2019 saw the 20th anniversary of the creation of the euro. Throughout this period, payment systems in Portugal and the euro area underwent profound transformation and faced permanent challenges, creating unprecedented opportunities for development.
Over 20 years later, with the growing digitalisation of economies and societies, the regulatory changes that took place in 2018 (through the revised Payment Services Directive – PSD2), the emergence of new FinTech operators and the technological disruption under way, a new era has begun for payment service providers and users, who regard ever more highly services that are immediately available, fast and easy to use.
To respond to this new paradigm, various banking communities have developed instant payment solutions, which ensure the continuous processing of bank transfers (on a 24/7/365 basis), with funds being transferred to the beneficiary's account in up to 10 seconds (in real time). These solutions are convenient, fast and efficient, responding to the new habits and expectations of users and being introduced gradually as a preferential method in various payment models. The advantages of instant transfers are countless in comparison to other payment solutions. Being a solution based only on transactions between accounts, without a need for a bank card, instant transfers lead to a simplification in the value chain and a decrease in the number of parties involved in the payment cycle. Therefore, adopting them should bring about a reduction in costs and fees, as well as greater coverage and efficiency in processing transactions (especially when compared to card-based instant transfers).
Firms and State-run bodies can benefit significantly from the widespread adoption of instant transfers, as they allow, on the one hand, the confirmation and immediate transfer of funds, and on the other, facilitate accounting reconciliation and claims management, thus considerably reducing back-office costs.
Interoperable solutions
In terms of innovation, instant transfers are the instrument par excellence to promote the integration of digitalisation processes, be it in person-to-person (PSP) or point of sale terms. Instant transfers are also the obvious instrument to be used in the new payment services established by PSD2 and the open banking platforms being implemented.
The existence of a common European standard (the SEPA Instant Credit Transfer – SCT Inst – scheme) is the basis for creating interoperable instant transfer solutions in the European area.
Instant transfers have, therefore, the potential to make a mark as an alternative to merely domestic payment solutions or provided by a limited number of payment card brands, contributing to a European payments market that is more integrated, innovative and competitive.
It was against this background that, on 26 November 2019, Benoît Cœuré
Pan European reach
Likewise, the Euro Retail Payments Board (ERPB) – a high-level strategic body tasked with fostering the integration, innovation and competitiveness of euro retail payments in the European Union – reiterated the need for payment service providers to implement instant transfer solutions with pan-European reach as soon as possible and no later than 2020. Furthermore, the ERPB considers that instant transfer solutions must be secure and efficient for the final users and be competitively priced.
The price factor is especially critical for the success of instant transfers. The introduction of instant transfers has required a significant effort in terms of implementation and investment on the part of payment service providers, which will only break even if conditions are created to favour user adoption of this new payment instrument and which provide economies of scale through use.
Therefore, it is important that the financial system removes barriers and implements practices, especially in terms of pricing, which encourage widespread use of instant transfers in remote payments and physical points of sale.
Recognising the advantages of instant transfers for the different stakeholders in the payments market, and their potential to become the basis for the development of more efficient payment solutions than those that already exist, likewise in Portugal there is a strategic reflection under way into initiatives intended to promote the widespread use of payment solutions that are more secure, efficient and innovative in the Portuguese market. In this context, instant transfers assume a major role in line with the new Eurosystem strategy for retail payments.
National strategy
This reflection has been developed under the aegis of the Payment Systems Forum, which is promoted by the Banco de Portugal and brings together the main national stakeholders in payment services’ supply and demand – including general government representatives – with a mandate to formulate common positions, identify strategic themes and priorities, as well as set out measures that materialise these options.
This will result in a “National Strategy for Retail Payments | 2020-2022”, which aims to: (i) promote a better-informed society; (ii) enhance the benefits of digital transformation; (iii) contribute to a regulatory framework that fosters innovation and efficiency; and (iv) promote the adoption of more secure payment solutions.
For each of the goals outlined in the “National Strategy for Retail Payments | 2020-2022”, a set of measures is specified which must be developed by market agents over the next three years (including Banco de Portugal, payment service providers, processing entities, payment brands, general government, firms and consumers, as well as their associations). Commitment to these goals and to the implementation of the planned measures is key to the success of this strategy.
We believe that individuals, firms and the general government will benefit from an increasingly greater use of instant transfers, not only at domestic but especially at pan-European level. The effort should be collective and lead in this direction.
This is the only way that Europe can have better payment systems, make room for innovation, strengthen the competitiveness of the financial system and, more importantly, provide solutions that support the development of the economy and make the everyday life of citizens easier.
