17 September 2019
Mallekoote on the Dutch implementation of instant payments: ‘The commitment of the banks was crucial’
It was big news in the Netherlands at the beginning of this year; seven banks switched to instant payments for transactions via mobile and internet banking channels. The project was led by the Dutch Payments Association and supported ING, ABN AMRO, Rabobank, de Volksbank and Knab. Six months later this payment method, which enables immediate credit transfers from the payer to the payee, is fully operational. This means that one million Dutch digital credit transfers a day are made via instant payments. In this blog, CEO Piet Mallekoote of the Dutch Payments Association talks about the challenges and learnings of this large-scale implementation.
Mallekoote still knows the timeline of this major project by heart. It started in early 2015, when retailers were increasingly frustrated that payments did not yet appear on their account during the weekend. There appeared to be no simple solution to solve this issue. It was decided that the infrastructure of banks had to undergo a major refurbishment to tackle this problem. Banks fully committed to the instant payments project by mid 2015. Mallekoote: "The general public uses instant payments and thinks: ‘This is easy, why was this not possible before?’ It is understandable that they do not realize what technological efforts need to be made behind the scenes."
The banks were facing an enormous challenge. The Clearing and Settlement systems had to be renewed and the guidelines of the SEPA Instant Credit Transfer rulebook had to be followed while they were at that time still in a design phase. The development was followed by an extensive end-to-end testing. For the roll-out the participants chose to increase the volume slowly instead of going live with a big bang. "With a big bang, you don't know what you are getting yourself into. A controlled rollout allowed us to adjust incrementally if necessary", says Mallekoote about the system which is now stable and fully operational.
When Mallekoote is asked about the most important element of success, he states: "The commitment and collaboration of the banks. That was crucial, because at first, there was no obvious business case. Of course, instant payments create goodwill and accelerate innovation, but a strong determination is needed to review the payment system. It clearly helped that we showed the way. As a neutral party, for example, it is easier to challenge banks on their responsibilities. We did not create a service, but an infrastructure, leaving the commercial propositions to individual banks.’’
Mallekoote knows that retailers and consumer associations in other countries are not always talking with their local banks. A pity, because it might sound cliché, but collaboration is key. Mallekoote: "We involved all stakeholders in the project right from the beginning, from payment services to retail and other parties in the payment chain. This was greatly appreciated, also by the Dutch national bank that gave a lot of support and valuable input."
The fact that the project received a lot of support did not mean that the Dutch Payments Association wanted to go live as soon as possible. Mallekoote: "No, we took the time to scale up. It was more important that the system worked flawlessly. We did it in small steps, and for a while we were at 70 to 80 percent. Now, we process virtually 100 percent of the transactions in real time. The funny thing is that when we were at 50 percent, banks told us that customers were already getting used to it. They were very happy with instant payments. We can say that the familiarization happened silently, and instant payments are now the new normal in the Netherlands."
Driver for innovation
The next step for instant payments in the Netherlands would be the processing of bulk payments, says Mallekoote. But first he wants to make sure that single payments are processed as smoothly as possible. He realizes that the roll-out is only the beginning; the possibilities around instant payments will grow in the future, especially when new functionalities or services can be built on top of the new rails. Think about treasury management, for example, which means managing the financial position of a company in a broader sense. "Instant payments will drive innovation in the future", Mallekoote believes.
Mallekoote hopes that other European countries will follow the example of the Netherlands. Various initiatives are already underway. "However, it is important that instant payments are not only offered as an additional service but are actually embedded in the payment system, with a vision on reach and interoperability. We know from experience that this takes a lot of work, but once the infrastructure has been adapted, customers throughout Europe will benefit greatly from this payment method."
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