Instant payments 2018 future-gazing
We asked our distinguished Editorial Advisory Board to come up with some predictions for instant payments in 2018. Here’s what they had to say:
1. Uptake of Europe’s SCT Inst and US Real-Time Payments will be slow in 2018
Rollout to the SCT Inst scheme in Europe and The Clearing House (TCH) real-time payment (RTP) platform in the US will progress this year. But not without difficulty for migrating banks. The migration speed of each European country’s clearing and settlement mechanisms (CSMs) adhering to the SCT Inst scheme will vary across the continent as will migration of payment service providers (PSPs) with only 15% moving on the 21 November launch date last year. A majority of PSPs are not expected to migrate until 2020, say scheme designers the European Payments Council (EPC). In the US ubiquity isn’t expected until 2020 either.
2. New instant payment (IP) schemes and platforms will come online.
Australia will lead the way in the first quarter and the European Central Bank’s (ECB) SCT Inst compliant Target Instant Payment Settlement (TIPS) platform, due in November 2018, will be another prime example. The UK is also planning a technology overhaul of its once pioneering, but now ageing Faster Payments Service (FPS) platform, while new nations such as Malaysia and Hungary will begin to add schemes.
3. IP schemes themselves will increasingly become a regulatory demand.
In nations or regions where instant payments are yet to be introduced, pressure for them will build, particularly as consumers and corporates push for the speed and functionality they see elsewhere. Cross-border IP interoperability will naturally move up the global agenda as more schemes rollout. Standards such as ISO20022 will come to the fore in 2018.
4. Regulation will impact IP and payments more generally.
One example is the EU Payment Services Directive (PSD2). Starting on 13 January 2018 it will impact the wider payment sector, although there is now an extra 18 months to adopt new security measures and provisions for customer data exchange on payments in Europe as outlined in the Regulatory Technical Standards (RTS). This will likely delay PSD2 adoption but firms should prepare for it as soon as they can. The UK Open Banking initiative also starts in January 2018 with the intention to make the retail banking industry, including payments, more open, competitive and like a utility. Both regulatory initiatives will encourage open application programming interface (API) banking and IT service orientated architectures (SOAs). Instant payment (IP) schemes will be impacted by these and other regulatory changes designed to encourage open access to the infrastructure backbones. Another regulation that will impact the payments sector in May 2018 is the EU General Data Protection Regulation (GDPR), which covers how customer payment details are handled, among much else, and carries large fines for those with poor cyber, data and compliance procedures.
5. Technology will continue to disrupt traditional payment routes, players and methodologies.
Open APIs and banking is one such example of tech-led disruption, cited above, that will change payments and how it is regulated and operates. Artificial intelligence (AI) is another. Expect more blockchain related announcements in the payment and trade finance arenas too during 2018. Central banks are exploring distributed ledger technology (DLT) digital currencies as an alternative means to achieving faster payments. Israel for instance is presently exploring this possible ‘future money’. Canada rejected DLT as a national currency last year, however, amid concerns about security – many digital vaults have been robbed – reliability and other concerns. Speculative trading in some cryptocurrencies is also likely to be restricted with China and South Korea leading the way, amid fears of a bubble. Regardless, companies such as ripple will continue to try to apply the underlying cryptocurrency DLT technology in a useful way on cross-border payment transactions as part of an attempt to challenge established players like SWIFT, and maybe eventually IP backbones themselves? Bank buy-in and usage will determine where volume goes. The R3 consortium, Ethereum and Digital Asset are other DLT firms to watch.
- A separate, later predictions piece from Paul Horlock, CEO of the UK’s New Payment System Operator (NPSO), which consolidates three retail payment schemes into one, looks at the move towards a New Payments Architecture (NPA) in the UK.
Best wishes, Neil Ainger, Editor, InstaPay.