaged -inst scheme.
In EACHA’s perspective, interoperability will be important for pan-European reach of Instant Payment Solutions in Europe. A published pan-European scheme is a pre-requisite to create the necessary clarity for infrastructures and operators in the clearing and settlement space, to design working solutions.
EACHA Interoperability Framework
The European Automated Clearing House Association (EACHA) is a not-for-profit organisation and acts as a technical cooperation forum for its members which are European ACHs. The EACHA Interoperability Framework, first published in 2006 in anticipation of , specifies a set of technical standards to enable Clearing and Settlement Mechanisms (CSMs) to bilaterally exchange payments between their respective participants, without the need for a participant in one CSM to participate in the other CSM. In this manner it enables payments to reach banking communities across . The set of standards are maintained to be aligned with and to complement the rulebooks issued by the European Payments Council and address specifically the CSM-to-CSM space. The Interoperability Framework is not mandatory but is a recommendation. Individual CSMs decide if and with which party they operate an interoperability link based on the Framework.
Fred Bär is Secretary General of the European Automated Clearing House Association.
1 The study is available for download at www.eacha.org
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