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Instant + Open Payments = A Winning Combination

Open and Instant Payments in Europe

I recently joined a panel discussion at EBAday 2018, alongside representatives from across the payments ecosystem, and the clear consensus was that real-time payments will be the new normal. This was evidenced by some of the interactive polls carried out.

The audience was asked; when will the new cross-border real-time scheme SCT Inst fully cover the current SEPA space? The clear majority of the audience thought it would be post-2019, but let’s break down what this actually means. The new SCT Inst will be replacing the old SEPA batch scheme, which currently supports credit transfers and Direct Debits, i.e. both push and pull payments. So, although the market is not particularly bullish on deadlines, they do expect SCT Inst to replace more than just cross-border credit transfers. The new scheme will enable instant push and pull payments throughout the Eurozone, a significant vote of confidence in the future of real-time payments.

Perhaps this reflects the ‘2.0’ evolution of UK Faster Payments, which is putting instant pull-payments at the forefront with its ‘Request for Payment feature’ – essentially a real-time Direct Debit on steroids, including beneficiary controls that improve the customer experience traditionally lacking with Direct Debit payments. The ability to delay a pull payment, question the amount, or opt to pay in part all have huge benefits for the consumer. But the business benefit of certainty of funds thanks to a reduction in ‘bounced’ Direct Debits has the potential to reduce costs and improve liquidity for business across the region.

 

Evolution of payments in the Eurozone

The complication, of course, for payments evolution in the Eurozone continues to be the fragmentation of the ecosystem; multiple schemes, various standards and little interoperability. EBA alone operates four payment schemes; EURO1 and STEP1 for high value payments, STEP2 as a SEPA batch solution, and its new RT1 instant payments scheme. And of course, RT1 is not the only real-time option; banks have to consider STET, TIPS and more in their instant payments strategy.

It’s also worth noting though that I didn’t have a single conversation at EBAday that centred on those slow SEPA ‘batch’ payments, or indeed about new value propositions with the other high value schemes, and that trend continues across all my interactions with European payments players. The conversation now is focused on instant payments and how to build customer loyalty and new revenues from them. And the overlay services and customer interactions that the Open Banking era can add. Indeed, this combination of new open services was evidenced by the fact that more than two-thirds of the room identified Pan-European Request for Payment as the next industry development, closely followed by the convergence of payments.

 

Convergence of payments will result in simplification

When we talk convergence, I don’t believe this is around new payment types eating into the traditional revenues from others. Convergence of services thanks to more open technologies is a trend we see across society, whether it’s governments consolidating access to services into a single portal for citizens, or Facebook becoming a one-stop-shop for all things social – from planning tools for your night out, to in-app booking of experiences, coupled with messaging and calls and all kinds of sharing options for the photos and videos that result. In payments, this convergence will be a simplification; no longer will the customer select a payment type – they will select a service level and leave it to the payment provider to meet that SLA via best-fit routing. Open Banking will provide new ways for customers to interact with the payment ecosystem and bring in new customer payments and requirements. It’s then down to the real-time orchestration layer within the bank to connect the disparate payments systems to provide that open, real-time experience that the customer expects.

The EBAday audience is always looking to the future, but it was also very clear that what everyone is looking to solve for – in the here and now – is instant payments. Evidently, it is strategically sound to implement a robust instant payments solution now, which will easily enable these open payments services when your organization is ready to offer them to the market.

Discover how to turn instant + open payments into new revenue streams: www.aciworldwide.com/lp/turning-psd2-from-cost-center-to-revenue-generator