Valantic Financial Services Automation Head of Payment’s, Sertac Cetiner

Electronic real-time payments as mandatory EU standard

Valantic Financial Services Automation Head of Payment’s, Sertac Cetiner describes the approaching EU regulations that will affect real-time payments and how banks can find solutions for the technical challenges?

Fast and secure cashless payment via mobile banking on smartphones has long been on the agenda of the European Union. Other payment providers such as PayPal have set a trend: Electronic payment in real time is an easy and comfortable payment method that will soon prevail at the point of sale. In the long term, real-time payments are likely to replace card payments. With instant payments, consumers can use real-time payments for transferring money within only a few seconds to the recipient’s bank account. The European commission aims for a full enforcement of a standard until the end of 2021. An EU strategy paper, which was published in September 2020 builds the basis for this. In addition, cashless payment is given a strong boost due to the Corona pandemic – a completely contact-free payment method at the cash desks in super markets and stores would outclass traditional card payments with PIN or signature. It is actually considered – and that is why banks should deal with this matter – to enforce an obligation for providing instant payments.

Some Eastern European banks are already one step ahead and have prepared for the future by implementing appropriate software: Valantic Financial Services Automation is part of the technology company Valantic and with its focus on financial software it has equipped first banks in Eastern Europe with real-time payment systems and provided a possibility for digital payment requests called Request-to-Pay. Now several banks support nationwide real-time payments within less than five seconds. With payment requests sent from the recipient to the payer, instant payments can easily be initiated at the point of sale. For this purpose, valantic’s modular real-time payment hub has been modified and provided with gateways to the respectively existing system environment.

Smart Economy
Contact-less payment was already a growth model before the Covid-19 pandemic: Since 2016 cashless and contact-free payment via giro card was possible and can be seen as a preliminary stage to mobile banking via smartphone. According to the National Association of German Cooperative Banks (BVR = Bundesverband der Deutschen Volksbanken und Raiffeisenbanken), a leader in German banking, the number of transactions via giro card has increased by up to 20 per cent per year. Analogous to the payments sector, bank-internal IT departments have experienced a paradigm shift. Automation and real-time processes, with a high cross-linking degree of the systems are not an option but a must-have. The path leads to a smart economy – the finance industry has to adopt new courses as well in order to meet customer expectations and market requirements with technological solutions such as instant payment and Request-to-Pay.

Consumers have more trust in banks than in FinTechs and tech companies such as Google or Apple: This opinion is shared by 93 per cent of the respondents within a study by MX Technologies Inc. in the US (“The Ultimate Guide to the Future of Banking“). Banks should take this opportunity to maintain the long-term relation with its customer base. According to the study, whose results can certainly be transferred to Europe, more than 80 per cent of the surveyed people use mobile banking offers on a weekly basis. This technology is familiar and can easily be extended by Request-to-Pay or instant payment via the local bank. Only three per cent of the respondents see a chance in traditional bank branches. Banking will become a payment cloud – with high security standards and trust, but less personal presence in people’s lives. The future world of banking will, to a large extent, be digital and, together with the planned standards of the EU commission, a strong competition for all alternative payment service providers. The useful side effect: For banking services regulated by the EU, sensitive data regarding buying behaviour remain in Europe and are subject to European data protection.

Whereas cash is still allowed in retail, payment service providers (PSP), and banks as well, should be obligated to offer real-time services – if necessary by law. After the expiry of the transition period for the provision of “SEPA Instant Credit Transfers“ in November this year, Brussels plans to check how many PSP and bank accounts are already available for instant payments. If the result does not meet the commission’s expectations, a draft law for the compulsory participation in the SCT Instant Scheme will be submitted by the end of 2021 in order to oblige payment providers to process instant payments. For banks, it is both an opportunity and an obligation: The promotion of the own digitisation strategy can and must be accelerated in order to respond to the real-time aspect and provide customers with the desired banking of the future.

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