PSD2 and Instant Payments – Membership has its privileges

In 2014 Europe started ramping up the rhetoric for building a pan European Instant Payments solution (now known as SCT-Inst). In response, various forums sprung up to enable interested parties to discuss (and agree!) what such a solution might offer and how it would be delivered.

Icon Solutions has a wealth of experience in this field, having had first hand involvement with Instant Payments implementations running in four of the original thirteen UK member banks, and a senior management team whose members have collaborated on the technical architectures of both UK and Singapore Instant Payment solutions – bank side and central infrastructure.

Armed with this volume of ‘lessons-learnt’ to share with evolving schemes, and thus emboldened by our own intellectual importance, we set off to mainland Europe to join the party. Only to discover that someone had forgotten to book the disco!

Stop! In the name of progress…
Indeed, at EBAday in 2015 delegates were uncertain about why people needed a new Instant Payment solution at all, with one commentator even suggesting that the ‘instant transfer of wealth’ use-case had already been resolved through the exchange of paper cheques!

And by EBAday 2016 things were taking an even bleaker turn, as most of Europe and the US declared that they would not mandate delivery of an instant scheme (as the UK had in 2008), instead they would leave market-forces to drive the change. However, given the accepted use-case for Instant Payments was person-to-person payments, slow and fragmented adoption on a bank-by-bank basis was highly unlikely to drive customer adoption.

London calling…
If the Banking community were reluctant to understand how Instant Payments had been embraced in the UK, there was one lesson from our experience which banks were reluctant to ignore – delivery of Instant Payments was hard, with the average cost of delivery likely to run into tens-of-millions of Euros.

Of course, most UK deliveries were based on technologies and solutions form the turn of the century, and modern payment processing solutions are bound to have driven down the cost of delivery. But none-the-less, there remained scepticism about the ‘demand’. This was hardly the perfect scenario from which to build a robust business case. It must have been easier for Alexander Graham Bell to explain to Mrs Bell why he had blown the housekeeping money on building the only telephone in the World!

It is easy to see why Banks were keen to undermine the need for Instant Payments, because avoiding it allowed them to focus their efforts on the delivery of the regulated changes required for PSD2.

BUT then, as EBAday 2017 was coming around, there was a notable and dramatic change in the conversation – could PSD2 and Instant Payments in fact become powerful bedfellows. To explore this game changing partnership further we commissioned a research paper from Ovum, entitled ‘Instant Payments in the Post-PSD2 landscape’.

The findings lit a touch paper with many banks as the research predicts that, in combination, Instant Payments and PSD2 are set to have a transformative effect on the way European consumers pay for goods and services and consequently the services that they will demand from all their service providers. Indeed, the research suggests that by the mid-2020’s Instant Payments will overtake card payments online. And because that uptake would be driven by merchants’ also keen to exploit the benefits of Instant Payments, it takes away the concerns about having no-friends to call on your new phone!

There was huge interest and divided opinions amongst delegates as to whether the graphs and predictions in the report were ambitious or conservative. But one thing was certain – the concerns about building a business case for implementing Instant Payments has largely been torpedoed.

As someone put it to me at EBAday 2017

‘If a Bank just does PSD2 then they are paying an awful lot of money to use the golf-club car park. If they pay a little bit more for their membership then they get to play the golf-course as well’.    

First published on Bobsguide