Acknowledging the progress already made (through initiatives such as Faster Payments in the UK, SEPA Instant Credit Transfer as a facility for banks, numerous fintechs and PSPs supporting speedy transactions settlement, etc) is Europe ready for instant payments to become ubiquitous?
Europe is probably the leading region in the world in terms of expertise and experience in instant payments initiatives and is also diverse in terms of systems already deployed. However, there are differences in terms of how quickly European countries are implementing instant payments initiatives, specifically moving from C2C to C2B and B2B payments.
Furthermore, if we talk about SEPA initiatives, this is all pretty much in line with the ongoing trend of developing the necessary instant payments infrastructure to make the paradigm universal and unified across all European countries. Faster Payments and SEPA Instant Credit Transfer have the same function and effect: the proliferation of instant payments.
In previous years, instant payments meant each country having its own specificities, whereas now there are a number of local initiatives to develop a common understanding of the concept. The financial world is evolving rapidly and the coronavirus pandemic has triggered some traumatic changes. In Europe, this transformation will lead to an increase in digital payment projects.
Fintechs and payments service providers will be connecting to the backbones of instant payments schemes and the financial industry will become even more competitive as providers seek to reach customers who are currently non-banked or under-serviced. As a result of these changes, more and more fintechs and PSPs will connect to instant payments infrastructures and become licenced entities.
What are the use-cases for instant payments that bring the most value to the customer, whether B2B or B2C? (especially pivoting on concepts deriving from open banking or the trend towards request-to-pay)
It’s no secret that the first transactions on instant payments systems were mostly C2C and initially there were significant fees associated with these transactions. However, several other types of transaction quickly appeared with governments in many countries making these transactions free for consumers. The trend is generally going towards zero commissions and fees for C2C transactions.
This was a trigger for us and our customers to move into C2B segments. The invoicing capabilities of instant payments systems create a lot more interest for customers – for example, in the C2B space there is a real time retail tax calculation capability that is very interesting for governments.
The instant payments framework is able to collect different types of transactions such as these, whether it is a payment made to a retail company or to the government, and calculates fees in real time, providing valuable data. These payment systems can be connected directly to the ministry of finance or taxation department in the governments.
This is where instant payments infrastructure plays a bigger role in consolidating the payment backbone of a whole nation. BPC has already implemented more than 20 national switches worldwide and they are all moving in the direction of expanding the capabilities of instant payments systems and creating these transaction types in B2B and C2B segments.
This has created an interesting discussion about the protection of sensitive data in instant payments systems. How can we do it in the B2B space without showing the real account numbers of businesses? A number of elegant solutions were found almost immediately and governments were interested in participating and providing information to make it possible. Tokenisation and tweaking settlement procedures in government entities is no longer a difficult task.
Research indicates that online transaction volumes in March were 74% higher than the same period last year, fuelled by COVID-19 lockdown measures. How do you see the current crisis impacting the future of instant payments? How are financial institutions navigating the shift to online payments while maintaining fast transactions?
We have seen how traditional banking institutions in Europe have struggled to cope with increased transaction volumes as legacy solutions failed to deal with the load created by the consumers moving into the digital space. In this context, we see our customers evolving because they have implemented digital channels. This is a major threat to traditional financial institutions whose infrastructures cannot accommodate transactions from digital channels.
BPC is currently implementing some interesting initiatives around QR payments, all in the digital space and contactless due to the requirements of social distancing, but I don’t think the pandemic is the only reason for this. The pandemic has been a trigger for a trend that was already emerging in some regions and is now accelerating. Moreover, there has been more pressure on legacy systems to detect fraud, especially considering that the digital channels that intermediate payments were not initially built to handle a huge spike in volumes.
What is the place of instant payments in the current rise of the marketplace model?
We are already participating in initiatives to capitalise on the increased popularity of the marketplace model, as we are also providing marketplace-as-a-solution. The instant payments infrastructure we have built for several countries creates a payment backbone for a marketplace so it is natural for us to connect through the instant payments infrastructure. Furthermore, if the system supports C2B transaction types, it is natural to connect everyone who is trading in a marketplace and using an instant payments infrastructure as a payments backbone for this.
We don’t see any restrictions in the instant payments solution from that perspective. In fact, the solution is probably the most diverse framework that could be connected to a marketplace and that is what attracts marketplace users – being free to use any kind of payments instrument and execute any type of transaction.
Most discussions around instant payments are accompanied by consideration of the connected fraud risks. What can you share with us on the state of fraud prevention in instant payments and what should retailers and corporates bear in mind?
The popularity of our real-time fraud prevention engine product has increased simply because real-time fraud prevention should be in place for any instant payments infrastructure. It is a must-have component that can come from any vendor, but if everyone is serviced and hosted by one infrastructure this creates a lot of work for fraud prevention so the combination of several engines appears to be helpful.
The rule-based engine, with all the rules connected in building the profile for a specific customer, applied in parallel with machine learning technology results in a very powerful solution that focuses on different aspects of fraud.
Some of our clients also use our solution for enterprise fraud, meaning we receive information about the activity of the company from multiple sources at the same time and can analyse it instantly. What is more important about fraud prevention solutions are the capabilities they can offer – as the transaction demands and the willingness of the parties involved in using the instant payments infrastructure is more invisible these days. Everyone wants to solve the problem and not just protect themselves. Technology providers create initiatives that make it easier for players in the B2C and B2B space to protect themselves from fraud.
At the end of 2019, BPC announced a partnership with WeNet in Yemen to launch a new Instant Transfer Scheme for real time retail payments. What lessons have you learned from this project and what other relevant ventures is BPC working on to advance instant payments? Any other expansion plans beyond Europe?
When we talk about partnerships with relevant players, WeNet is one of the most advanced when it comes to understanding what it wants to build and how it wants to impact on the users and the way we pay in Yemen. In Yemen, the system we implemented created the ecosystem for all the financial players, including fintech companies. We immediately connected not only banks, but also mobile wallet companies.
It’s worth mentioning that countries like Yemen do not have a well-developed financial infrastructure, which allows them to leapfrog some of the intermediate steps and move directly to instant payments. This was an invaluable experience for us, being able to build the payments infrastructure for every player in the market and creating a holistic experience which participants can offer to the end users.
Regarding other expansion plans, our experience in working with governments and establishing nation-wide payment initiatives means we are looking into connecting to marketplace infrastructure models, moving beyond the classical paradigm of the financial space into servicing other populations that are typically not participating in these processes. We push for financial inclusion by connecting them to the instant payments infrastructure - and we are well-equipped and experienced to do this. We are working on exciting projects at nation and government levels around the world that make a real impact on people’s lives, this is exactly what is driving us to push the boundaries of payment.
About BPC
About Oleg Patsiansky
Oleg Patsiansky is Head of Digital Banking at BPC. He has a wealth of experience in the payments industry, having worked at BPC for more than 20 years. During his time at the company, Oleg has been instrumental to its growth and success. Leading up the digital banking practice, he is responsible for re-imagining the payments systems for digital banks. Oleg is passionate about building solutions that truly improve the society we live in.
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