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Making Real Time successful in the Eurozone

Pascal Augé, Head of Global Transaction & Payment Services

"Banks have to acknowledge the fact that there is huge expectation from retail customers and regulators for real-time, cross-border payments to deliver faster processing, more transparency and lower costs. But at the same time there isn’t a clear return on investment for banks in existing real-time payments schemes."

The European Central Bank has issued a clear call to action to the Eurozone’s financial community: that there should be a real time payments solution in place by 2017. Industry participants across the continent are working towards this goal but there are particular complexities around this project. There are many initiatives happening in parallel – both domestic and cross-border (within the eurozone – and these all need to fit together, otherwise the Eurozone’s response will end up being fragmented. What is required to make real time successful in Europe?

Real-time payments are likely to be one of the main themes at this year’s SIBOS. There is pressure from financial regulators for the payments industry to develop real-time payments capabilities for crossborder transactions. But there is discrepancy between what the industry can deliver and the expectations of regulators. The industry is being asked to invest significant amounts of money and time into functionality for which there is not yet a firm business case. At present, banks are trying to understand what type of commercial offerings they can put in place that will balance the investment that has to be made in real-time capabilities. It is difficult to see that a return on investment will be possible.

Interoperability of real-time payments systems across the Eurozone is a significant issue. Any bank that wants to develop services for its customers outside of its home market will have to implement separate processes for each country. The industry could face a similar problem to that of the Single Euro Payments Area (SEPA), where slightly different versions emerged. This lack of harmonisation will make interoperability across the Eurozone in real-time very difficult.

The emphasis put on security and fraud prevention by regulators creates another challenge for real-time payments. It is difficult to fathom how financial institutions will be able to ensure they meet the very strong anti-money laundering, know your customer, anti-terrorist financing and other fraud management compliance requirements within the time frame of real-time payments. Can these controls and checks be made within a matter of seconds ?

At present, there is still debate about how fast settlement should be in real-time systems. Different countries interpret real-time in different ways, not just about how fast but also about the instruments that will be used. For example, Spain is looking to develop a system based on card payments while France is considering the SEPA Credit Transfer as the real-time payments instrument. The vision across the Eurozone is different, partly because the ecosystem for SEPA is not yet fully aligned. As different domestic payments processors across Europe develop different real-time systems the prospect of integrating so many diverse systems becomes even less likely.

From a technical perspective, banks not only have to be equipped to offer real-time payments to their own customers but also have to be able to accept payments from other banks, which may be using different software and systems, in real time. Across Europe, the real-time payments landscape is yet to be finalised and is still in a state of flux. It is a moving target and the time lines required by regulators are likely to slip as the challenge becomes more apparent.

In corporate and correspondent banking, more headway has been made with real-time payments and also in meeting customers’ payments expectations. SWIFT’s global payments innovation initiative, for example, will move the industry towards being able to offer clients fast payments and greater visibility over those payments. In fact for corporate customers the issue is not entirely about speed but is more about the guarantee of payment and the safety of the payment. GPII will move us further into the territory of guaranteeing payments and providing information to corporate customers for cross-border payments. The guarantee that a payment will be settled is of more value to corporate customers than the speed at which the payment is made.

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