Interview: Xavier Herrero, CaixaBank, on SCT Inst & Spain
Xavier Herrero is Head of Group-wide Payments (GDS Cusa) at Spain’s CaixaBank Group. In this interview with InstaPay’s editor, Neil Ainger, he discusses the rollout and uptake so far of the single euro payments area (SEPA) instant credit transfer (SCT Inst) scheme in Spain, bank challenges and the future of instant payments.
“CaixaBank made the first ever SCT Inst transaction in history on 17 November 2017,” says Xavier Herrero, a well-connected European payments professional who sits on the InstaPay Advisory Board and EBA Clearing’s Instant Payment Working Group, referring to the test payment made between Caixa and Erste Bank in Austria using the RT1 platform last year.
“We were one of the early adopters, doing the first test before the formal ‘go live’ four days later. We offer our customers the ability to make instant payments (IP) online, in-branch or over the mobile channel. It is a premium service for us, so we do charge a little bit more for SCT Inst-compliant instant payments [€8 – Ed.]. But we will keep that pricing under review and see how the market develops.”
“Similarly, in the future all payments might be instant in nature so what type of payment instrument deployed is also constantly under review. As IP uptake continues to grow we expect them to become normalised. At present, CaixaBank customers decide if a payment uses a standard non-fast instrument or an instant one,” explains Herrero. “But as real-time operations and instant expectations grow this may change. Everything might be instant in the future, but we are prepared for that.”
“Initially, we were quite conservative in our marketing of CaixaBank’s new instant SCT Inst-compliant service because you need counterparties on the other side to make it work and to encourage scale. That takes time to develop as other banks catch up with us and adhere to SCT Inst,” says Herrero. “But I’m confident this is happening. I believe the move towards instant payments globally and in Europe – and the associated move towards internal real-time operations and aligned financial crime compliance activities at banks – is gathering pace. This will continue throughout the year as other banks advance towards SCT Inst adherence and begin offering their own instant payment solutions on top of the new infrastructure ‘backbone’.”
“Global interoperability – not just across European borders – will become an issue in the future as US real-time payment (RTP) offerings, regional infrastructures, Hungarian and Australia’s New Payment Platform (NPP), among many other such schemes, all scale up. This is why standardised ISO20022 messaging will become increasingly important, acting as a link between systems.” [interoperability was identified as one of the top 5 predictions by the InstaPay Board at the turn of the year – Ed.].
Bank challenges: Moving from batch to real-time
According to Herrero, the key immediate challenge for banks is how to move from overnight batch processing towards real-time operations internally to accommodate the IP trend. “This is necessary so that you can handle payments in seconds on a 24×7 constant basis with no downtime,” he says, “while still complying with all the anti-money laundering (AML), sanctions monitoring, and other such obligations placed on us by regulators.”
“It is no easy task moving from batch to real-time to accommodate SCT Inst and integrating all your existing fraud and compliance systems simultaneously. You can no longer prepare your batch file and send it for processing an hour or so later. That world has gone,” he adds, while cautioning peers that an instant payment is also an instant fraud opportunity unless internal systems are ready to cope.
“Resiliency is also important. Maintaining a constant uninterrupted service depends on all banks and payment service providers (PSPs) in the fast payment ‘chain’ getting it right. We do worry about counterparties in this regard, especially during these early days of SCT Inst.”
Liquidity is an issue too. “New ways of managing money, as it constantly moves around Europe quickly, are needed,” explains Herrero. “There are numerous impacts on our internal treasury and those of our corporate treasury clients. However, we’ve embraced this challenge and turned it into an opportunity. We are on the cusp of rolling out a number of new liquidity monitoring services for corporate clients. These can improve their cash management and optimisation activities, and reward those that give us liquidity accordingly, especially when we want it on our capital base or don’t as the case may be in regard to the Basel 3 capital adequacy regime testing procedures.”
TIPS for the future
Alongside his other duties, Herrero is a member of the European Central Bank’s (ECB) TIPS Contact Group and Euro Retail Payments Board (ERPB) Working Group on Payment Initiation Services (PIS), Identification Subgroup, so he has a good overview of the continent-wide payments scene.
“In regard to instant payments and TIPS, I think most banks will gradually connect to that ECB processing platform when it launches in November 2018, as well as to EBA Clearing’s pre-existing RT1 pan-European platform, plus some other automated clearing houses (ACHs) that will soon be providing a service.”
“These will offer the desired ‘reachability’ that SCT Inst mandates across the 34 SEA nations, so why not utilise them? Connectivity to both RT1 and TIPS and any other choices available increases the options, competition and connectivity resiliency for banks’ cross-border instant payments, which can only be a good thing.”
Herrero is very aware of the opportunities that instant payments offer for better customer service and retention, liquidity monitoring and overlay services in the mobile and e-commerce sectors – many of them reliant on the extra character space available in standardised ISO20022 messaging. This opportunity for data-rich services “should not be missed” in his opinion.
But equally he is aware of the threat from non-bank players that are already offering faster payment services with better financial technology (FinTech)-enabled front ends. They are being encouraged by the second EU Payment Services Directive (PSD2) to enter the marketplace and compete with incumbents in this era of open banking and Application Program Interfaces (APIs), which PSD is driving.
Banks must be aware of this potential threat or co-opt the start-ups’ innovative zeal in collaboration deals that give them the customer base they lack on favourable bank-set terms. PSD2 can be an opportunity too. The Berlin Group’s PSD2 framework is important for this reason, believes Herrero, as it offers “a way forward for banks” in the evolving open API-led banking environment.
An internal technology refresh is necessary to accommodate the PSD2-led open banking trend, new security measures it mandates, and also the trend towards instant payments. Undertaking an IT overhaul now is good practice for any banks that haven’t done so already. CaixaBank has a more flexible tech core already in place, maintains Herrero, and is reaping the rewards of being an IP “early adopter”.
SCT Inst & Spain
The SCT Inst scheme was designed by the European Payments Council (EPC). It became fully available on 21 November 2017, with Spain in the forefront with 86 PSPs already using it on its launch. At that time only 585 banks continent-wide from eight of the participating 34 SEPA nations had adopted it. This represented 15% of the total number of PSPs across Europe back then. Admittedly, some of them were smaller players with lesser volumes and these are self-certified EPC numbers, but Spain provided a large slice of the initial user numbers and processing volumes.
SCT Inst adoption figures have since gone up but some countries, such as the Netherlands and Belgium, are still awaiting their own national ACHs to offer a solution before banks move en masse. In Germany some of the larger banks, such as Deutsche and Commerzbank, are awaiting the advent of the European Central Bank’s (ECB) TIPS platform to process SCT Inst transactions that adhere to the scheme rules. These mandate that banks must offer:
- euro transfer capabilities across the 34 SEPA nations in less than 10 seconds
- on a constant 24×7 operational basis.
Spain was an outlier because its national ACH, Iberpay, refreshed its CICLOM national payment processing platform and partnered with EBA Clearing’s RT1 platform to achieve the desired pan-European ‘reachability’ at the very start of Europe’s move towards IP. Using Iberpay in this manner is efficient, in Herrero’s opinion, although it may mean Spain doesn’t have as ultramodern an ACH as some other nations in the future.
The country has though already broken through the barrier of 40,000 SCT Inst-compliant instant payments, worth in excess of €30m, per day way back in February of this year. It is continuing to power ahead in its IP uptake numbers and blaze a trail.
Nearly all Spanish banks are now connected to the single window provided for internal domestic processing of SCT Inst payments by Iberpay, with the RT1 partnership providing cross-border capabilities. Larger banks, such as Caixa, might add TIPS and new functionality on top, as discussed, but a base level of universal adoption has already been achieved.
“Spain has done well in its adoption of SCT Inst as we have an advanced national payment infrastructure and many new tech innovations already,” says Herrero, citing the Bizum mobile peer-to-peer (P2P) payment system as just one example. This directory service involves 27 Spanish banks under the auspices of the AEB ECSC and UNACC banking associations and is supported by the central Bank of Spain and government. A bank account can be associated to the smartphone-based digital payment service that can also be accessed online to encourage universal uptake. Some additional services are planned for the near future too. Bizum predated SCT Inst, but this kind of advanced tech base, which is evolving as new capabilities come on stream thanks to banks’ own work adhering to the new scheme, can only help.
Competing with the likes of SamsungPay and ApplePay is hard enough, so if the Spanish banks can collectively harness their customer bases via Bizum and use any new functionality available thanks to SCT Inst-related upgrades, then it’s a sensible move.
“Many of our banks have modern internal technology as well that can help ease the integration of new initiatives and instant payments scheme rules into live running operational units,” says Herrero. “Certainly, in CaixaBank’s case we have a history of innovation and a robust, flexible core that can handle new developments.”
There are 5.6 million online CaixaBank customers, of which 4.1m are mobile bank users, and 15.5m bank-branded cards in circulation, so the financial institution (FI) has a proven strong customer base. It was the first to deploy contactless mobile payments (MCP) in Spain and to launch the country’s first mobile-only imaginBank. This also uses an artificial intelligence (AI)-powered chatbot to improve self-service and loyalty and marketing procedures.
Herrero believes this gives CaixaBank a good technology grounding as it continues to develop new services and capabilities in-line with the IP and API trends in the marketplace. Integrating instant payments into its operations from the very beginning of SCT Inst means the bank can concentrate on the “all important” overlay services now and develop use cases that work, delivering revenue and customer retention in an ever-more competitive marketplace.
- To see another InstaPay interview with a banker discussing a new instant payments scheme, in this case ANZ’s Anne Collard and the Australian NPP, please click on the highlighted text.