Sibos 2016: Focus on domestic payments for real-time success in Europe, delegates told
Delegates attending yesterday’s Making real time successful in the Eurozone session at Sibos 2016 heard that the key to success for banks will be to initially focus on their own domestic payments markets – which still constitute the vast majority of their payments.
Pascal Augé, Head of Global Transaction & Payment Services, Société Générale, pointed out that 95% of payments in the French market were domestic: “That is why we first need to address the domestic market when developing real time payments capabilities.”
Fellow panellist, Patrick Tans, Senior General Manager Banking Products at KBC, agreed. “Our end goal for real time payments is clear – it has to be pan-European. But we will start at the local level and that is already happening in different countries.”
Getting banks together to work with one domestic clearing and settlement mechanism (CSM) is important, said Rodolphe Meyer, Marketing & Business Development Director at French CSM STET. The next step, he added, will be to get interoperability with other CSMs across Europe. CSMs have worked with the Eurosystem on interoperability and the central bank had “good ideas” about how to do settlement, Meyer said. “We don’t have to have 24-hour availability of TARGET2 but interoperability will be important.”
Augé said the European payments landscape had a long history of fragmentation and different behaviours of CSMs. However, he was optimistic, saying “the more we share, the more we collectively can address the issues”. SWIFT’s global payments initiative (gpi) was an example of what the industry could do when it worked together, he added. By sorting out domestic real time payments, banks could share their experiences with others then work together to build a pan-European infrastructure.
A similar point was made by Christian Rhino, Divisional Board Member Group Banking Operations, Commerzbank. One of the lessons the industry learned from rolling out the Single Euro Payments Area (SEPA) was that the “only way to reduce pain is to share it”. A member of the EBA Clearing board, he said 39 banks were collaborating on instant payments. “If you open up to other parties you can share the pain and not have to invest millions on your own. It could turn out to be a really cheap platform.”
There is plenty of motivation for banks to develop real time payments. Tans pointed out that the financial supply chain is slower than the physical supply chain – something those in the payments industry are aware of but also something that consumers and corporate payments users don’t understand or accept. “We have to follow the physical supply chain because speed and convenience are the new normal. If we don’t others will.”
Real time payments will give banks the opportunity to increase income and reduce costs. “We don’t see this at present, but once the infrastructure is built we can add overlay services and create new products that will deliver income and help us to get rid of expensive to process instruments such as cash and cheques.”
Real time and instant payments are a normal evolution of processing, said Meyer, building as they do on the SEPA Credit Transfer (SCT). “Some communities want to migrate regular SCTs to SCT Inst and have one product that processes all SCTs instantly. This will be more efficient for all payments stakeholders and will open up new ways of innovating in payments.”
Rhino added that big data would be the key to unlocking value in real time payments. “We must learn how to create new and value added services around the payments, because the customer wants the actual real time payment for free.” Tans said while in the short-term banks may not yet have a firm business case for real time payments, they do have a “staying in business case, which means it is easier to get into the IT budget round and also to explain things to your CEO. Long-term, I am convinced there will be a business case.”
Stefano Favale, Head of Global Transaction Banking, Corporate & Investment Banking Division, Intesa Sanpaolo, said critical success factors for real time payments would include “clear and transparent rules on AML and compliance, as well as common rules around directories and other services”.
He believes new regulations will also have an impact. “PSD2 will force the use of open APIs, this will also boost the use of instant payments.
Saskia Devolder, Head of Western Europe, SWIFT, said it was clear from the discussion that most banks will focus first on their domestic markets, because this represents the largest portion of their payments traffic. “As SWIFT, we have to look at where these markets link together, how best we can facilitate that interoperability and increase efficiency. As a cooperative, our role is to define a solution that serves the entire financial community.”