3 October 2019
Do we need regulation to speed up the development of an interoperable cross-border Instant Payments network?
Instant Payments (IP) is evolving quickly. Volumes are increasing, while this year more than 40 countries worldwide are live or will go live with faster payment schemes, fueled by regions like Australia, the United States and the launch of the SEPA Instant Credit Transfer (SCT Inst) scheme.
On a domestic level, IP is a success. Looking at the development and availability of cross-border IP for European consumers and businesses, there is still plenty of room for improvement. This topic was discussed at Sibos last week, during the session ‘European Central Bank: Instant Payments as a driver for innovation across Europe’.
In a conversation between Mark Buitenhek, Global Head of Transaction Services at ING, Dirk Bullman (ECB) and Fabrice Denele (Senior Vice President Natixis), Buitenhek talked about his vision on the development of an interoperable cross-border IP network.
Buitenhek said in London that he is not a big fan of regulation that is imposed from the outside. But, he explained, if European finance stakeholders are not able to create pan-European IP solutions quickly, then perhaps this is the right option. According to him, the developments surrounding cross-border solutions are not going fast enough. "If we wait longer, that would be a missed opportunity."
Buitenhek: "One of the things that stimulates acceptance is reach. I mean reach on both sides, both consumers and banks." That makes it difficult, because banks need to depend on each other. If not everyone is moving in the right direction, the potential of this payment method cannot be fully exploited because of fragmentation and an inconsistent customer experience which will hamper acceptance.
There isn’t that much time. Buitenhek said there’s no point in waiting for years as fintechs or bigtechs might fill the gap in the meantime. "We need to speed up and not wait until, for example, 2025. If we as banks can’t get things done, if we can't organize ourselves, then we need regulation. And I mean not just a directive but real rules that everyone must comply with. If everyone is forced to do the same, fragmentation can be countered." Buitenhek indicated that it sounds paradoxical, because he mentioned earlier how banks face so many mandatory work, such as ISO upgrades, PSD2 and SEPA. "A huge amount of investment goes to compliancy, which doesn’t leave enough room for innovation."
Yes, he sees bigtechs as a threat. That’s why he called for quick action at Sibos. "The Libra coin is a wake-up call and confirms the power of platforms in the world. Platforms can recruit 2.6 billion customers. We have to realize that solutions per country are no longer the game."
On the other hand, he said, it is interesting to see that new parties are still using banks. "In that sense, you could say that banks have built a good infrastructure in the past, but we need a new layer on top." Buitenhek gave an example: the Swift real-time gpi cross-border payment service in Europe that works through the Eurosystem’s Target instant payment settlement (TIPS). "That's a new adventure, based on existing rails but really using it in the fastest way we can, using extra things on top."
There are opportunities, according to Buitenhek: "We have the building blocks in place, but we have to use them in a different way. Look at examples from Australia or Hong Kong and TIPS. If it’s possible to make an account-to-account transaction with them within 41 seconds using existing structures, that means something, doesn’t it?"