Instant payments in Europe: SCTInst cannot be viewed as ‘just another product’
Xavier Herrero, Head of Group-wide Payments at GDS Cusa, part of Spain’s CaixaBank Group, talks to InstaPay on instant payments in Europe and what it will take to make the initiative a success.
Instant Payments in Spain
The first move to instant payments in Spain was encouraged by Banco de España, the Spanish Central Bank in October 2016. Bizum, a joint project between Banks representing 90+% of local market share, was launched. The idea was to facilitate local low value real-time P2P payments initiated via a mobile application, using a phone number as a proxy. A company wholly owned by banks that created a proxy database linking phone numbers with IBANs was created. Bizum was first launched with very basic features: just push and pull single transactions were possible, with splitting capabilities and other services to be identified and developed at a later stage. When Bizum initiated its operations EPC’s SCTinst scheme was still not in force but a compromise to migrate to it when available was made and this was achieved during 2018.
Additional features have been added since it’s launch. The maximum amount of EUR 500 per transaction has recently been raised and a function to facilitate individual donation payments to NGOs has been added. Further features to follow, such as e-commerce and POS payments which will greatly add to volume figures.
After an slow initial adoption, some 30 months later more than 3,5 million users executing circa 2,5 million transactions per month are listed. But more relevant is that new users are growing at a pace exceeding 10% monthly and transactions higher than this. More and more users with each of them executing a higher number of transactions, Bizum is showing healthy signs.
Pan-European Instant Payments
Another joint initiative in which almost all banks in Spain participated was the launch of SCTInst. The aim was to be live as soon as the EPC’s scheme rulebook was published in November 2018. The business case was indeed a challenge – expenses, especially connectivity, were considered to be high. The Spanish market overcame this barrier by approaching local ACH Iberpay, who became the markets Technical Service Provider and provided connectivity into EBA Clearing’s RT1 real time platform. As a result of this Iberpay provides connectivity to all PSPs that want to participate in SCTInst and provides banks with services, such as facilitating control of RT1 dedicated accounts, that helps them better manage Instant Payments. The same approach was taken to embrace ECB’s TIPS. As a result of this, the majority of Spanish Banks were early adopters and ready as soon as RT1 (November 2017) and TIPS (November 2018) went live; as a matter of fact the first payment executed on both platforms were performed by a Spanish Bank, CaixaBank.
Banks have taken different commercial approaches to SCTinst; some ask their customers how they want payments to be executed (SCT or SCTinst), some others offer them by default. When it comes to pricing, some offer SCTInst transactions for free and some institutions charge the same fee as they do for SCT, some consider it as a premium service and charge additional fees. This has resulted in the fact that approximately 10% of eligible SEPA transactions are currently executed as SCTinst, with a great dispersion on the figures between banks: ranging roughly 50% of transactions within some banks to multiple others with a scarce 1-2%. There is a long way to go and I’m sure that some banks are greatly evaluating the opportunity, that will lead to an increase in volumes.
Experience leads to Knowledge
Starting from zero at the beginning, volumes logically grew dramatically at the beginning but they have experienced only a very slight evolution in the last 6-8 months. If we compare it with the exponential growth that Bizum has experienced on the same period we could perhaps extract one of the first lessons about instant payments: what it is important is not the capability to execute an Instant Payment but the way it is delivered to customers. The difference is that Bizum provides a user-friendly frictionless service while SCTinst is currently perceived as ‘just another product’, that it is initiated as payments have traditionally been initiated. If no additional value added services are provided, such as the possibility to group payments or integration into ERP systems for businesses, or new user experiences for individuals, the adoption will not increase significantly. As always, pricing is logically another factor to be considered.
Beside this, some other lessons have been extracted, with the overall (both local and Pan-European) low adoption observed has helped to identify and implement measures to solve the issues more effectively than if adoption had been higher. In this regard:
- IT teams have identified issues concerning real-time processing with no downtime and interruption of the service as a ‘desirable must’. What was possible with batch processing will not be in real-time. Related to this, resilience of the systems has been increased, despite this there is still probably a long way to go.
- Compliance and Security teams of PSPs have been able to identify new threats and enhanced their systems and practices accordingly. That impacts all links in the chain.
- Treasury Departments have been able to do the first analysis of all the implications that managing bank’s resources on a real-time 24/7/365 (with no possibility to move central bank money 24/7/365) .
Instant Payments and PSD2
For the future, apart from taking action on points indicated in previous paragraphs, there is an important challenge derived from adoption of the Regulatory Technical Standards on Secure Customer Authentication under PSD2 expected for mid-September. There is a close link between PSD2/Open Banking and Instant Payments; SCTInst is ‘the payment’ for Payment Initiation Services under PSD2. The approach to PSD2 by most banks in Spain has again been largely collaborative. They have joined to create a hub aimed to facilitate access for Third Party Providers (TPPs) wishing to interact with Spanish Account Servicing Payment Service Providers (ASPSPs). By doing so, apart from facilitating ASPSPs to lower the cost of deployment, TPPs will have a single point of entry to interact with a number of ASPSPs when willing to initiate payment orders or requests for information. This should decrease the need for TPPs to implement multiple developments if they want to access multiple banks. With close monitoring by Banco de España, APIs are already in production mode. There are still some issues but a tough job is underway to have them solved as soon as possible.
Whilst there is a close link between PSD2 and Instant Payments I do not expect that volumes will increase significantly as soon as September 14th hits the industry. From my point of view, that date will not be the starting point for an immediate explosion of instant payments or new transactions initiated by new TPPs based on PSD2 requirements in Spain but will act as trigger for a transition to this new payments ecosystems. Transaction volumes will increase slowly but surely and most probably by the end 2020 we will start to see a vibrant pan-European instant payments landscape. With APIs (or PSD2-compliant screen-scraping) up and running, fine-tuning of every PSP’s systems and a clear vision for the future (currently still blurred), the seed for the acceleration of ASPSPs adoption of adapted strategies and incentives for new TPPs to access will be planted and the path for a different way of thinking made.
Xavier Herrero, Head of Group-wide Payments, GDS Cusa, part of Spain’s CaixaBank Group. Xavier is also an InstaPay Editorial Advisory Board Member.