06 April 2017
Anyone, anytime, anywhere; achieving pan-European reach in Instant Payments through interoperability
With the November deadline approaching quickly, Instant Payments in the eurozone is about to become a reality. Initiatives in the Netherlands, Belgium, Italy, France and Spain show that there is massive interest in this new payment method. Thomas Feiler, Head of Payments Product Management at equensWorldline, explains in this blog how these initiatives should connect to create European Instant Payments.
Feiler: “Instant Payments is a hot topic in payments, with initiatives being implemented across Europe. I believe there’s tremendous value in these local initiatives, as they are able to tailor the solutions to the specific requirements in a community. I don’t believe in a one-size-fits-all solution, but there is a need to connect these local initiatives to make sure Instant Payments can be used across Europe seamlessly.”
These local needs and activities are the reason the European Central Bank (ECB) and the European Association of Clearing Houses (EACHA) strive for interoperability. The ECB has stated the goal that a bank should be able to connect to only one Automated Clearing House (ACH) to achieve pan-European reach in Instant Payments. In order to attain this goal, the ACHs need to be interoperable.
Feiler explains: “Achieving interoperability between ACHs is not an easy task, as each has its own infrastructure and system rules. Luckily, EACHA recognised the need for guidance and drafted the EACHA Instant Payments Interoperability Framework (EIPIF, available on www.eacha.org), which stipulates standards ACHs can adhere to when organising bilateral interoperability, The ECB, together with the ACHs, defined the standards for the settlement layer.”
The ECB defined three conditions for interoperability:
- A single procedure for settlement of pan-European instant payments via TARGET2
- A single model for risk management
- A common access policy
Feiler: “In the working group, facilitated by the ECB, all ACHs planning to offer Instant Payments have committed to using the TARGET2 ASI6 Real Time settlement procedure and the use of full prefunding in cash to mitigate any settlement risk, so there is harmonisation in Europe on these points. With regard to the common access policy, the work is ongoing.
At equensWorldline, we believe interoperability between ACHs should be based on three main principles: It should use the excellent EIPIF as a basis for the functional and technical aspects. Secondly, the ECB voiced a clear preference for using post-funding as a settlement method between ACHs (i.e. transactions will be instantly cleared and settled in each ACH involved and periodically settled between the ACHs). This offers clear benefits for the banks involved, as they only need to prefund liquidity in one place – their own ACH. Finally, as interoperability benefits the entire market, commercial agreements between ACHs should be fair and should promote maximum reach. We all want the same thing in the end: for pan-European Instant Payments to be a success.”