11 July 2017

SWIFT offers an instant payments messaging service

The launch of the SWIFT instant payments messaging service for Europe in November 2018 will coincide with the launch of the pan-European real-time payments service being built by the European Central Bank (ECB)

On 22 June the European Central Bank (ECB) confirmed that it will launch TARGET instant payment settlement (TIPS), its new instant retail payments service for the euro area, in November 2018. This followed the release of the draft TIPS system specifications in May, and marks the beginning of the official countdown to the service itself. For SWIFT users, the news is entirely positive. It provides a set of specifications and a clear timetable, after a period of lengthy discussions between the ECB and the European payments industry over how to make instant payments work on a pan-European basis. More importantly, the news came just a week after SWIFT confirmed that it had launched a messaging service that will allow instant payments to be made in Europe via the SWIFT network.

“For much of 2016, many of our users were still doubtful about the urgency and scope of their instant payments projects. Their priorities were often driven by regulatory initiatives such as the second version of the Payment Services Directive (PSD2), and they were not convinced of the business case for instant payments,” says Carlo Palmers, senior market manager at SWIFT. “But since the end of last year, our customers have been urging us to offer a SWIFT messaging solution for instant payments in Europe. Now that the ECB specifications and the timetable are clear, we have confirmed that we can meet demonstrable customer demand for the service.”

SWIFT has good reason to be confident it can meet a November 2018 deadline, because the messaging co-operative has already built an instant messaging platform for the Australian banking industry. Just 30 months on from winning the contract to build the New Payments Platform (NPP) for the Australian market, SWIFT has already delivered a working solution. Many of the engineers that worked on the NPP project, and large parts of the technology they devised, will now be re-deployed to meet the specific demands of the European market. Although the decentralised NPP model will have to be adapted to the centralized model adopted by TIPS and the other European clearing and settlement mechanisms (CSMs), SWIFT says the adaptation is a more a case of “turning features off” than building new functionality.

When the service goes live in November 2018, SWIFT users will be able to connect their own systems directly through the new instant payments gateway or – if additional integration services are required – through the SWIFT Alliance Messaging Hub (AMH). But whichever CSM they adopt, users will enjoy a familiar benefit of SWIFT connectivity: a single interface to multiple payment platforms. Although TIPS aims to provide instant payments at the European level – a large part of its purpose is to advance the integration of the euro area – most instant payments will initially be domestic rather than cross-border. That means banks will want to continue to maintain links to multiple domestic platforms, including instant payment service providers such as EBA Clearing, Equens, STET and Iberpay.

The SWIFT ambition is to provide messaging connectivity services to them all. “There is a clear need for connections to CSMs in Europe, if banks are to provide instant payments on a pan-European basis,” says Palmers. “By using SWIFT to connect to all of the various payments mechanisms, our customers will not have to build bespoke links to each system. By re-using their existing investment in SWIFT, they will have a single user interface to multiple instant payments systems in Europe, for both domestic and cross-border payments. This will help provide the ubiquity that will make instant payments in Europe a success.”

There is a clear need for connections to CSMs in Europe, if banks are to provide instant payments on a pan-European basis.

Carlo Palmers, senior market manager at SWIFT

In addition to helping customers access CSMs, providing connectivity to TIPS is essential, because TIPS is part of the grander strategy of the ECB. That strategy aims to integrate both the high value payments system (TARGET2) and the securities settlement platform (TARGET2-Securities) provided by the ECB with the proposed retail payments system (TIPS), so users have a single window into central bank money across cash and securities. “For SWIFT, providing access to TIPS is part of a longer term plan to make it simple for our customers to connect to all of the platforms provided by the Eurosystem, whether they are settling securities transactions in T2S, high value wholesale payments in TARGET2, or retail payments in TIPS,” says Palmers.

Retail payments are not, contrary to popular supposition, a new departure for SWIFT. As Palmers points out, SWIFT already provides its users with access to 29 Automated Clearing Houses (ACHs) around the world through SWIFTNET FileAct. FileAct currently supports more than 26 billion retail transactions a year for those ACHs. SWIFT also provides vital cross-border links between CSMs within the single euro payments area (SEPA). Seen in this light, the new European instant payments messaging service is not so much an innovation as an extension of an existing cross-border solution to instant payments already being made across European borders via the SWIFT network.

And it would be a mistake to view these instant messaging services as a European initiative only. The recently launched SWIFT gpi service aims specifically to raise the speed as well as the transparency of cross-border payments between correspondent banks as well as through CSMs, and on a global scale. “Combining gpi with domestic instant payments solutions could pave the way for a global instant payments solution,” concludes Palmers. “It would make a lot of sense for our customers if we were able to re-deploy the technology we built for the Australian market not just in Europe, but in other markets where our customers need our support. What we are doing in Europe is part of our global strategy for instant payments, and can be replicated elsewhere.”

Extended reading

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