Payments have long been at the forefront of the fintech revolution. Over the last decade, the sector has witnessed mass digitalisation, new regulations such as PSD2 and increased use of API technology for account-to-account payments. However, when it comes to clearing houses and large payment infrastructures, innovation has been slow. One of the biggest objectives in the industry is to facilitate payments in real-time. Implementing this across borders, at scale, is no easy feat.
In the Nordics, this may be closer to becoming a reality. P27, an initiative led by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank, aims to provide an open-access, ISO 20022 compliant infrastructure for real-time payments, domestically and cross-border in multiple currencies. It is harmonising the entire payments infrastructure through a platform which allows payments to initially flow instantly between Denmark, Finland, and Sweden. It will align to the Single Euro Payments Area (SEPA) standards, helping to bring further harmonisation to European payments.
If navigated correctly, this world-first, real-time, cross-border payments platform could transform the industry in the Nordics and worldwide. However, there are some challenges to overcome.
The penetration of peer-to-peer and non-card transactions in Sweden is one of the highest in the world. If you live there, it is very likely that you have used the phrase “I will Swish you the money”. This infrastructure has been delivering instant payments for ten years, contributing to the rapid decline in card transactions. The first 13 banks to test the platform are already connected to Swish.
There is a lot of innovation in payments and P27 aims to consolidate it into one platform. For example, it supports access to frameworks such as Request to Pay which enables businesses such as Telcos to request a payment for a bill, customers to pay or defer the payment and banks to streamline payment services and improve predictability.
While it is not a regulatory initiative, P27 could be an important way for banks compete in an increasingly saturated marketplace of fintechs and tech giants. However, to make it a success, there needs to be a clear vision. Banks need to understand the competitive advantage and return on investment, to ensure that the framework is worth the investment.
Whereas once banks were a one-stop shop for financial services, today the picture is more complicated. With different companies specialising in different aspects of the value chain, a wedge has been driven between the manufacturing and distribution of services.
This is not just true in financial services. The electricity market, for example, offers a variety of options provided by companies who do not produce electricity. They are distributors, not manufacturers.
Similarly, the plethora of fintech and big tech players in financial services, and especially in payments, own the customer interface but do not produce payments. Their solutions also often operate within closed ecosystems and lack interoperability between other providers.
Having multiple, disconnected processes and interfaces can cause payment delays, limit access to data and make payments across providers and borders difficult.
Solving this challenge is not an easy one, in terms of implementation and compliance factors. P27 requires a harmonised infrastructure that enables all banks, processors, merchants and fintechs to benefit from consolidated and interoperable payments, without stifling marketplace competition or the ability to adapt to regulatory demands. There needs to be a balance between innovation and futureproofing. The only way to achieve this is by working closely with the regulator.
One of the greatest benefits of P27 is the ability to utilise more data for innovation. Imagine if a bank could, with user permission, see more data around your purchases, including the amount, location, store and type of product. If you purchased a pair of jeans in one location, while an app payment was used in another, this could be a useful way to detect fraud.
Another example is lending decisions. Instead of relying on traditional credit scoring, which often does not provide a completely accurate picture of a person’s financial situation, banks could use alternative data to make more informed decisions. For example, sources such as rent payments could be used for underwriting a loan for a mortgage. This, combined with other data points enabled by ISO 20022, will help to change the way products and services are designed to meet customer demands.
A major challenge is that for banks to access this data, they need to be able to process ISO 20022 compliant XML payment messages. Legacy, outdated systems often do not support this and so require major upgrades. However, this doesn’t have to be expensive and the cost-savings to come will outweigh any initial costs.
Finding the right fintech partner is key. For example, Finastra’s payments solutions, powered by the cloud, support real-time, batch and high-value payments in a single platform built around ISO 20022, which is required for P27.
Our solutions are proven around the world, including the Nordics, and enable connectivity with SEPA, SEPA Instant, CBPR+, and SWIFT. Additionally, through our leading open platform for innovation, FusionFabric.cloud, banks can access our core solutions via open APIs and datasets, as well as over 190 partner solutions. For more information about how we can support with P27, click here.
Merten is responsible for all direct and indirect software and services sales for Finastra’s payments solutions in Europe, Middle East & Africa. He brings over 25 years of experience in leadership, sales & services management, business and strategy development and execution for international software companies. Prior to Finastra, he was General Manager and VP at MicroStrategy. Previous leadership positions include VP EMEA at Alfresco and Enterprise VP at Lexmark and Kofax. For 7 years at IBM Software Group, Merten managed Northwest Europe for the ECM Business Unit post the Filenet acquisition. Merten has a master’s degree in economics.
Finastra is a global provider of financial software applications and marketplaces, and launched the leading open platform for innovation, FusionFabric.cloud, in 2017. It provides award-winning solutions and services across Lending, Payments, Treasury & Capital Markets and Retail & Digital Banking for banks to support direct banking relationships and grow through indirect channels, such as Banking as a Service. It serves ~8,600 institutions, including 90 of the world’s top 100 banks.
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