Some TIPS for the introduction of SCT Inst
At the European Central Bank’s #TIPSapp event on Tuesday there was lots of focus on opportunity, both short-term and longer-term from the introduction of Instant Payments (IP).
The day was to promote the TARGET Instant Payments Settlement (TIPS) service and to provide some TIPS (pun intended) for successful introduction. The ECB was keen to point out it is the only solution that uses central bank money – in their words the “right answer, right solution” – but the ECB also did a good job of mobilising the wider vendor community (through 5-minute app-based pitches on the day) and the banking and infrastructure community (through panels and presentations).
A key theme was that Instant Payments represents a fundamental change to the payments environment and with this comes threats and opportunities. Essentially, the payment will become embedded within the wider customer journey. As such, the challenge is to “drive an ecosystem that removes friction” (as Paul Joynt of NETS said) and to focus on value-add services such as authentication and digital identity, data-based services (as a number of participants including the EPC’s Javier Santamaria said). Eventually, payments will become a commodity.
More optimistically, both Deutsche Bank’s Christof Hofmann and BNP Paribas’ Francis De Roeck stated they were strong believers in IP, with a number of use cases becoming apparent, including from corporate customers. The opportunity is significantly wider than the usual paying a restaurant bill use case, as we’ve blogged about before.
But where will these instant payments come from? In the Dutch market it is clear that SCT Inst will replace SCT. More widely IP transactions could replace cash, but there are cultural barriers to overcome in addition to branding and technology issues. An interesting article was published on Bloomberg on the same day as the TIPS event, titled “Germany Is Still Obsessed With Cash” in which the author claims “the use of cash has, to a surprising extent, become a proxy for profound concerns about trust, privacy, and the role of the state.”
But alongside the substitution of cash there is the substitution of cards. Icon’s own research, with Ovum, projects that 30% of card volumes will convert to IP, although in line with comments made on the day this is from a growing pie. Cards and IP volumes will continue to grow but with IP growing significantly faster.
This is the bigger prize here. There have been a number of attempts over the years to create a third scheme – a European alternative to the Mastercard / Visa duopoly. As Blue Code, the Austrian payments company pointed out in their pitch, the American card companies already take a substantial amount of the value chain and there is a risk that the American platform companies will now also take their share. With SCT Inst and PSD2 there is an opportunity for European banks to actively compete with the large US (and increasingly Chinese) tech and payments companies.
Now, if European banks were to also adopt the same kind of technology as the internet scale platform companies currently use to support the scale-up of IP (see IPF!) the future really would be exciting.