Katrin Boettger: The pan-European Instant Payments Scheme (SCT Inst Scheme) will go live in a little bit more than a month. What are the expectations of these schemes among banks in Europe?
Domenico Scaffidi: There is a sense of excitement and urgency in the air; the holiday period is over and banks understand there is not much time left to make serious plans. 2017 started with a lot of unanswered questions, one of them being TIPS (TARGET Instant Payment Settlement) and the fact that many banks did not understand what it was. Then there is PSD2 and the question of whether banks should merely be compliant with the new regulation, or whether PSD2 goes beyond that and offers benefits that a bank should consider. To give you an idea, I am spending most of my time discussing these issues with banks and supporting them in adapting their business cases and sharing use cases.
KB: Instant Payments will bring a lot of new opportunities for banks in Europe; how can they implement their systems on time for the ‘big party’?
DS: Good question. To put it bluntly, there is no time. Having worked previously as Head of Payments Systems and International Business Applications for a large Italian Bank for more than a decade, I know from direct experience how complex the integration of a new system into the bank’s traditional infrastructure can be. But there are good alternatives, such as opting for a cloud solution that is already preconfigured and connected to an IP scheme. This option will allow much faster onboarding, and is much more cost efficient. For many banks, this will be a good ‘time to market’ solution.
KB: Let’s talk about PSD2. Many banks still think that being compliant with the new regulation when it comes into effect in January 2018 will be enough. Do you think they are doing well? Is that all they need to do?
DS: Banks should not treat PSD2 as a compliance project, which seems to be what some are currently doing. However, some banks are thinking further ahead and see PSD2 as an opportunity to change current business models.
KB: How important will it be to respect the ’15 second rule’ the EPC rulebook has set up as the maximum time for an instant payment transmission?
DS: In many ways, the ‘15 second rule’ is already obsolete. The EBA Clearing RT1 Service, for example, is positioned between 1.5 and 5 seconds. The ambition should be to reduce this time even further. The fact of the matter is, if the service is not competitive and fast, clients will lose interest. Customer demand and customer experience will be the drivers behind all new services.
KB: What about liquidity management? I am aware of reports that some banks who originally had planned to go live in November 2017, will now postpone their go live dates because of the liquidity issue. What does that mean?
DS: Yes, some banks did change their minds after discovering their IP solution didn’t consider the LQ aspects. In the era of instant payments, no business day will go by without dealing with liquidity. It sounds like a treasurer’s nightmare, considering it is almost impossible to determine the right flow of money in a scheme where it is mandatory to reserve the right liquidity during nights, weekends and bank holidays.
To deal with this new challenging scenario, banks will need a proper solution, one that is not only based on technical functions, but also on a set of liquidity management functionalities (to deal with this new atypical LQ situation).
KB: There is another issue which has emerged recently; banks are worried about overloading their systems with automatic traffic (for example if another bank is down, then sending the investigation messages etc.) Is this a real problem?
DS: Based on our experience, we know that just one Instant Payment transaction can generate dozens of statements, so yes, theoretically, this risk exists. Again, with the right solution it will be possible to avoid this kind of unpredictable situation. For example, a cloud solution could help with this issue, considering all transaction data will be stored in a data centre.
KB: One final question. Considering some of the controversies and confusion around IP, do you think banks should wait, or join the pan-European scheme now?
DS: All things considered, I would say that a bank that decides to wait could potentially make a big mistake. I think that once banks start to look at the business case and understand that real-time payments are not just an investment into new IT, but crucial to surviving and competing in the new era of digital banking, things will fall into place. Banks across Europe are beginning to understand that customers want these new services, and they have started to feel the pressure from their competitors.
ACI’s UP Immediate Payments solution provides a complete range of capabilities that are easily tailored, enabling fast, flexible and cost-effective implementation of immediate payments.