Inge van Dijk arbeitete für die Dutch Payment Association als Strategic Advisor und war für die Einführung von Instant Payments mit verantwortlich. Das Interview wurde in Englisch geführt. Wir wünschen viel Spass beim Lesen.
“Instant Payments allows banks to stay in the game with a proposition tailored to the 24/7 economy”
The DPA is probably better compared to the DK in Germany than to SIX. The Dutch Payments Association is a member organization that coordinates the effort of banks and other professional service providers that offer payments to ensure that the collective payment infrastructure in The Netherlands stays safe, is reliable, efficient and accessible. In addition they represent the interests of the Dutch community in Europe, where regulation and standards are being developed. So there is more similarity with the Deutsche Kreditwirtschaft, because the DPA itself does not have an operational infrastructure or processing capabilities.
What is your personal role and how do you relate to Instant Payments?
In 2014 when I was still working for ING as global head of payments and cash management, we were pushing the Instant Payments vision at the European level and wanted to set the example in our home countries. In The Netherlands our colleagues from ABN Amro and Rabobank joined us in conducting a feasibility study, which lead to a joint commitment together with De Volksbank in May 2015 to implement Instant Payments in The Netherlands in four years’ time. When that took off I joined the Dutch Payments Association to lead the national program.
The program was delivered in four phases: a design phase where we drafted the infrastructural requirements on product, clearing and settlement level, while ensuring that it complied with the SEPA rulebooks. Our subsequent building phase, where banks selected their CSM and developed their internal environment, lasted two years. The last year of the program composed of half a year of rigorous end-to-end testing, devoting much time to the stress testing, and a stepped implementation phase, whereby transaction volume was gradually added while monitoring the quality of the infrastructure in terms of speed and availability.
The program turned out to be a huge success. We delivered to the market on time, rolling out from February onwards coming to full volume and speed by mid 2019 and in doing so to receive nothing but positive feedback and applause from the market and our stakeholders. One of the main reasons for this was that the quality was high from the start in terms of the speed (max 5 seconds) and availability (24/7 continuous). In the first year of production, a score was realized of > 99.8% on both elements for in total 285 million transactions.
Is it correct that in Holland all payments below EUR 15’000 are automatically processed as SEPA Instant Payments? Will this then also apply to the new limit of EUR 100’000? Can you say something about statistics?
There are two angles on that. First: how are Instant payments offered in the Netherlands, and second: the amount limitation itself. The Dutch view from the start was that Instant Payments would become the new normal: it was not going to be limited to just person to person payments, as it was strongly believed that also businesses would be interested in the service. From that perspective our position was that there should not be an amount limit. The initiating bank which releases the payment will have to determine if the paying customer is eligable for a transfer of, say, a million, and if so the infrastructure should support this. We took into account UK and Scandinavian experiences, who had both rolled out and were already raising the amount limit. Of course, abuse of the system needs to be prevented but there are alternative ways to secure that. So the starting position in The Netherlands was: no amount limit!
Of course, in the European SEPA Instant Credit Transfer an amount limit does apply and the Dutch comply with this, but everything within The Netherlands is without a limit.
So back to your question, are credit transfers automatically processed instantly? Indeed they are. This is also related to the vision that Instant Payments will become the new normal. ABN Amro was the first bank to launch and set the tone by offering Instant Payments by default to their online and mobile banking customers. Other banks followed suit. Thus, Instant Payments became a replacement of the SEPA credit transfer in online channels. Anybody transferring money in either his online or mobile banking channel just gets it. It is offered by default. And that decision made the business case for banks even more difficult because as it is not something a customer chooses, it leaves no room to charge extra for this service. You can imagine the market response has been great in The Netherlands, thereby very much strengthening the position of banks in the market.
That means that all the payments are now transferred instantly?
The DPA and the committed banks wanted to make a very clear commitment to the market: everybody who has a mobile or online banking channel will get the service from the start. That means effectively that the whole retail segment has been issued with Instant Payments from the beginning, both small and sometimes also medium enterprises as well as consumers. And of course all accounts, consumer and business, were able to receive Instant Payments from day one. Other market segments or other channel offerings were scoped out of the program and left to the market: they remain the banks’ choice.
Where is Instant Payments used most? For retail payments, for P2P payments, in e-commerce, in B2B?
We had a big discussion in the beginning regarding the use cases. We decided to challenge ourselves in terms of what is the future proposition, and organized our own Dragon’s Den[1], with challengers from outside the banks. In the end the conclusion was that building the Instant Payments railway resembles the introduction of 4G at the time. Everybody knew it was going to change the landscape, but nobody knew exactly how and where.
Right from the beginning we started talking to the key stakeholders including major corporates and government institutions, both on receiving and sending side. They supported the innovation: today a tax payment coming in on a Saturday 31st, is considered on time. The tax authority ensures that it’s call center has this balance update information when people call on Monday to verify. A telco company saw great potential in instant payment upon delivery (at the door) of mobile phones and other valuable goods, as this would help prevent fraud. We had use case discussions with representatives from all business market segments both on the receiving side as well as on the sending side. They were kept informed and consulted throughout the program. In fact, all of the use cases which we translated into pictographics, stem from their ideas. An example is also a restaurant which can restock quickly because the turn-over from the previous night is already in his account.
Overall it’s still too early to tell where and how new business cases will be developed in the Netherlands, since only a year has passed by since its introduction. Businesses have now experienced what it means to receive the funds in their accounts on weekends and they will consider what they can do with that. Things will go from there. Most likely bulk payments are the next logical step, making sure that cut off times are a thing of the past, and more and more corporates and (e-commerce) merchants will start using Instant payments for home delivery payments or just in time bill payments.[2]
There is just no telling where the next use case will come from, especially in view of the Corona virus, other than that it will come.
Are there customers who want to change the bank because they want to do Instant Payments?
No, we don’t see that as nearly all consumers have it and businesses are getting it more and more.
We knew that reach was important to have, in order to build an attractive proposition for the customer. Faster Payments told us that starting out with eight leading banks in the UK which were responsible of 80% of all the accounts (80% reach), was perceived by the public as unreliable: with one out of five payments failing. It did not really fly in the UK until the reach was improved.
Our lesson from this was that more than 80% reach needed to be in place up front. In the end five banks committed, the four original banks and one challenger bank, and they together count for well over 95% of all the accounts in the Netherlands. And given the default offering, Instant Payments is available to almost all (both initiating and receiving) and it is expected that in time all of the Dutch will have this feature given that other banks are launching in 2020.
What was the main driver for Dutch banks to introduce Instant Payments?
We had this discussion in 2014 and back then a few things came together:
- Technology - the smartphone data processing capabilities were ready to support something like this.
- Cultural change – A mentality of the millennials: “I want it now, I expect it now”. It became more and more difficult to explain why we were open only on workdays from 9am to 5pm while a lot of services from GAFA and other parties are available 24/7.
- Market demand - Retail merchants wanted to receive the point of sale turnover funds also on the weekend, not so much within 5 seconds, but they did want it 24/7. Especially the Easter holidays, where the banks are closed for four days in a row, were perceived as cumbersome by the retailers.
- Regulatory - The ECB call in November 2014 to offer real-time payments. Instant payments was and is considered a key innovation on the SEPA railway, with the potential of becoming the alternative 3rd ‘scheme’.
- Competition - The market position of banks would clearly be strengthened, tailoring their offering to the 24/7 economy.
You mentioned GAFA, do you think Dutch banks feel the competition from Big Tech?
The principle thinking is that in this 24/7 real-time economy, it is going to be hard to explain to your customers as a bank that you do or cannot offer this, when GAFA can. That’s going to bring the bank in a difficult position. So while there is no apparent market business case for Instant Payments and it is definitely a serious investment, one should consider the investment as a defensive move: stay in the market, tuning your offering to the 24/7 economy. In addition, it will allow banks to regain some of the control in the value chain that is lost in the cards area.
How do you see the development of Instant Payments in Europe and the world?
Worldwide reach will take time. The ECB is reaching out to several other countries within Europe to make sure we have an Instant Payments network that covers all of Europe. And all countries which have decided to offer real-time payments have embraced the same ISO 20022 standard, a standard much richer than the cards ISO standard. This provides a good basis for interoperability, but it doesn’t mean that we will have a worldwide reach sometime soon. This will take years. In addition, there also the need for a global IP scheme, similar to the build of the SEPA Instant Credit Transfer Rulebook in Europe, as that will guarantee a uniform global product offering to the customer.
Then again > 95% of all payments are domestic and > 98% are within Europe. As such there is time to allow the world to develop at its own pace, which is helpful given the big investment.
My personal opinion is that the card schemes are still ahead, but also they are tapping into the Instant Payments infrastructure, buying up and into ACH processing capabilities. They see the potential, which is a clear sign. And with the backing of the ECB and other important global institutions like the Federal Reserve, I believe that in time Instant Payments will become the new normal, in Europe and across the globe, simplifying payments and reducing cost for customers and making the infrastructure more efficient and the value chain hopefully less complex.
Thank you very much for your time
Das Interview wurde durch Matthias Hungerbühler geführt.
[1] https://en.wikipedia.org/wiki/Dragons%27_Den_(British_TV_programme)
[2] For e-commerce there is less urgency, because iDEAL in place for ten years now, is the market leader in payment instruments by far (50%). It is effectively sort of a precursor for Instant Payments, offered by banks. The only difference was that the funds when using iDEAL are not instantly in the account of the merchant. Are the merchants going to pay extra for that feature? Not likely. So most likely the Instant Payment will gradually replace the SEPA credit transfer as the underlying instrument in iDEAL.
