Facilitating the free flow of instant payments
Introduction
The full deployment of instant payments is one of the core components of both the Eurosystem’s and the European Commission’s retail payments strategy. The Eurosystem and the Commission share the goal of promoting European retail payment solutions that are safe and efficient for society as a whole, taking into account the opportunities and challenges presented by digitalisation as well as changing consumer habits and preferences.
Since the launch of the Single Euro Payments Area (SEPA) instant credit transfer (SCT Inst) scheme by the European Payments Council in November 2017, the banking industry, the Eurosystem and the Commission have taken decisive steps towards enabling European citizens and businesses to make electronic payments instantly from and to any country in the EU. So far, 2,350 payment service providers (PSPs) have joined the SCT Inst scheme. This represents 61% of European PSPs. By the end of the first quarter of 2022, 11.3% of all euro credit transfers were instant payments.
Pan-European reachability for instant payments
At the heart of the Eurosystem’s vision of a truly single retail payments market in the euro area is the idea that retail payments in euro should flow as safely and efficiently between countries as they do within one country. Likewise, the risks and costs associated with payments should not be affected by the location of the end users. As a prerequisite for this is pan-European reachability, instant payment service users need to be sure that their PSP can reach any other PSP that offers SCT Inst.
The launch of TARGET Instant Payment Settlement (TIPS) by the Eurosystem in November 2018 made it possible to connect SCT Inst payments sent by either PSPs or automated clearing houses (ACHs), thereby providing the backbone for instant payment settlement in Europe. Following further analysis and consultation with the market, the ECB has taken substantial steps to ensure the pan-European reach of instant payments via TIPS. In accordance with the measures to ensure pan-European reachability approved by the ECB’s Governing Council in mid-2020, PSPs that had both joined the SCT Inst scheme and were reachable in TARGET2 had to become reachable in a TIPS account, either as a participant or as reachable party. By the end of the first quarter of 2022 a total of 2,350 PSPs complied with this measure. At the same time, all 11 ACHs offering instant payment services had migrated their technical accounts from TARGET2 to TIPS. The migration of the ACHs was carried out in three waves.
With these measures, the vision of instant payments as the “new normal” in the euro area has been taken one step further.
The move towards instant payments has been approached differently across euro area countries. This article looks in particular at how Slovakia has embraced instant payments and at the opportunities and challenges this represents.
Successful roll-out of instant payments in Slovakia
In parallel to the efforts at market infrastructure and public authority level, national PSP communities have been taking steps to roll out instant payments in their national markets. A recent example of a successful coordinated approach is Slovakia. Peter Holička, Director of the Payment Systems Department at Národná banka Slovenska (NBS), told us how the national central bank was involved in the process and gave the right signals to the market:
“The message for the market was that NBS sees the future of the Slovak market in TIPS and that NBS will not implement instant payments in the retail payment system SIPS, which is operated by NBS.”
The national stakeholder group for payment services and systems, NSG Pay-SK, drew up a national plan for the implementation of instant payments in Slovakia which was approved by the banking sector deposited in the central bank.”
Slovenská sporiteľňa cited the inclusion of the dedicated cash account (DCA) balance in the compulsory minimum reserve as another advantage of settlement in TIPS, as well as the optional online monitoring of the processing. Other decisive factors were the development costs and transaction fees.
As regards the question of instant payment solutions offered to customers, Slovenská sporiteľňa reported that both retail and corporate clients can use instant payments via internet or mobile banking. “The experience so far has shown that our clients like to use instant payments both in retail, to make person-to-person payments, and in the corporate sector, to pay invoices for goods or services. To make it easier to enter the payments, our clients are able to generate a QR code or a PAYME link and to subsequently send it via chat, e-mail or by other means.”
Tatra banka also makes instant payments available to private and corporate clients, including instant payments for batch order processing. Payment initiation is enabled via various distribution channels, including Internet BankingTB, mobile app Tatra banka and Business BankingTB.
“Payments initiated through the Tatra banka VIAMO app have also been made in the form of instant payments. These payments are made to a telephone number between private individuals but also in favour of selected merchants.
We have also seen the use of instant payments in shops, as well as in the e-commerce environment. We anticipate that the expansion into these fields will be gradual. We are convinced that, from a long-term perspective, instant payments have the potential to replace some cash and card transactions.”
Future outlook
Since the end of 2021, monthly transaction volumes in TIPS have been increasing considerably as more banks and national communities from the euro area join, reaching 9.4 million transactions in May 2022.
Furthermore, the multi-currency design of TIPS has been attracting interest from non-euro area central banks. For example, in May 2022 Sveriges Riksbank successfully completed the first phase of migration to TIPS, paving the way for the instant settlement of payments in Swedish kronor in TIPS. The central banks of Norway and Denmark have also expressed an interest in potentially joining TIPS with their respective national currencies in order to offer instant payment settlement in central bank money to their respective communities.
As more currencies consider joining TIPS, the Eurosystem is investigating a possible cross-currency functionality which would allow instant payments between currencies settled on the platform. Stay tuned to the ECB’s news section to follow our instant payments journey.