EBAday Interview: equensWorldline on banks and their operating model of the future
InstaPay recently met with Michael Steinbach CEO of equensWorldline at EBAday in Munich. In this interview, Michael discusses how Instant Payments (IP) will be driven by merchants and consumers as well as banks, the impact of PSD2 and IP on the payment landscape, and why banks need to decide their operating model of the future, today.
Instant Payments ubiquity in seven years
Instant Payments (IP) is the new normal. Everyone is pretty much agreed on that. With IP schemes coming online across the globe at a rapid rate, the question is not if IP will become ubiquitous but when.
For Michael, he believes IP will be ubiquitous in seven years – at least within the next ten – as “all payments become real-time globally based on ISO 20022”. This shift to IP spells the “end game of payment processing” in his view as a combination of IP and PSD2 transforms the European payment landscape and we move away from traditional card models.
Enter the consumers and merchants
What will accelerate this change? According to Michael we can expect to see a “major push from merchants and consumers in the next couple of years”. After all, we’re “already living in an instant world”.
Consumers, increasingly frustrated by the speed and quality of banking services in comparison to their experiences with Uber and Amazon, will vote with their feet. And merchants will look to capitalise on opportunities opened up by IP and PSD2. With the ability to initiate payments directly from a consumers’ bank account, merchants can offer non-card, smartphone-based payments without the cost of interchange fees and other card-based costs. The rich data that IP carries, when combined with customer account data, means that merchants “will focus heavily on how this combination can enhance loyalty.”
Although this presents an enormous opportunity, Michael cautions that there is a “thin line” organisations have to tread here as consumers and regulators become more sensitive to privacy issues and data sovereignty in a world of high profile data breaches and GDPR.
Framing global interoperability
If merchants and consumers are likely to accelerate IP adoption, what will hold it back?
According to Michael “legal and regulatory frameworks…as standards on their own simply aren’t enough to create an interoperable, global payment system.” For Michael, who is discussing this issue in the session “First movers and fast followers in global real-time payments interoperability” at EBAday, interoperability is critical to realise the potential of IP.
All stakeholders want to pay/accept in the same way, every time and everywhere. It is the only way to drive adoption and scale. Technical standards are important of course but not enough on their own. Frameworks that cover everything from settlement to governance and compliance are essential to ensure a level playing field.
Michael believes that the European Payment Council’s SCT Inst rulebook, along with further guidance from the TARGET instant payment settlement (TIPS) service due to launch in November, will provide this framework. However, as IP gathers pace globally, a worldwide framework will be required.
Michael expects the international community in the form of perhaps the G20 or WEF to drive this forward. There is no doubt in Michael’s mind that Instant Payments will be the only and ubiquitous global payment system in the future, sweeping SWIFT, Ripple and other alternatives aside in its wake.
What’s the operating model of the future?
While Michael believes that IP is critical for banks globally, it’s the “items deriving from the launch of IP that will have the biggest ramifications”.
The convergence of IP, PSD2 and GDPR, has banks across Europe questioning their strategy and future position in the market. This is evidenced by a shift from IP implementation becoming a “top down, rather than just bottom up” affair in terms of decision making within banks.
Bank leadership teams have recognised the strategic importance of IP in a wider context of regulatory and technological upheaval. Furthermore, IP implementation is a costly and all pervasive undertaking which attracts “high sensitivity and attention”. Michael’s view is that back office processing will become commoditised. With IP, all payment will use the same rails whether high or low value, work across borders and include rich data.
In such a homogenised world, a business case around IP “is not the case of an Excel spreadsheet”. Banks need to ask “how do I position my bank in terms of a business model and how do I operate it?”. To differentiate, especially in a market which is likely to become more competitive and consolidated in the future, banks need to use this convergence of forces and the IP interface to deliver new products and services. They need to reconsider the back office – what is key and what is not for their business. And determine how much they want to run or outsource to an expert partner.
Ultimately the business case for Instant Payments and the question of a banks’ operating model of the future, will be decided by what extended services it wants to offer, and fundamentally, what kind of bank it wants to be.