Real-Time Payments Will be Europe’s Most Dominant Payments System – Are You Ready to Realize the Full Value?
Since the launch of the SCT Inst rulebook in November 2017, many more banks are live and offering real-time payments to their customers, with most of the rest committed to 2018. The buzzword at the recent ECB #TIPSapp Event in Frankfurt was ‘Interoperability,’ or as my friend José Beltrán from STET would say, ‘Reachability.’ No-one expressed this more clearly on February 6th than Javier Santamaria, President of the European Payments Council, when he reiterated his message from Il Salone Dei Pagamenti, the day after the SEPA launch; "We have launched the Pan-EU scheme, now it is up to you in the audience and beyond to take advantage of it and make it work."
With the European Central Bank’s new challenger service, Target Instant Payments Scheme (TIPS), going live in November 2018, it is looking like the drive for interoperability is fast becoming a reality rather than an expectation. However, the industry is keen to understand more about how TIPS can help alleviate the risk of fragmentation within the Pan-EU Instant Payment region.
The fear is that with so many local and Pan-European schemes live, there could be a risk of them not talking to each other, exacerbated by the fact that most of the individual schemes require a local settlement account. From a treasury perspective, fragmentation of the liquidity – and that liquidity being regulated by different standards – culminates in a nightmarish difficulty in keeping the bank’s liquidity position.
Keeping liquidity management front and centre
Last but by no means least, all these technical settlement accounts are outside of the RTGS (real-time gross settlement) jurisdiction, and even though it is possible to fund/defund them during the RTGS open hours, it is not possible to have the liquidity outside of the RTGS system. This causes a loss of remuneration and problems with the reserve requirements. The solution that TIPS offers alleviates fragmentation and enables the treasurer to forward the RTGS liquidity to TIPS; therefore, by having one central point, it mitigates the risk of running out of liquidity. This avoids transactions being declined, which is a reputational risk that may lead to customers switching to more reliable competitors. If that wasn’t serious enough, banks also risk a heavy fine from the regulator, which may have the catastrophic consequence of the revocation of the bank’s licence.
With the TIPS initiative, the ECB is facilitating the closure of the local technical settlement accounts in order to concentrate the settlement layer in one single account in a central bank. This will be Euro-based at the outset, with multiple currencies due to be rolled out in the second phase.
In short, TIPS allows financial institutions to mitigate the liquidity risk, concentrate their liquidity in one single point – the TIPS DCA account – whilst still being a part of the RTGS system and adhering to the strict reserve requirements. It is a win-win scenario for treasurers and, as you and I know, it is the hero treasurers who can find that fine balance of keeping just enough back to cover demand and investing the rest, creating a clear revenue stream.
Achieving the holy grail: Interoperability
However, back to the key aspiration of ‘Interoperability’ and how TIPS will have an impact. Potentially every owner of a Target 2 account can open a TIPS DCA account and it is no coincidence that most banks in Europe have one. Also, there are options for non-banks to connect to a Target 2 account, meaning an expansion into the world of retail, which is reflective of how the European payment ecosystem is changing.
ACI recognized for Interoperability of solution
Whilst a lot of mobile prototype applications were demonstrated at the ECB’s #TIPSapp Challenge Event, and all of them were well designed to satisfy the client requirements for TIPS integration, it was ACI that addressed a crucial point – it is all very well having a slick mobile app to connect to TIPS, but without a solution that enables you to connect seamlessly to the other schemes (RT1, STET and local schemes), you are always going to lose in the interoperability stakes. In fact, when the ECB asked what makes the ACI solution stand out, 48% of the 100+ voting audience noted interoperability and the convenience it brings.
A salute to the ECB and their stewardship for innovation for real-time payments in Europe
It was exciting to see the ECB TIPS team bringing the solution providers and financial institutions together at this event to work on a common objective; the success of the TIPS project and the realization of European reachability.
I would like to thank the ECB for hosting this event, and I encourage financial institutions to ACT NOW on getting to grips with the complexities of real-time payments. The move toward real-time payments is global and adoption is accelerating. Existing solutions are expanding their reach and services, while new solutions are continuously coming to market. Regulators are throwing their weight behind real-time payments, non-bank competitors are eagerly embracing it, and consumers are candidly demanding it. And a quick hat tip to ACI’s pre-packed and pre-tested cloud solution– every size of financial institution can exploit the opportunities it offers and guarantee speed to market. If banks and financial institutions don’t move quickly, then they risk losing more than payment volumes; they risk losing their customers.
Find out more: www.aciworldwide.com/tips
Related Blog Posts
Success Speaks: How Roanoke College Simplified Higher Education Billing and Commerce
Campus commerce has quickly become the ultimate test for payment software providers, IT professionals and administrators. Technology stacks and service offerings are continuously challenged by rapid innovation, just as budgets have begun to shrink. And to top it off, cybersecurity threats lurk around every corner, and even a single breach can destroy student confidence in their institution of higher learning.
Success Speaks: Exploring the Future of Payments Collections in Auto-Finance with SAFCO
When it comes to improving collections, there’s one simple question your organization should ask before embarking on any type of payments project: what does “customer service” mean to our customers?
Success Speaks: UC San Diego Health Transforms Bill Payments to Improve Patient Satisfaction
Primum non nocere, “first, do no harm,” is a Latin maxim that serves as a fundamental principle of the medical community. Essentially, the phrase states that in some cases, it may be better to do nothing than to intervene. For UC San Diego Health, however, intervention was necessary to transform their billing and deliver an improved payments experience for their patients.
Instant and Digital: The Next Frontier of Bill Payment
We’d all like an inexpensive, simple and consolidated way to pay our bills, and we’re seeing a growing list of upstarts entering the market to meet this need. Customer interaction during the billing process is a critical touchpoint to maintain relationships and potentially enhance the customer experience, but third-party solutions that offer enhanced ease of use could get in the way. Companies need to respond with an engaging bill pay offering, which includes real-time payments.
Success Speaks: Blue Cross Blue Shield of Michigan Talks Meeting Member Demands in Healthcare
When looking for a payments success story in the world of healthcare, you’d be wise to turn your attention to the Great Lakes and the work done by Blue Cross Blue Shield of Michigan (BCBS MI). In a recent webinar with AHIP (America’s Health Insurance Plans) and ACI, Faran Farooqi, Strategic Capability Implementation and Operations for Blue Cross Blue Shield of Michigan, shared his insights into how his organization addressed the challenges of today to deliver a great payments experience for their members.
The 12 Biggest Security Threats to Payments
Consumers ask a lot of you in terms of convenience, speed and, above all, security. This puts the pressure on you to offer a pain-free consumer experience that is also highly secure. And when you accept payments, you need to secure all parts of your organization. Here’s an actual example: one major breach occurred when an air conditioning vendor was hacked, allowing hackers to access the corporate network and finally the point of sale network. This highlights the importance of understanding the threat landscape we face today.
High Incidence of Payments Data Theft is Driving Investment in Payments Technology
One in five organizations has experienced payments data theft over the last 12 months per new benchmark data, “2018 Global Payments Insight Survey: Bill Pay Services,” from Ovum.
4 Reasons Why You Must Future Proof Your Technology
What does future proofing your technology mean? In my view, it means preparing your bank to deliver the best customer experience possible--today and tomorrow. Research from Greenwich Associates indicates that the customer experience and ease of doing business are key drivers of loyalty. Extracting value from your technology investments so you can provide a superior customer experience is not only important because of the impact on service, but also on loyalty.
I want to focus on 4 reasons why future proofing your technology is important. These insights are a sneak preview into some of the findings from our upcoming whitepaper produced with Ovum, the annual Global Payment Insight Series.
A Master Class in Convenience: Faster Payments for Higher Education
Paying for college can be a real pain, and the act of paying tuition itself has not kept up to speed with the times.
According to Aite Group, 40% of tuition payments are made by ACH (electronic check), making it the most popular method of payment for higher education. Yet, these payments can sometimes take several days to process. In a world where college students send and receive over 120 text messages per day, immediacy is key. Especially when large dollar amounts are being spent. Students and parents demand that payment options conform to their expectations of speed, to prevent their accounts from being overdrawn.
A Prescription for Profitability: Real-Time Payments Come to Healthcare
When it comes to important numbers in the healthcare sector, you’re probably familiar with 120/80 (that’s ideal blood pressure for the non-medically inclined), but I’d like to introduce you to two more numbers: 15 and 47.
15 is the percentage of healthcare spending due to billing and payment inefficiencies, while 47 is the percentage of patients who would leave a hospital for a better payment experience1.