Creating customer experiences with SCT Inst
The launch of the SEPA instant credit transfer (SCT Inst) scheme and some CSM instant payment infrastructures in readiness for it, mean November 2017 will be remembered as an important date in creating unified European payments, says Britta Kotthaus-Krahmer, Principal Director, FS, Accenture GmbH. But it’s only a start.
After the single euro payments area (SEPA) instant payment (IP) scheme, developed by the European Payments Council (EPC), went live on 21 November 2017, with nine clearing and settlement mechanisms (CSMs) self-declaring their adherence to the voluntary scheme across eight countries, it can be said that European retail customers now have options for fast, efficient payments at the interbank level.
The service is by no means universal yet, however, and there are still many payment service providers (PSPs) and national CSMs that need to update their systems to be ready for the IP era and for cross-border SCT Inst-compliant functionality. Sometimes this may be achieved via partnerships with pan-European platforms such as EBA Clearing’s RT1, as in the case of Spain’s Iberpay. The European Central Bank (ECB), a key force behind the centralisation drive, also has its own Target Instant Payment Settlement (TIPS) platform planned for November 2018 as another reachability option.
The core foundation of the European interbank clearing and settlement architecture can therefore be said to be in place and available in some countries, but more work is needed to ensure that SCT Inst creates fast, convenient customer experiences everywhere. France’s Stet and Equens Worldline system in the low countries are ready, but there are 34 countries in SEPA and other CSMs that aren’t ready. Full rollout will take time.
Real-time payments and pan-European reach
It cannot be denied that some domestic European countries, often with a limited number of six to 10 PSPs sharing 80% of the local market have realised faster near real-time or IP schemes many years ago, but where SCT Inst differs is that its rulebook covers the entirety of the eurozone.
The start of the SCT Inst migration recently marks a fundamental difference: the new optional scheme has pan-European scale and the potential to allow consumers in 34 different countries to transfer funds within seconds based on a single standard.
Only 585 PSPs complied with the rulebook, however, on its launch last month, representing just 15% of the total in Europe. It is therefore obvious that all stakeholders in the ecosystem – from CSMs providing refreshed automated clearing house (ACH) infrastructures to banks themselves – have yet to invest fully. In order for the on-going migration to reach universal acceptance in future years and span all counties more money will have to be spent on connectivity, integrating and offering SCT Inst-compliant services, which will include data tracking and analytical tools as well as the fast payment itself.
Alongside the open data and banking trends, presaged by the EU’s second Payment Services Directive (PSD2), the challenge of connecting to and getting the most from new real-time payment infrastructures will be the major challenge for banks in future years.
After the first successful processing of transactions this November, the challenge of making SCT Inst a success in the long-term, with universal acceptance and effective overlay services, will require significant effort. It is the biggest challenge for the European banking industry since the advent of the ordinary SEPA instruments covering credit transfers and direct debits.
Making the scheme mandatory?
SEPA is the most recent comparable project in Europe, and the lessons learnt from its implementation have caused many in the industry to question whether full pan-European reach for its latest instant variant (SCT Inst) might be necessary to achieve widespread uptake. Would making the EPC scheme mandatory speed up adoption?
It remains a moot point whether consumer needs are driving the demand for regulation and IP, or if regulators themselves are introducing and enforcing new fast payment products and services. A bit of both is probably the answer, but the threat remains that if SCT Inst uptake is too slow in future years making adherence to its rulebook mandatory remains an option.
It might take another two to five years to observe the high volume figures and pan-European reach of instant payments that the ECB wants to see. It introduced the definition and vision of “instant payments” in 2014, and is now putting considerable pressure on the industry to implement IP as soon as possible.
In a recent speech at a joint ECB and Banca d’Italia conference in Rome, Yves Mersch pointed to the inefficiency of the present European banking ecosystem in delivering modern IT architectures for sophisticated payment solutions. He called for banks to make up for the lack of innovation quickly, harnessing IP infrastructures, or face potential challenges from cryptocurrencies or other technological advances. In his opinion it is necessary to adapt to the growing and changing needs of consumers in order to stay relevant, or else banks may not remain key players in the wider marketplace.
The services layer
Consumers in general seem to have limited or no interest in the underlying mechanism of how payments work. Even some corporate end users are surprised when details of the clearing and settlement process are revealed to them – they just want to know how to track payments and optimise cash management.
Given that the customer is king in deciding which method to choose from when initiating a payment, a few criteria should be taken into account when designing IPs and subsequent services. It is necessary to prioritise:
- ease of access and use,
- reliability and resiliency when completing a transfer process.
To translate these expectations into features of a payment method, “availability” would go back to a variety of use cases. The level of ‘reachability’ would also be pertinent for end users, as well as an awareness from the bank about the common ‘branding’ of instant payments that will be necessary within any ecosystem.
It took time to create this public awareness in domestic ‘Faster Payment’ schemes. It is therefore fair to assume, a considerable amount of collaborative effort will be needed for SCT Inst on a national, regional and continent-wide basis. European banking associations and other stakeholders will all have to be involved to avoid individual domestic scheme bias and flavours coming to the fore, which may impair perfect functioning of the SCT Inst instrument across all nations, everywhere on a same standard basis.
Banks and PSPs still need to further define potential use cases for SCT Inst and explore new ways of co-operating with new FinTech players in the more open data and banking environment envisaged in PSD2. It may be necessary to adopt an Uber-like thinking process towards entire business scenarios to achieve profitable services.
Consumers are looking for an immediate and ‘always on’ 24×7 experience when making payments – often on mobile devices – but other subtler desires shouldn’t be underestimated, such as the desire for:
- & reliability.
A satisfying customer care concept that can ensure long-term success is also important. Banks need to think about these issues. No one nowadays would be willing to choose or move from a range of existing and well-proven products, such as card payments, to a new method unless it proved its usefulness quickly. A rejection or unclear status alerts more than twice could impair IP uptake.
If an end user gets stuck in a call centre queue when trying to track a mobile payment made in the middle of the night, instead of getting an automated, fast and clear response to a problem with their first IP then they may not return. However, get the service right, first time and a widescale move to IP instead could be on the cards.
Are banks willing and able to provide customer support for an assumed failed instant payments of up to EUR15,000 late on Christmas Eve, including with manual exception capabilities if needed? What are the security or insurance arrangements for cases where a quick typo on a small user interface led to a misdirected payment, with the funds gone instantly? These are the questions banks and others must consider.
The envisaged use of a mobile phone number proxy for the international bank account number (IBAN) to initiate an IP is one of the potential benefits of new schemes like SCT Inst that often use ISO20022 messaging and extra character space to deliver new services. Making this possible on a pan-European, not national basis, will help fulfil consumer expectations but isn’t easy.
And speaking about effectiveness and reliability: the promise of having funds available 24×7 on the payees’ side within seconds, is something that needs to be fulfilled by the industry on a continuous end-to-end basis during the first months of product availability, otherwise users may be scared off or turn to PayPal or other options. It’s necessary to establish a feeling of customer satisfaction and reliance straight away on a completely new service, especially where other options are available in mature markets.
Connectivity options: TIPS, payment hubs, etc
The competition from non-bank financial technology (FinTech) players in the PSD2 era will grow stronger and they too can make use of the core foundational layer provided by CSM infrastructures as more openness is demanded by regulators. Banks must therefore modernize their internal IT and invest wisely to get the best connectivity and the most data and value-adding services out of new IP-enabled platforms.
A number of ongoing real-time initiatives in 2018 such as the ECB’s TIPS platform and SWIFT’s Real-Time Connectivity option could help banks provide greater variety, flexibility and interoperability when connecting to IP systems. However, all investment decisions must be based on a comprehensive and strategic market evaluation. For instance, considerations for corporate IP-enabled services might include the global payments innovation (gpi) tracker product that SWIFT is launching to try and make international payments as traceable as a parcel currently is.
Those wanting to acquire and install a 24×7 ready Payment Hub technology approach may want to consider the planned migration to the ISO20022 XML format of High Value payment systems within a few years. SWIFTNet connectivity too may change as distributed ledger technology (DLT) evolves with this being the third stage of its gpi project.
SCT Inst integration into bank operations may overlap with some of these other initiatives and banks must be careful to avoid legacy IT and silos that would prevent future harnessing of new systems and advances. November 2017 was a starting point for Europe-wide IP and has laid an interbank framework layer down but how quickly banks now connect to this and offer new value-adding services off the back of it matters. Digitalisation and convergence is the future. Banks must make full use of IP opportunities now before other players do, or regulators decide to make SCT Inst mandatory, forcing a hurried compliance – not opportunity-based – migration on late-comers. This should be avoided at all costs.