We continue our series of interviews with the key players in the start of the Instant Credit Transfer ( Inst) scheme, which is scheduled for November 2017. Clearing and Settlement Mechanisms (CSMs) are instrumental in making Inst transactions a reality, and companies offering these services have to prepare in advance of payment service providers ( ). To shed some light on instant CSMs, we interviewed José M Beltrán, Director of Business Development at STET, one of the leading European clearing and settlement systems.
- Which factors are instrumental in making the Inst scheme a success from a clearing and settlement perspective? What are the main challenges?
We had already delivered efficiencies in clearing and settlement with the implementation of the Credit Transfer ( ) and Direct Debit ( ) schemes and related regulations over the last few years.
The implementation of the Inst scheme now introduces a new challenge to CSMs. We move to processing unitary transactions with an expected service level agreement (SLA) of one second for the actions of the CSM – and uninterrupted availability 24/7/365. This requires new infrastructures, because batch systems cannot simply be upgraded to support Inst. In addition, these new infrastructures need to be technology future-proofed to support the flexibility and evolution that is expected as new products and services are delivered in the Inst scheme.
Needless to say, an instant payment CSM needs to deliver an efficient, secure and one hundred percent reliable service 24/7/365 to support the community in building market trust and confidence. If we are to build the acceptance and critical mass that will ensure the success of the scheme, we cannot afford a single hitch from the first day of the scheme onwards.
- Can you tell us more about the main features of STET’s clearing and settlement solution for Inst transactions? Will you be ready to provide instant clearing and settlement by November 2017?
We are working initially with the French and Belgian banking communities on the launch of our instant payment CSM. We have built a new infrastructure with multiple data centres on an active/active configuration required to deliver the required resilience, security and availability 24/7/365. We have a highly performant messaging layer with a one second SLA and we have enhanced our liquidity management tools, which will be interfaced to TARGET2 ASI6 RT (being delivered by TARGET2 to allow clearing and settlement certainty 24/7/365). Our instant payment CSM will be fully compliant with the Inst scheme and we have added community-oriented functionality and governance to support specific requirements such as shorter exchange times and different maximum amounts. We have committed to the European Central Bank to be interoperable with other CSMs to achieve reach. In a nutshell, everything is on track for the launch in November 2017.
Beyond clearing and settlement, we are looking at related services to support in the areas of risk mitigation, security and facilitating the launch of new payment services. We are working on features such as a directory service for mobile number to International Bank Account Number (IBAN) look-up; scoring instant payments for fraud as we do card payments; supporting anti-money laundering screening, and developing Application Programming Interfaces ( ) to give third party payment service providers ( ) access to the customers’ payment accounts in the context of the revised Payment Services Directive ( ).
- In your view, what will be the main impact of instant payments on the European CSM industry?
A number of thoughts come to mind. One is that ‘instant’ will inevitably become the new normal. This will vary by community and may take some time, but the expectation of instant execution is at the heart of our technology revolution. Payments will become instant to a very high percentage. The investments required to deliver a high volume Inst CSM on a highly performant and cost-effective infrastructure will most likely lead to some degree of CSM concentration.
Other impacts, like the TARGET2 ASI6 RT functionality being deployed to support Inst clearing and settlement 24/7 and eliminate related risks, could be extended to the settlement of other clearing services such as SCTs, SDDs and cards. This optimisation could lead to clearing convergence.
Liquidity optimisation features are being developed for Inst. In conjunction with the planned evolution of TARGET2, these would deliver further efficiencies leading to concentration of clearing activity by in fewer CSMs.
CSM concentration is a possible outcome, but the main impact, however, is that the delivery of all these components in a competitive environment will lead to a much better payments infrastructure for .
- How do you see Inst developing in France, STET’s home country?
The French banking community is working to create the conditions for launching payment services based on the Inst scheme. A key success factor is ensuring the timely arrival of stakeholders in the market; reach is fundamental to building critical mass. Equally, a completely incident-free launch and subsequent smooth daily operation will be key to building trust in the market. In a large consumer community like France, a well-coordinated and -executed community plan is necessary. This is in progress, and I expect a successful launch of the scheme in the near future – fully supported by STET.
- In the long term, how would you like the Inst scheme to evolve?
The Inst will enable the fast execution of a payment in return for goods and services. Services enhancing the customer experience will evolve; instant payments will be a new way to make a payment and will certainly replace the use of cheques and cash. Later, Inst could be seen as an alternative to existing payment instruments such as SCTs and card payments, but the consumer appetite for moving to a new instrument will depend on the efficiency of the existing ones. So whether a community is cash- or card-based will have an important impact on take-up. We could also imagine incentives to drive the change, but then we have already optimised the payments infrastructure in in the last decade with large benefits to the consumer. Therefore a good degree of patience will probably be required to see the baby grow and work its way towards university.
STET is a bank-owned provider of pan-European payment infrastructure solutions. It processes over 22 billion transactions a year as one of the leading European clearing and settlement systems, servicing the full range of payment instruments and, at the same time, operating one of the biggest card authorisation switches in Europe.
Click on the links below to read earlier blogs about the Inst scheme from key stakeholders.
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