The race towards instant cross-border payments is crowded. Like the beginning of a bicycle race, participants are lining up, some with a spirit of cooperation and others with a more competitive mindset. Governments, banks and organisations are all vying to get out in front — but the course is long and a winning solution requires both speed and security to succeed.
In the Nordics, there has been a lot of talk about P27, the pan-Nordic project to build a multiple-currency cross-border payments platform. But P27 is far from the only project with instant cross-border payments on its agenda. Financial institutions — like the ones backing P27 — are collaborating around the world to simplify and standardise their payments infrastructure in an effort to harmonise global payments.
The G20’s focus on enhancing cross-border payments as well as the European Commission’s retail payment strategy has renewed global interest in this area. Regulatory bodies like the European Payments Council are updating their rules for SEPA credit transfers while SWIFT has introduced its own new Global Payments Innovation (gpi) initiative.
While many of these updates are intended to improve standardisation and stimulate cooperation, they are nevertheless applied unevenly across a field of banking incumbents and digital disruptors.
Ticking all of the boxes
One of the challenges banks face when developing new payments infrastructure is making sure that all of the required regulatory steps are fully adhered to. Obviously, the enormous level of complexity required in terms of technology, compliance and interoperability makes any new initiatives time and resource intensive.
Camilla Bäck, Senior Business Developer at Nordea, says: “Banks need to consider common standards, rulebooks and harmonisation in a very thorough and structured way. The speed of adoption due to this is naturally long which of course is a challenge.”
Looking at the Nordics and P27, a Nordic Payments Council (NPC) has been launched and they in turn have created the Rulebooks for the Scandinavian currencies in just a few years which is a great achievement.
Camilla Bäck, Senior Business Developer at Nordea
“On the other hand, looking at the Nordics and P27, a Nordic Payments Council (NPC) has been launched and they in turn have created the Rulebooks for the Scandinavian currencies in just a few years which is a great achievement. Now the project is in the process of enabling the P27 Nordic Payments Company to develop their services based on the NPC Rulebooks, which will be rolled out in the next few years. The main achievement being though, that we have started from the bottom up by creating the common standards enabling interoperability before creating the services,” adds Camilla.
Making it interoperable
While banks and organisations are working together and collaborating on a number of different initiatives, some of the Big Techs are introducing payment solutions within their already widespread networks of users. But before the tech titans declare victory, it’s important to remember that these solutions are limited by those same networks.
Niklas Lemberg, Head of Industry Engagement at Nordea, says: “Something many people do not understand is that all of these payment solutions being offered by the Big Techs are within closed environments. They are closed ecosystems and are not interoperable with the payment solutions of other Big Techs. A bank could also make all of its payments instant in a day if everybody in the world had an account with that bank. The challenge for the bank is that they need to be interoperable, that is connected with and using the same standards as the other banks in order for users to be able to send and receive payments to any bank across the world.”
The goal for a bank is to give its customers a single entry point to global instant payments, regardless of the other party’s banking provider.
Niklas continues: “When we talk about instant payments, it’s not only about the user experience, about how fast the information on the payment moves from the sender to the receiver, it is also about the settlement, the value of the payment that is being transferred. The money really has to change owners instantaneously, and it has to be done using central bank money. For the banks, an instant payments system is by definition one where not only the message with the payment details are sent and received within seconds but also the cover for the payment is settled in central bank money within the same timeframe. The simple principle of settling the payment before it is paid out to the customer, protects the customer as well as the bank in case the bank becomes insolvent during the business day when there are payments still in transit.”
When we talk about instant payments, it's not only about the user experience, about how fast the information on the payment moves from the sender to the receiver, it is also about the settlement, the value of the payment that is being transferred.
Niklas Lemberg, Head of Industry Engagement at Nordea
One area where the instant payments ecosystem already is far advanced, is of course SEPA, the Single Euro Payments Area for the EU and the euro. The instant payments platform of EBA Clearing, known as RT1, has been up and running since 2017 and currently reaches around 85% of the 6,000 plus credit and payment institutions in Europe.
There are also other similar instant payments platforms already in production both in Central and Southern Europe. At the end of this year TIPS (TARGET Instant Payment Settlement), the instant payments platform launched by the European Central Bank (ECB), becomes mandatory for all banks in the SEPA-area providing not only 100% reachability to all banks in SEPA but also enabling interoperability between the instant payments platforms. Currently, this is limited to euros only but discussions are on-going as to whether the payments platforms should be opened for further currencies as well, both European and other.
The European Payment Initiative (EPI) strives towards the implementation of common payments products throughout the EU. The focus is not placed on processing payments or deciding which rails to be used for the processing but rather on creating one common European card product and one common payment wallet product for the whole of the EU. The wallet solution is naturally based on instant payments. Ideally, users should receive the same experience from Norway to Cyprus and from Finland to Portugal, regardless of the domicile of the customer.
Niklas says: “On a global scale, the “enhancing cross border payments” initiative of the G20 countries and the development towards shrinking the networks of Correspondent Banks for cross border payments and developing payments corridors instead, all places an increased focus on instant payments, both cross border and cross currency. SWIFT gpi solves a lot of the current pain points, however, the next challenge for the banks will be to work out how to link these initiatives together and make them interoperable.”
SWIFT gpi solves a lot of the current pain points, however, the next challenge for the banks will be to work out how to link these initiatives together and make them interoperable
Niklas Lemberg, Head of Industry Engagement at Nordea
Looking across the field
The reality is that each of these systems, already established ones and the ones we don’t know about yet, will continue to grow, jockey for position and find new ways of fitting into the overall instant payments landscape. Today, industry incumbents are focused on upgrading their service offerings: SWIFT’s gpi Initiative provides a new standard for international payments, and Sweden’s Riksbank is offering a new instant payment service in conjunction with the TIPS payment platform.
At the same time, it seems like every major tech platform from Apple to Amazon is introducing its own payment solution. To gain a competitive advantage, these tech companies might look to initiatives like P27 and see the value in opening their platforms and offering greater interoperability to their customers. If they do so, however, they may run into some of the same challenges currently faced by the banks they’re trying to disrupt.
Glossary: Cross-border Payments
The cross-border payment industry is filled with participants — banks, governing bodies, rulebooks, technologies, platforms, and more — each with their own abbreviations and acronyms. Here is an overview of the jargon you need to know:
CPMI — The Committee on Payments and Market Infrastructures
An international organisation that sets standards for the safety and efficiency of payments, clearing and settlements.
ECB — European Central Bank
The central bank of the 19 European Union countries which use the euro.
EPC — European Payments Council
An international non-profit association supporting European payment service providers. They manage the SEPA payment schemes that underpin most of the Euro credit transfers and direct debits in Europe.
G20 Initiative on Enhancing Cross-border Payments
A focus of the G20 during the 2020 Saudi Arabian presidency.
NPC — Nordic Payments Council
A Nordic non-profit member association which facilitates payments and harmonisation within the Nordic countries by supporting payment service providers and managing Nordic payment schemes. The NPC develops and maintains payment schemes based on the SEPA Payment Schemes to facilitate payments within the Nordics, in Nordic currencies and harmonising the rules for payments in Euro.
NPC Credit Transfer Scheme and Instant Credit Transfer Scheme Rulebooks
A set of rules, practices and standards issued by the NPC to achieve interoperability for the provision and operation of credit transfers and instant credit transfers agreed at the interbank level for the Nordic currencies.
P27 (Project 27)
A joint initiative by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank to build a real-time cross-border payment system in the Nordics, with batch payments for SEK and DKK scheduled to be migrated first.
Retail Payments Strategy
An initiative by the European Commission from September, 2020 to develop the European payments market with a focus on instant payments.
A new settlement service by Sweden’s Riksbank built upon the TIPS payment platform to enable instant payments between banks with a scheduled launch in May 2022.
SCT (SEPA Credit Transfer) and (SCT Inst) SEPA Instant Credit Transfer Rulebooks
A set of rules, practices and standards issued by the EPC to achieve interoperability for the provision and operation of credit transfers and instant credit transfers agreed at the interbank level for the euro transfers.
SWIFT — Society for Worldwide Interbank Financial Telecommunication
A worldwide network that enables financial institutions to send and receive information about financial transactions in a secure, standardised and reliable environment.
SWIFT gpi — Global Payments Innovation
A new standard by SWIFT that aims to improve international payments by making them faster and more transparent.
Third party digital payment platforms
A type of non-bank, digital instant payment solution that provides an infrastructure to connect buyers and sellers and facilitate transactions. Notable examples include:
● Facebook Pay
● Google Pay
● Apple Pay
● Samsung Pay
● Amazon Pay
TIPS — TARGET Instant Payment Settlement
A market infrastructure service by the Eurosystem that enables payment service providers to offer fund transfers in real time.
You can read more P27 related articles on Open Insights.
Check out P27 Nordic Payments to read more about the project.
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