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Social, Mobile and Instant Payments: How Digital Payment Overlay Services Will Power Up P27

Over the next five to ten years, the Nordics will take another major step forward with the introduction of P27, which aims to break down trade and finance barriers between the participating countries of Denmark, Sweden, Finland and – at a later date – Norway.

We’ve covered the basics around P27 and what it means for banks and businesses previously, but what’s worth reiterating is that although the intentions behind the initiative are worthy and clear – and despite the already advanced nature of financial innovation in the Nordics – there’s a lot still to be done before P27 can make legitimate, noticeable improvements.

For example, participating banks and P27 member countries are at vastly different stages of maturity with real-time payments – and many will be struggling to bend legacy systems to support a method of payment and a level of data with which they were never designed to cope. Given this fact, the role of digital payments overlay services will be crucial in making P27 a workable reality. So, what should banks be looking to do?

P27 progress and problems

There’s a number of factors motivating P27 and pushing it forward. The global shift toward real-time payments, for example, which is seeing moves made around the world to meet consumer and business demand for speed and efficiency. Or the rise of mobile and app-based payment methods, which broaden the range of payment options for consumers and simultaneously heighten the need to cater for them among merchants and acquirers.

In the Nordics specifically, it’s important not to underestimate the heavy influence of lifestyle and socio-economic drivers for P27. Denmark, Sweden, Norway and Finland are not just geographic neighbors – they’re closely linked economically and intrinsically connected by the thousands of people who (under normal circumstances) traverse national borders daily for work, study or social reasons. This interconnectivity brings with it millions of payments in several currencies that banks must efficiently process in real time. Likewise, Nordic businesses transact with each other all the time, putting pressure on national payments infrastructures to keep up.

This is partly why Denmark and Sweden are notably ahead of the curve when it comes to instant payments – having already made substantial investments and strides forward. But when we see that Finland has a lot of catching up to do (evidenced by a predicted 90% CAGR in instant payments growth), some of the challenges of P27 make themselves known.

The fact is, despite general appetite for a pan-regional payments initiative, the constituent players have very different levels of maturity. While one bank in Sweden may have made moves to support real-time and open payments with new infrastructure, its counterpart in Denmark won’t have. This means a consistent levelling up across the board is impossible, and forces the banks charged with delivering P27 to look at solving the challenges of payments infrastructure transformation in another way.

Focus the outlay on the overlay

The varying states of real-time readiness and P27 preparedness in the Nordics is why overlay services are going to be vitally important over the coming years. In the simplest terms, it’s going to be impossible or unworkable for many banks to enact a complete rip and replace of their current systems to make them fit for P27 and the advancement of instant payments services.

Firstly, this is because of the cost. Secondly, because of the disruption. And thirdly, because for some there won’t be a clear business case. As such, it’s more important to look at where current technology can be augmented and modernized to make tangible improvements to systems that will demonstrate value and further the P27 cause.

For example, Request to Pay (RtP) will help banks to transition and augment current bill payment and existing electronic automated invoicing processes, ticking a key payments innovation box. Meanwhile, consistency of instant payments APIs will enable banks to better cater to the huge number of payments that will be made on their systems as paying across the Nordic borders becomes easier, faster and simpler under the initiative.

Ease of integration is also key. While P27 is a long-term initiative, there is a need to move at pace. Banks should focus their efforts on solutions and innovations they can bring in soon, which don’t disrupt critical systems and improve how they work without compromising services in the short term.

Fortunately, that is possible. And banks in the Nordics would be well-advised to look at how India achieved its instant payments ambitions, arguably with a much harder task and trickier payments landscape in front of them, utilizing the benefits of a four-party model.

What’s key to remember in the short term is that while P27 isn’t mandated, it does make good business sense for banks and their consumers, even if the proposition and benefits will need to be self-evident or well-articulated in order to speed up adoption.

What’s certain is that the payments world is evolving. And if the Nordics want to keep their deserved reputation for innovation intact in a mature market, they should be looking at how overlay services can help them make P27 a global leader in cross-border payments initiatives.

Find out the five things you can do to get your bank ready for P27 in our new eBook.

Senior Product Manager – Real-Time Payments

John Ballantyne is solution leader for digital channels, part of ACI’s real-time payments business. He brings with him over 15 years of payments experience across product strategy, consulting, partnerships and service management. John is currently responsible for the development of ACI’s strategic payments business in real-time payments, open banking cloud service offerings.