If you look back at how payments were managed 20 years ago you will find punch tapes, handwritten checks, paper credit transfer notes or other payment methods depending on the country you are looking at. Today, payments have been widely “electronified”. Paper is hardly used anymore, and instead payment information is processed within the blink of an eye via digital data highways.
So, if the payment methods of 20 years ago seem rather ancient today, how will our current payment methods be considered in 20 years into the future? How will we process and manage payments, then?
Real-time payments: Instant Payments
For Europe, the Euro Retail Payments Board (ERPB), a group chaired by the European Central Bank that brings together associations of providers and users of payment services, and the European Central Bank (ECB) are currently pressing ahead with a move towards a unified system for real-time payments: Instant Payments. This will be the next big thing after SEPA and it is likely to be again a challenging project for all stakeholders involved.
Instant Payments will cut down the number of processing steps just like the Faster Payments scheme in the UK and accelerate payments significantly. Instead of going through the long chain of typical payments – payment initiation, credit transfer, clearing through the central bank (i. e. collecting all bookings during a day until a set time), netting the amounts amongst the different banks, transferring amounts to the receiving bank and from there to the payees account – Instant Payments will cover only three key steps: payment initiation, messaging, settlement.
With Instant Payments, it will not matter which payment media is used. The customer can choose what suits him best, be it the traditional online banking of his bank, a banking app, or other initiatives such as PayPal. Via any of these routes, provided they are offered by the respective banks, the payment service providers et al., each payment needs to be immediately settled, transferred and credited to the payees account. This makes payments processing so much faster and available in real-time. Instant Payments will cover different market segments including e-commerce, point of sale, person-to-person, taxes and other public payments.
The details of the planned Instant Payments scheme are being developed right now. Questions that need to be addressed in the development of the scheme include the following:
• How are buyers going to be protected?
• How do I identify the payee and the payer? Via IBAN, anonymous or other identification?
On 27 November 2015 the ERPB announced in a press release that it “has invited the European Payments Council, a body representing the payment service providers in Europe, to develop a scheme for instant payments in euro by November 2016 and to implement it by November 2017”. According to the statement the scheme will be voluntary. If, however, payment service providers decide to offer Instant Payments they will have to adhere to the scheme.
For further details on the future of payments, please check our whitepaper "The Future of Payments". To keep up to date on new developments, please check our blog where we will post news on the next steps as they arise.