Erik Kwakkel, Rabobank: PSD2 is a new chapter in the evolution of the payments ecosystem

Erik Kwakkel, Rabobank: PSD2 is a new chapter in the evolution of the payments ecosystem

When it comes to payments, the Netherlands, like its Scandinavian neighbours, is certainly one of the most advanced countries in the world. Banks and retailers have been working together for many years in an effort to decrease the amount of cash in circulation, working instead towards a “cleaner” and “safer” cashless environment.

Today, retailers in the Netherlands are offering customers more and more checkouts where you can pay exclusively with digital products (cards or digital wallets), although merchants still accept cash at other checkouts in the same store.

Rabobank has been at the forefront of the digital payments revolution in the Netherlands. For quite some time now, we have been offering our customers a choice of mobile banking apps and promoting the use of mobile wallets.

A few years ago, we decided to go a step further and embark on a complete rebuild of our core payments infrastructure. This will be huge undertaking, which will take a number of years. Together with our partner ACI Worldwide, we endeavor not only to change the core technology, but also the business model and the mindset of our bank.

Why did we make that decisison? In November 2017, the pan-European instant payments (SCT Inst scheme) will go live, which will enable consumers and businesses to make euro credit transfers in real-time between accounts across an international area – eventually spanning over 34 European countries. Then there is of course PSD2 coming into effect in 2018, which will require a lot of investment and introduce a whole wave of new competitors to the banking landscape.

We believe that PSD2 will open a new chapter in the evolution of the payments ecosystem. We also believe that real-time is the future of payments processing and will offer a wealth of opportunities for banks to develop new and innovative services for customers. And we are convinced that those who move first are most likely to benefit from the new opportunities moving forward.

We are therefore getting ready by investing into a new payments hub from ACI, a flexible and proven solution that will help us to be ready for the new era of instant and open banking.

Let me explain the thinking behind our decision in more detail.

First of all, history shows us that innovations in payments usually evolve over a period of time and are as much about technological as about behavioural change. When the automated teller machine (ATM) was first introduced 50 years ago, it was an unproven device that people didn’t even know they needed, that far less would come to rely on. Today there are more than three million ATMs worldwide and research shows that a new one is being installed somewhere across the globe every three minutes (according to Retail Banking Research).

When we introduced online and telephone banking at Rabobank, many of my colleagues were convinced it was just a “fad” and that customers wouldn’t want to conduct the bulk of their banking business this way. Today, internet-only banks all over the world challenge the banking giants we once thought were invincible. I believe that real-time payments are the next chapter in that story. We might not see all the possibilities of real-time yet, but our motto has always been “first class today, first class tomorrow”.

Secondly, banks today more than ever before need to listen to what their clients want. And when we look at our clients, we see that they want payments 24×7. We have also started to see all kinds of non-bank providers offering instant payments. Real-time is the new normal.

However, at the moment, there is surprisingly little noise and even less awareness around the pan-European instant payments scheme and its opportunities. In fact, a recent global survey by ACI among small and medium-sized businesses (SMEs) in the UK revealed that the majority of SMEs in Europe are not even aware of the scheme, despite the fact that many SMEs want faster and innovative banking services.

The survey showed, for example, that 56% of German SMEs and 50% of those in Italy said real-time banking services would be “essential” to the success of their business. And 90% of SMEs in Italy, 75% in France and 58%  in Germany said the offer of real-time payments would be a reason for them to switch bank account providers!

Last but not least there is the not so small matter of the aforementioned PSD2. We have a fairly unique situation in Europe which I like to describe as “forced innovation” by the regulators. At Rabobank, we have chosen to regard the new regulatory mantra of innovation and openness as an opportunity. We are therefore actively fostering new partnerships and services by completely modernising our banking infrastructure and making it more accessible.

So where should financial institutions begin in this brave new world of payments? We think that embracing the opportunities that instant payments and PSD2 will bring is crucial.

By thinking long-term, we want to lay the foundations now for our business and innovation strategy for the next 20 years.

By Erik Kwakkel, EVP payment services, Rabobank Netherlands