Real-time payments face euro split

After the implementation of Sepa and PSD2, the next step for Europe will be the implementation of real-time payments between countries.

However, to have a Europe-wide payments system will require agreement on market practice that spans cross borders. This work has started, led by the EPC.

It was six years from the initial Sepa conception phase in 2008 to the first stage of completion in 2014, with the final leg of implementation for non-Euro countries not due until October 2016.

Although the structure for non-real time cross-border payments is in place, it will require wholesale change to bring every country in line to real-time.

Paul Thomalla, senior vice-president, global corporate relations and business development at ACI Worldwide, says it needs more than individual countries to make the move.

“It needs the push of compliance,” he says. “The banks did not go into Sepa willingly. It came down to a question of compliance.”

Although the region has a number of commonalities, national differences would need to be addressed first. In Europe, cross-border payments would be using a single currency, but it would still face different customers and laws.

The country restrictions on the platforms will also vary between countries, with some likely seeing much higher thresholds of maximum spend intercountry than they can send across borders.The countries are taking different approaches to deciding the threshold of the payment amounts. The Swedish system started with smaller amounts and moved up to have no higher limit in place.

By comparison in the UK, the upper limit is £250,000, although with some variations between individual banks.

Key drivers that influence RT-RPS adoption

Source: Swift

There are also legal hurdles to overcome regarding the movement and storage of bank-account data in other countries.

Before implementation, Europe faces the challenge of creating a database system for processing the transactions. It faces a lot of issues around moving the data between countries. Theoretically it will require countries having to allow information to be stored on databases in other countries, but the different country laws are not likely to allow it.

It is likely, however, that the regulators will need to step in. Research from Swift’s Global Adoption of Real-Time Retail Payments Systems white paper showed that for 73% of countries, the adoption rate was being pushed mainly by regulatory requirements.

The reasons why individual regulators decide on the need for real-time payments vary greatly. For some, such as Japan and Singapore, it was the growing expectations of customers; for others it was a method of encouraging financial inclusion, as in India and Nigeria.

Australia is being seen as a test case as it adopts  ISO 20022 standards through a platform implemented by the Reserve Bank of Australia (RBA).

Using this messaging standard provides a high level of data, and a greater level of sophistication in payments than has been seen in other nations. It also creates a template that could be replicated elsewhere.

The implementation in Australia was demanded by the RBA, which speeded up the process and brought in particular requirements. The system requires that each transaction is settled in Central Bank money, and does not offer the option for deferred settlement. The success of this implementation is being keenly watched in other regions.

In April, India adopted ISO standards, which could substantially increase the number of real-time payments settled in the country through its Real Time Gross Settlement System, which currently makes up around 20% of all transactions.

European countries could benefit from the knowledge of those closer to home that have already completed the process.

Jerry Norton, vice-president, financial services at CGI, suggests: “The UK banks have already been through the process of changing their systems to adapt to real-time payments – others could learn from their experiences in implementation.”

Even if the real-time capabilities become a regulatory requirement, it will still be a struggle for the region’s banks to get up to standard, unless they anticipate the potential for change. Implementation and maintenance is also costly, estimated to be £800 million in the UK across a seven-year period.

Norton says: “Most banks underestimate the size of the change that is needed to implement real-time systems.”

The operations will mean the end of traditional working hours for the region’s banks, which brings its own set of challenges. The platforms bring in the requirement for volumes to be handled 24/7, but it is a new way of working for the banks to be operating around the clock.

ACI Worldwide’s Thomalla adds that the best solution might simply be to take pre-emptive steps before official requirements are implemented.

“The winners in the faster-payments revolution will be those who act now,” he says. “The question is not any longer whether to do faster payments but how to do it quickly, and what the risks and challenges are.

“Those who are left behind in Europe will find themselves in trouble. The Dutch banks want to be up to speed by 2017. They want the early-mover advantage.”