The ‘perfect’ payment infrastructure should be real-time, resilient and leave room for payment service providers (PSPs) to compete under the European Union’s (EU) payment services directive (PSD) II. This is the view of Heike Winter, director of retail payments policy at Deutsche Bundesbank, who said such a framework potentially opens up cheaper, newer data-rich payment services to consumers and corporate treasurers.
The opening day of Payments International 2015 also discussed technological changes impacting the payments space, as Apple and Android Pay are launched; mobile channels proliferate; and corporates and individuals become more demanding; as do regulators.
“We also have to work out how to promote innovation better on a Europe-wide basis,” said Winter of Germany’ central bank, as she stressed that a regulator’s role was to ensure a fair and level playing field, with standardised elements that are easily accessible to all and interoperable.
This ensures that new and better payment services, with more data, can be delivered to consumers and corporates equally. “We’d like to regulate as lightly as possible, but there is a role for regulation and we are necessary
[i.e. to deliver a fair, competitive
,” she added.
The single euro payments area (SEPA) is one instance where regulation was necessary to enforce both harmonisation and migration, said Francisco Tur Hartmann, the ECB’s deputy head of the market integration division, directorate general market infrastructure and payments, citing SEPA’s delayed launch last August.
“Without the SEPA end date migration regulation we wouldn’t be where we are today,” he added, during the morning’s regulatory panel session at the trade show.
However, from a corporate treasury perspective there are still further harmonisation measures required from SEPA, such as eliminating the 19 different cross-border interpretations of the XML ISO 20022 standard, or differing tax rules in the eurozone, which can still impede a treasury setting up a true single virtual bank account across Europe. The promised full harmonisation hasn’t been achieved yet.
“The main SEPA objective now is to have efficient euro payments in Europe and to eliminate such fragmentation,” said Tur Hartmann, who explained the role of the new Euro Retail Payments Board (ERPB) in delivering this SEPA 2.0 environment. Non-euro countries formally joining SEPA in October 2016, such as the UK and Denmark, could benefit too.
“The ERPB also has a peer-to-peer (P2P) mobile payments working group. This has been established in order to promote European-wide solutions in this segment, which typically includes competitive tech-led forces entering the payments arena,” he added. “In addition, the ERPB has a paper looking at the important topic of instant real-time payment infrastructures.”
A Real-time Eurozone Payment Infrastructure
Tur Hartmann also told the show’s attendees: “We have already asked the supply-side to consult with the demand-side in order to explore what can be done to introduce real-time retail payments solutions in Europe.”
Interestingly, Erwin Kulk, head of new developments and innovation at the STEP2 account clearing house (ACH), at EBA Clearing, outlined plans for a new real-time payments infrastructure in the eurozone at a later panel session. He said that EBA Clearing, which clears 40% of SEPA eurozone payments, had “announced a task force just last week to blueprint a pan-European instant payments solution,” thus reviving the old SEPA idea of the PEACH (pan-European ACH), but this time in real-time.
A eurozone real-time payments infrastructure has much catching up to do, however, as the UK, Nordics, Singapore, and 18 other countries already have real-time, or near real-time, infrastructures in place. Arun Aggarwal, SWIFT’s managing director for the UK, Ireland and Nordics, pointed this out. “Another 12 countries are in the early stages of adopting a real-time payments infrastructure and 17 further countries are looking at it,” he said.
The US is among the countries exploring how to introduce a real-time payments infrastructure with Russ Waterhouse, executive vice-president (EVP) product development and strategy at The Clearing House discussing this topic at a later session. “I admit we’re late to this party in the US, but we’re very interested in what data-rich services and other elements we can put around such infrastructures,” he said.
Australian and US Real-time Infrastructures
Australia is another country already in the process of implementing a new real-time payment infrastructure, in cooperation with SWIFT and others. It is using a slightly different technical operating method to the UK Faster Payments Service (FPS), which operates a deferred risk/net model whereby all of a country’s banks connect to a hub and then onto the central bank.
As Rhys Bollen, director of policy at the New South Wales (NSW) Fair Trading Australia consumer protection regulator, told his audience of bankers, treasurers and payment technologists, Australia is adopting a different bilateral focused clearing approach. In this architectural model, banks can report instantly to each other and the central bank, without the need for a central hub as in the UK.
For Australian treasurers this could potentially speed up payments further, making them instant not just near real-time. It should ensure that a bank-owned collective in the middle cannot shut out competitors either.
“As a consumer protection regulator, we want to ensure easy access, cheap and reliable payments,” said Bollen. As a civil servant he had no desire to impede innovation and wanted to encourage newcomers from Silicon Valley or elsewhere to compete in the payments arena, to deliver better services to corporates and consumers. “We’re technology neutral at NSW Fair Trading Australia.”
The UK, as a real-time early adopter country, is also looking to move towards a still quicker, pre-funding payments model (perhaps catching the later real-time adopter in Australia up). This approach lessens credit risk and should also be useful as the new capital and collateral requirements imposed on banks by Basel III take effect, impacting their future relationships with corporates.
Justin Jacobs, senior manager of the payment systems supervision and policy team at the Bank of England (BoE) outlined how the UK will soon have its own equivalent to the ECB’s ERPB board, as the new Payment Systems Regulator (PSR) proposes to set up a Payments Strategy Forum. The PSR, which starts on 1 April 2015 and replaces the old Payments Council’s supervisory role in the UK, has a brief to promote competition and innovation, while ensuring that the interests of service users are appropriately considered.
“There are a lot of structural reforms going on in the global and UK payments arena at the moment, with innovation; more PSPs; and more regulations all driving change,” said Jacobs. “Additionally, there are changes in the banking landscape emanating from challenger newcomers and the changing correspondent banking model. Over the next 10 years you can expect the payments landscape to change a lot under these technological and regulatory pressures.”
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