EBAday 2018 Day 2 Report: Instant Payments to power the sharing economy
Day two of EBAday in Munich and innovation has been a key topic. Experts have fiercely debated the trends in innovation, the supporting business models and the need to unlock the value in bank data .
Once again, Instant Payments (IP) has also been a reoccurring theme. No debate on innovation can take place without touching on the ramifications of payments, and critically the data they carry, as they move to real-time. From AI and data-centric models to the blockchain and advanced security, IP is both an innovation driver and enabler.
In our Day Two report, we take a look at the biggest stories of the day, and share insights and key learnings from the conference sessions as EBAday draws to a close.
- NatWest taps Open Banking for cardless online payments.
- NatWest has teamed up with the Carphone Warehouse to trial an online shopping system that lets customers ditch their debit and credit cards and pay directly through their bank account.
- Despite the fintech hype most payments are still offline, says Square CFO.
- “Today, 20 million small businesses in the US don’t accept electronics payments. In the UK, which is beginning to be a burgeoning market for us, 50 per cent of small companies don’t accept them,” according to Sarah Friar
- Payments group Adyen surges 77% on debut.
- Adyen, the Dutch payments group, whet investor appetite in Europe’s initial public offering market on Wednesday with shares soaring 77 per cent to €425 on the company’s debut in Amsterdam.
Insights into Instant Payments
“Instant Payments to power the sharing economy”
Tom Hay at Icon Solutions argued that Instant Payments (IP) is critical to enabling the sharing economy. In a panel on ‘European Instant Payments – review, implications, outlook’ there were contrasting views regarding new payment structures for banks and the implications for card rails. One perspective was that card networks won’t be replaced by IP, and that batch processing would need to continue. According to Tom the “cyclical model is dead, and we are in the on-demand business” which is critical for fast growing sharing economy businesses that operate marketplace structures where there are buyers and sellers who desperately need liquidity and to meet the demands of consumers who expect immediacy. The ability to embed IP into all facets of commerce will unlock enormous value for businesses like Deliveroo and Uber.
Instant Payments is essential to meeting the demands of these new market structures and models, and those that deliver it first will reap the rewards.
“The Instant Payment interface”
In the same panel, the speakers were asked: what will be the biggest driver of IP volume? Ingo Beyritz at the German Association of Private Banks, believes that initially P2P payments, similar to Venmo in the US, will be a catalyst. And longer term it will be the frequency and scale of POS payments that will deliver major volumes. This prompted José M Beltrán at STET to refer to the FAST scheme in Singapore where there is a lack of usage due to UX issues. If POS IP transactions are to become a reality there needs to be a consistent interface that doesn’t require keying in of an IBAN for example. In addition, structures need to be put in place to ensure interoperability between merchant and payer banks. Ann Börestam at the European Central Bank argued that “harmonisation is key to avoid different flavours of Instant Payments across markets”.
Payment initiation must be addressed unilaterally if Instant Payments is to reach its full potential.
“AI to secure Instant Payments”
AI was voted at the top priority for innovation teams at banks during the panel on ‘Trends in global payments innovation’. Teresa Connors at NatWest and Joanne Towers at HSBC shared their experiences of taking an AI chat bot to market, the reaction of customers, and the efficiencies and returns – especially in terms of collectables – this new technology has delivered.
Cedric Derras at UniCredit looked at AI differently. He argued that real-time payments create operational obstacles especially around risk and fraud. When you’re sending and receiving immediately, as a regulated entity, it becomes an enormous challenge to ensure AML and PEP requirements are adhered to. Cedric’s view is that we should accept this is “difficult in real-time, but AI can help to secure these transactions without holding them up.”
While AI is grabbing the headlines around ethics and job loss and creation, when it comes to banking its most immediate role might be in safeguarding IP.
“Batch and Instant is like mixing oil and water”
With mixed views about the ability for IP to drive new use cases such as the POS, a number of speakers argued that banks will have to maintain two systems – batch-based and instant concurrently – to serve customers and the wider market. Tom Hay at Icon Solutions had a different view: “If the new system (Instant Payments) can do everything the old one (batch-based) can and more, while the old one can’t do many things the new one can, why keep the old one?” Hay argued that even the timings for processing can be created within IP systems by simply designating a time and date for the transaction to take place. Ultimately there is nothing that IP cannot do that batch can. And maintaining both systems, especially given the costs involved, is rather less than ideal.
Teresa Connors at NatWest summed it up perfectly when she said “Batch-based and Instant Payments are like oil and water, they simply don’t mix.”
InstaPay has been producing daily show reports and interviews from EBAday in Munich. Interviews with Michael Steinbach CEO of equensWorldline and Cedric Derras, Global Head of Cash Management at UniCredit are already live, and you can find our day 1 report of EBAday here.