Important to move to instant payments but also maintain the high security, low risk and low fraud

The move to instant payments is quite an undertaking with high initial investments and big, high-risk projects. It comes with both opportunities and challenges for the industry. “It is therefore important that we make the move, but also maintain the high security, low risk and low fraud,” explains Alessandro Baroni, CMO at Equens. “We must keep earning the trust that we have from the customer.” Baroni explains what the challenges are for the financial industry now that instant payments will become a reality in the near future.

The European banks and the national communities have made significant investments in their payments infrastructure through the creation of SEPA in the last decade. But at the same time, there has been a spur of innovation coming from non-traditional players. The challenge for the banks now lies in keeping the bank account in the centre of payments and building on the harmonized payments landscape created by SEPA.

Designing a scalable always-on system

From a processors perspective, the challenge lies in designing a secure and robust, always-on system, that is at the same time flexible enough to cater for innovation and new use cases. Baroni: “It is also important that the instant payments system is able to grow. We have seen massive growth in the communities already operating a real-time system, as well as in scope, because the beautiful thing about instant payments is that it benefits everybody.”

According to Baroni there are use cases of instant payments in every quadrant: “From mobile p2p, person to merchant payments like buying a car on Saturday, corporate to person pay-outs such as instant refunds or instant insurance pay-outs, all the way up to b2b payments, where we enter the traditional high value payments domain. A faster turnover of funds will also have a benefit on the economy, as funds aren’t locked in the system. And finally, as instant payments can reduce the use of cash, it may be a little bit safer.”

The new normal, replacing existing schemes

He sees a lot of advantages of this new payments environment and underlines that instant payments will become the new normal, thus replacing the existing payment environment in time. “Once the benefits become visible, we will see a full migration from the existing systems onto Instant.” The speed of adoption varies in some cases, because some use cases will have less immediate benefit, such as mortgages and utility bills. The adoption rate is also slightly different across the various European nations, because of the different needs in each market. “There is not a one-size-fits-all solution to roll out over each country. Different communities have different demands and different use cases, and that is perfectly fine. The biggest challenge to make instant payments a true success lies in interoperability.”

Different communities have different timelines and may focus on getting something up and running domestically first. Baroni: “This means that we need to make smart choices on the basic infrastructure level to make sure that interoperability in the future is guaranteed.” A step in the right direction is the development of the standard message definition, like ISO20022. The EU-wide rulebooks that are being drafted by the EPC will make sure that the user experience is harmonized. “And within the EACHA Innovation Group, the combined ACHs are drafting an instant payments interoperability framework, which will make sure the ACHs in Europe can exchange payments instantly,” concludes Baroni.

More information from Alessandro Baroni on Instant Payments can be found on this recent video interview on Finextra.

Learn more about what are Instant Payments.