The arrival of the second Payment Services Directive (PSD2) from the European Commission is likely to provide the final push to real-time payments across Europe.
The key part of the directive is to open up payment account access to all providers, creating more competition. With the weight of regulation, the banks cannot move fast enough to implement real-time payments to meet customer demand, so the tech vendors with their new jurisdiction under the rules of PSD2 are stepping up to the mark.
The current process of rolling out of real-time payments has been painfully slow. While countries including Switzerland, the UK and Denmark are running real-time solutions, other countries are still catching up.
Jurgen Vroegh, ING
Jurgen Vroegh, global head of payments at ING, says: “What we are seeing are countries like Spain, Italy and Austria all looking to implement their systems quickly. But we should be aiming for one standard on instant payments that can be implemented and used across the market.”
So far it has been run under the control of the banks, and subject to their need to comply with a proliferation of new regulations, but the arrival of PSD2 now enables third parties to have access to bank accounts, and potentially step up the pace.
Some market participants even suggest it might be easier to bypass the involvement of the banks altogether and let the third-party firms run the move to real-time payments.
Tom Hay, head of payments at Icon Solutions, says: “There is an intersection between instant payments and the arrival of third-party players through PDS2. The arrival of the alternative players is driving the pace to move to a real-time system faster.”
Paul Thomalla, senior vice-president, global corporate relations and business development at ACI Worldwide, says the change is putting pressure on the banks.
“The implementation of PSD2 is forcing banks to become digital players," he says. "To keep up with the competition, the European banks have had to become more agile.
“Keeping up to date is really about retaining customers. Banks that don’t will be out of business.”
Customers expect to have a service that works around the clock. For the banks this means transitioning away from tried and tested processes built before requirements for real-time updating of customer accounts emerged. It is possible they might not be able to keep up with the required pace.
ING's Vroegh says: “From the customer perspective, the expectation is for a seamless offering that works 24/7. There is an expectation to care for their needs.”
Hay at Icon says it will take considerable effort to overhaul, adding: “The challenge for banks is to be able to process and confirm payments in real-time, which is different from the way their existing batch payment systems work. To implement real-time they have to process constantly, and to do this needs new systems.”
The potential for overtaking the traditional bank players is not limited to the tech companies; new challenger banks could focus their efforts on going straight to the newest ways of payments reconciliation, and not getting weighed down initiating outdated methods.
Thomalla at ACI says: “There is an opportunity for new banks to step in if they can really bulk up their instant payments to offer business solutions like payroll. Rather than spending time implementing cheques and cards, they can bypass these older services to focus on what is needed in the market.”
If the pace of implementation does increase, it will also put more pressure on the corporate side. The systems used for product and service provision will also need to be brought up to standard to keep pace with changing customer demands.
Vroegh says: “From a corporate perspective, there needs to be a strong link between the corporates' customer-care centre and the payments that they have received instantly.”
The efficiency of the processes being used needs to match the requirements of end-customers now, who expect everything to be completed instantly. Vroegh gives the example that if a customer pays to have their electricity reconnected, they expect it to be done as soon as the money has been transacted. If the payment is being completed in real time, then the outcome of the transaction should be too.
This places the onus on companies to keep up with what their banks are now promising.
Vroegh says: “The legacy systems used in customer-care centres needs to be updated to instant. There is the rising expectation from clients that everything will be processed and completed in real time. Because of this we are seeing business opportunities arise with telcos. The customer doesn’t care how this happens, they just want it to work.”