16 January 2018
Paving the way for instant payments across Europe
This guest blog is written by Mehdi Manaa, Deputy Director General Market Infrastructure and Payments, European Central Bank.
The availability of a safe and efficient market infrastructure that can process and settle instant payments across Europe is one of the cornerstones of European payments innovation. In the context of the Eurosystem’s strategic review of the future developments of its market infrastructure and related central bank services, it was decided to develop a pan-European instant payment settlement service in central bank money. The TARGET Instant Payment Settlement (TIPS) service will be launched in November 2018.
TIPS establishes the groundwork for the smooth functioning of pan-European instant payments. It gives the market a basis for the provision of products and services that create value for customers and enables more competition among the payment service providers.
At the same time, it is the customers – the consumers, the businesses and public administrations – that will ultimately determine the success or failure of instant payments. Bringing information to consumers, businesses and public administrations is essential. As the timing of the roll out of the instant payments based on the SEPA Instant Credit Transfer (SCT Inst) varies from country to country, communication strategies and communication schedules vary accordingly. Hence, at least in some European countries, instant payments have not reached a wide level of public awareness yet.
The #TIPSapp Challenge
To boost public awareness of instant payments across Europe, the European Central Bank invited interested service providers to participate in an event entitled #TIPSapp Challenge. On 6 February 2018 in Frankfurt, the ECB will host a “marketplace” where the participants in the #TIPSapp Challenge present their solutions and/or prototypes for apps that can be used to initiate and process instant payment transactions to a wide audience. Participants will have a stand where they can show their solutions and network with invitees from banks operating in the European Union, national central banks, financial market infrastructure providers, industry associations and press from all across Europe.
In parallel to the “marketplace”, there will be a series of presentations and panel discussions on instant payments from different angles, e.g. the user angle, the payment service provider angle and the infrastructure angle. The programme of the event can be found under the following link: www.ecb.europa.eu/paym/intro/events/html/20171201_TIPSapp.en.html
Overall, the objective of the #TIPSapp Challenge and the event on 6 February 2018 is to promote the spread of information on instant payments at European level and foster the buy-in from both payment service providers and end-users. This is vital as only a large buy-in from both sides of the market will drive widespread usage. Payment service providers need to be able to offer a worthwhile end-user experience, or the take-up of their instant payments proposition will be slow and uneven. But there is also a need for behavioural and cultural changes on the end user side, not only for person-to person payments but also for consumer-to-merchant and business-to business transactions.
The future of instant payments in Europe
In the long run, the ECB’s vision on instant payments is that they will become the new normal. This means that instant payments will be considered as a standard – not a premium – payment service that is ubiquitous for person-to-person, consumer-to-merchant, business-to business and, ultimately, machine-to-machine payments.
In some countries, e.g. in Denmark, Sweden and the UK, instant payments seem to be the new normal already. While it cannot be denied that the points of departure for instant payments in these countries might have been somewhat different from those in the countries of the euro area, the conditions to make instant payments a success all across Europe can be met, too. These conditions are the following:
First, any national instant payments project or strategy in the euro area will ultimately come under the umbrella of the SCT Inst scheme. National instant payment solutions should allow for the extension of services across Europe after reaching a certain level of maturity or become interoperable with other instant payment solutions. There should be no silos or closed loops.
Second, to generate the necessary volumes, instant payment solutions will cater for different payment situations: for person-to-person mobile payments, consumer-to-merchant payments at terminals and in e-commerce, and also for business-to-business payments and machine-to-machine payments. Offering only the basic SEPA Instant Credit Transfer will probably not generate enough revenue for payment service providers to recover their investment.
Third, providers will develop end-user applications for instant payments that are both user-friendly and allow compliance with the security requirements of the revised Payment Services Directive (PSD2).
Fourth, the underlying clearing and/or settlement infrastructure will provide reachability across Europe and have sufficient capacity to support growth in the volume and value of instant payments.
If payment service and market infrastructure providers succeed in meeting the conditions to make instant payments a success, they create something valuable that will benefit European citizens and businesses.