Instant Payments is coming to Europe
Carlo Palmers and Isabelle Olivier from SWIFT talk about the company’s instant payment strategy.
Why instant payments?
IO: Instant payments greatly increase customer convenience. Everyone wants to be able to pay who they want, when they want, increasingly while they are on the move. Instant payments make this possible and are an ideal cash replacement. But, from an industry perspective, instant payments are also a central component of PSD2, which has the potential to redefine European banking and boost innovation. Although PSD2 seeks to increase competition, there is also a need for close collaboration to agree standards and best-practice implementation methods.
With its unique position at the heart of the industry SWIFT has unparalleled experience of working with its banking community to build strategic solutions that can be replicated across multiple markets. Our recent success in Australia makes us ideally positioned to implement the right solution for our European customers.
CP: The time is right for SWIFT to offer instant payments in Europe. Having delivered a new solution for Australia, we have proved that we have the knowledge, technology and practical know-how to do so. The ECB has initiated the TIPS discussion and draft specifications became available in May. SWIFT can deliver the right solution, particularly for those banks that will want to link to multiple CSMs. We aim to go live in November 2018.
Is SWIFT moving into retail payments?
CP: In practical terms, SWIFT already holds a position in the retail payments market. For almost two decades we have offered access to European automated clearing houses (ACHs), such as EBA STEP2, STET, Equens and RPS. We currently support 29 ACHs worldwide, transporting over 26 billion transactions yearly, with an annual growth of over 11%. Our move into instant retail payments is a natural progression of this and reflects the evolving needs of the SWIFT user community.
Will SWIFT support instant cross-border transactions?
CP: We already support cross-border transactions by connecting CSMs where SEPA transactions are exchanged across Europe. We’ll play a similar role with instant payments within the eurozone. To support cross-border instant transactions over different currency zones, additional business challenges must be addressed. We believe gpi greatly improves the customer experience by increasing the speed, transparency and end-to-end tracking of cross-border payments.
Is the European solution different from Australia?
CP: The European model differs slightly from Australia. CSMs throughout Europe are adopting central clearing models, while in the model we implemented in Australia clearing happens ‘on the edge’. In practice this means that we will be turning some features off rather than building more. As you would expect, we will be increasing capacity as number of end points in Europe is larger than Australia. But that is pretty routine as our technology is scalable.
What does this mean for SWIFT customers?
CP: This is great news for our customers. We are already engaged in positive conversations about new ways to create value in the instant world. Banks are embracing instant payments in response to customer demand but many also wish to seize opportunities created by PSD2. This heralds a new era of competition and open, API-based banking throughout Europe. Banks must decide which role they wish to play in the financial ecosystem and how they develop new overlay services based on instant payments. PSD2 creates new opportunities for banks and improves consumer choice so there is a strong incentive to deliver success.
We will help our community of users leverage their existing investment in SWIFT and benefit from an instant payment solution developed at the heart of the industry.
Will the new solution be available outside Europe?
IO: Yes - all of our core technology is designed to be replicable across markets so we may have the opportunity to offer instant payments beyond the euro area. As an organisation that is owned by its customers, SWIFT is driven by the needs of its user community. Our mission is to help users get the best value out of our technology, market knowledge and expertise.
How does TIPS affect SWIFT market infrastructure customers?
IO: SWIFT customers can use our new solution to connect to TIPS but they can also use it to connect with other CSMs. Business flows will be directed by quality of service and price rather than connectivity. Our new gateway gives our CSM-customers the opportunity to become the technical provider for their participants to connect to TIPS, improving interoperability and reach. We believe that volumes will grow due to the ‘network effect’.
Are you doing this solely for TIPS?
IO: No, our solution is open to other CSMs and we are in discussions with a number of them. We are beginning with TIPS in response to customer demand and because we believe TIPS will play a pivotal role in Europe. We also want our gateway to evolve to become the single interface to the future Eurosystem platform, combining T2/T2S/TIPS so that our customers can rely on SWIFT to adapt to this evolution.