Position paper on the Instant Payments recommendation of the European Central Bank

Transcription

1 Position paper Position paper on the Instant Payments recommendation of the European Central Bank 01 June 2016 Page 1 Bitkom represents more than 2,300 companies in the digital economy, of which more than 1,500 are direct members. With a workforce of 700,000 employees, they generate annual domestic turnover of 140 billion euro and a further 50 billion euro in exports. The members include 1,000 SMEs, 300 start-ups and almost all global players. They offer a range of software and IT, telecommunications and Internet services, manufacture hardware and consumer electronics, operate in the digital media and Internet industries and otherwise play a role in the digital economy. 78% of the companies have their registered office in Germany, 9% come from Europe, 9% from the USA and 4% from other regions. Bitkom mainly advocates innovative economic policies, the modernisation of the educational system and future-oriented network policies. 1. Introduction Instant payments is an initiative of the European Central Bank (ECB) of Its aim is to promote the development of an integrated, innovative and competitive market for Euro retail payments in the European Union and a guaranteed transfer of funds within seconds (near real-time) via all channels. Its modular composition is designed to take the interests of all stakeholders into account. Federal Association for Information Technology, Telecommunications and New Media Steffen von Blumröder Head of Banking, Financial Services & FinTechs P s.vonblumroeder@bitkom.org Albrechtstraße Berlin Germany President Thorsten Dirks CEO Dr. Bernhard Rohleder With the demand for instant payments, the ECB has now launched SEPA 2.0. Online, point-of-sale and person-to-person payments are to be carried out in real time with a new pan-european payment instrument. Experts are working on the assumption that instant payments offer the opportunity to develop new business models and to replace the approaches currently existing. The ECB, with its recommendation, is following similar procedures to those embarked upon in the past or currently under preparation in the following countries (within and outside the EU):

2 Page 2 13 Australia Finland Canada Netherlands Poland Singapore Denmark United Kingdom Mexico Norway Sweden South Africa Through the initiative, the ECB wishes to ensure that differing procedures and approaches do not become established in the Single Euro Payments Area. The European Retail Payments Board (ERPB) established in December 2013 has taken over the tasks of the SEPA Council. 1 It is to identify the technical, legal, behavioural challenges and to make procedural proposals. The ERPB consists of: seven representatives of payment service providers (four representatives of banks, two representatives of other payment institutions, and one representative of the e-money institutions) and seven representatives of SEPA users (two representatives of the consumers, and one representative each of the following interest groups: retailers, online merchants, companies/corporates, small and medium-sized enterprises and national/public administration), as well as six representatives on a rotating system of the national central banks (five representatives of the National Central Banks of the euro area, and one representative of the National Central Bank of an EU Member State outside the euro area). The ERPB is chaired by a representative of the European Central Bank. Figure 1 1 Downloaded on from

3 Page 3 13 The ERPB is more diversified than its predecessor, the SEPA Council. Bitkom is nevertheless of the opinion that the structure of this body is centred on banks. The chair is held by the ECB, as was partly the case with the SEPA Council. The European Commission is asked to take part in the meetings as an observer. For the execution of its mandate, the ERPB can establish different working groups for a limited period to deal with specific key issues. Several groups can operate simultaneously, depending on the work priorities. The ERPB reports annually on its activities, common positions, consultations or statements which were adopted in the previous year and regarding the aims and activities to be carried out for the coming year. The members of the ERPB agreed during the second meeting held on on the following: the need for at least one pan-european Euro instant payment solution open to any payment service provider [ ]; inviting the supply side of the industry (in close cooperation with the demand side and with the active involvement of the European Payments Council (EPC) as a potential scheme developer) to make an assessment of the issues related to pan-european instant payment solutions in euro to be presented at the 3rd ERPB meeting in June At the following meeting on June 29th 2015, the EPC was asked to present a proposal for the design of an instant SEPA Credit Transfer scheme (SCT inst ) to the ERPB by November 2015, which could be adhered to by EU financial institutions on a voluntary basis. The alternate ERPB members are to create an ERPB working group to offer guidance as needed to the EPC regarding the development of the SCT inst. 3 From Bitkom s point of view, it is not ideal that the design of the scheme, as in the case of SEPA, again lies under the sole authority of the banks and that the other members are only to play a supporting role. The results of the discussions of the first meeting of the High Level Group on Instant Payments of the ERPB of July 17 th 2015 were the following: 4 ERPB expectation: the SCT inst scheme shell be used as a basis for pan-european instant payment solutions based on euro transfers Demand side calls for a confirmation message for the payer on execution (not only authorisation!) of the payment SCT inst scheme is to be independent of SCT and cover the customer-psp/psp-customer interface and be open for all PSPs General limits are established at scheme level, others by individual PSPs Irrevocability: no possibility for the payer to revoke the payment 2 Source: Statement following the second meeting of the ERPB held on 1 December 2014, ERPB/2014/018, Source: Statement following the third meeting of the ERPB held on 29 June 2015, ERPB/2015/011, Source: Instant Payments Einschätzungen einer Zentralbank, Dr. Heike Winter, BITKOM, Instant Payments Workshop

4 Page 4 13 Legal issues (e.g. on SEPA Regulation, PSD/PSD2, money laundering requirements) are to be analysed in particular with the support of the European Commission. The following proposal for a decision submitted by the ECB to the ERPB meeting on December 1 st 2014 Pan- European instant payments in euro: definition, vision and way forward, ECB, November 12 th 2014 contains the following definitions and requirements. In addition, from Bitkom s point of view, there are a few further parameters, which we present accordingly: a) Definition Instant payments are hence defined as electronic retail payment solutions available 24/7/365 and resulting in the immediate or close to immediate interbank clearing of the transaction and crediting of the payee s account 2 (within seconds of payment initiation), irrespective of the underlying payment instrument used (credit transfer, direct debit or payment card) and of the underlying clearing and settlement arrangements that make this possible 3. Real-time or close to real-time (i.e. within seconds of payment initiation) the payment message is transmitted to the payee s bank execution is confirmed to the payer the payment is credited to the payee s account or the credited amount is immediately at the disposal of the payee the amount is debited from the payer s account Existing payment systems do not meet the requirement of near real-time and guaranteed availability to the payee. b) Stakeholders involved Instant payments are relevant to the public and the private sector, to the supply and the demand side of the retail payments market. Among other things: from public authorities perspective, they can represent an instrument to enhance smooth, safe and efficient retail payments as well as financial integration and inclusion, e-government, competition between banks and non-banks, and competition in a broader sense for the benefit of end-users; from merchants and providers perspective, they can potentially boost growth by facilitating e- commerce and physical point-of-sale purchases, possibly ensure revenue streams for payment service providers and strengthen their relationship with clients; from consumers perspective, they can ensure an experience of paying comparable to communication.

5 Page 5 13 c) Instant payments for all Moreover, instant payments solutions are of interest to public authorities (including central banks), in relation to their institutional functions; in the case of central banks promoting the smooth operation of payment systems, but also in a wider perspective the financial inclusion of the unbanked and underbanked population This last requirement is important not only for developing countries, but also under the social aspect for the EU. According to the information provided by the European Commission (situation at April 2014), 58 million EU citizens have no bank account. If these EU citizens should be able to have access to instant payments, instant payments must include not only the SCT payment instrument, but also other payment instruments. d) Availability in the short term The expectation is that (at least) one pan-european 7 euro instant payment solution should become available to end-users in the short term, consisting of a common scheme cooperatively developed on the market 8 or of multiple (ideally interoperable) schemes competitively developed on the market, and mainly based on credit transfers. The interface would preferably be multichannel. e) Competition In a competitive market, providers should not adopt a silo approach offering closed-loop non-interoperable instant payment solutions, but a layered approach developing a scheme 6 for end-users to make payments with increased speed leveraging the current payment instruments (first layer) and the underlying clearing and settlement infrastructures (second and third layer). Such solutions should take advantage of the harmonisation and integration already achieved with the SEPA project. f) Security Instant Payments must be secure. Acceptance of a payment service depends to a large extent on confidence of the parties involved. Therefore top-level security mechanisms must be included. In addition, the ERPB expects that instant payments should incorporate the following three characteristics:

6 Page 6 13 a) Instant Payments are multichannel Figure 2 In this connection, multichannel means the use of instant payments in the following fields: retail payments (for payment at POS) Here, from the point of view of the customer, an anonymous payment, like payment in cash, should be possible (if the customer so wishes), i.e. the trader receives no information concerning the name, address and account details of the customer. Payments in the public sector should also operate in the same way (for fees, levies and taxes) person-to-person payments e-commerce payments for online payment and payment on delivery b) Instant payments must be available at all times, i.e. 24/7/365 Figure 3

7 Page 7 13 c) Instant payments are executed within seconds of payment initiation Implementation of the parameters specified by the ECB represents a challenge. The example of mobile payments shows that in the case of systems where further stakeholders are involved alongside the banks, a homogeneous system which is advantageous for all is hard to achieve. The various comparable approaches in the EU and in the euro area in each case cover only some aspects. Market expectations With the introduction of a new payment procedure, the expectations of the main stakeholders, who, alongside the banks, play a decisive role in the value-added chain, are also significant. From Bitkom s perspective, these stakeholders are traders, corporates, payment services providers and end-users. We have outlined their expectations below. Requirements that an instant payment system should have from the traders perspective: 5 guaranteed direct payment and low costs multichannel customer acceptance (security, simple operation, additional benefits and usable in all situations: P2P, small amounts) regulated competition principles (interchange, organisational structure/participation possibilities) use of practical technology (open standards, processing speed) Requirements that an instant payment system should have from the corporates perspective: low costs and simple integration & performance advantages attractive added-value offers (e.g. cash management, trade finance) liquidity advantages high security of payment (irreversibility) very high accessibility in Europe (comparable to SEPA SCT) 24/7 availability Requirements that an instant payment system should have from the perspective of a third-party provider (payment services provider): fair sharing of risk and liability, and low capital expenditure & administrative expense slim-line infrastructure & pragmatic regulatory requirements (fraud prevention, authentication of external parties/networks, approval procedure, control systems and intraday liquidity) very high accessibility in Europe (comparable to SEPA SCT) opportunities to make innovative added-value offers control over own security architecture at technical, organisational and business policy levels 5 Source: Presentation on payment systems from the trade perspective, HDE, Aachen,

8 Page 8 13 Requirements that an instant payment system should have from the perspective of the end-user: simple processing no additional risks transparency and protection of legitimate expectation suitability for daily use support of the actual everyday payments If these stakeholder requirements are considered and the expectations of the banks are included, it is hard to imagine how all this can be reconciled. 2. Implementation timetable for instant payments The following section contains a brief presentation of how an instant payments procedure may appear. The current payment procedures are based essentially on one of the following three payment instruments: credit card credit transfer direct debit Figure 4 Kreditkarte = credit card DTA-Überweisung und DTA-Lastschrift = credit transfer and direct debit via data medium exchange These payment instruments have become established in past years, but are also already aging and were created long before the introduction of Web Innovative new approaches are sought here to no avail. Proposals have been made by the financial sector (e.g. European Payments Council (EPC) and Euro Banking Association (EBA Paris)), which provide for the implementation of instant payments as described above on the basis of the SEPA credit transfer (SCT), known as SCT inst. The basic principles are as follows: All procedural steps, the payment initiation, the clearing 7 and the settlement 8 take place within a few seconds. 6 Downloaded on from 7 Downloaded on from 8 Downloaded on from

9 Page 9 13 Figure 8 or the initiation and the clearing take place instantly, including the information to the payee, with the settlement taking place downstream. Figure 9 The Blue-Print for a Pan-European Instant Payment Infrastructure Solution (Version 1.3, 30 June 2015, EBA CLEARING S.A.S) is also based on this model:

10 Page Figure 10 Steps 2 5 are to be completed within 1.5 seconds and the entire procedure within 5 seconds. If instant payments becomes only a fast version of the SEPA credit transfer, in Bitkom s view it cannot be used at the physical point of sale and only to a limited extent online. The present SEPA credit transfer leaves two loopholes: D: the invoice data, such as, for example, amount and bank details have to be communicated by the payee to the payer, or more precisely by the checkout or trader portal to the payer s banking app; R: the confirmation of the payer s bank on the execution of the payment order must be transmitted to the payee. In this respect, it should be borne in mind that as a rule there is no direct contractual relationship between the payer s bank and the payee. The information on the receipt of payment by the payee s bank currently arrives too late. Figure 6

11 Page From Bitkom s point of view, instant payments can close these two loopholes as follows: D: The transfer of the invoice data takes place directly between the trader portal or the checkout and the instant payments app installed on the smartphone, for example with QR code or NFC. The instant payments app would be made available by bank A or a PISP. Open standards would enable each trader portal and each checkout to operate with each instant payments app. R: The confirmation of the execution of the payment order is now made by the payee s bank or infrastructure to the payee. It is also important that the payee is informed as well if the transfer procedure is interrupted.

12 Page Requirements For instant payments to become an attractive, modern payment instrument for the digital society, the following essential requirements must be implemented, in Bitkom s view: 1. End-to-end approach from the customer to the payee In order to satisfy the basic parameters of the ECB, instant payments must include the entire payment procedure: a) Interfaces between the trader/payee and the customer/principal to transmit the payment details. Via a standard to be drawn up, it must be ensured that each trader portal/each checkout can exchange information with each instant payments payment application. In Bitkom s opinion, this will ensure that with one app it will be possible to make payments everywhere and that the consumer does not have to provide different payment apps. On the other hand, the formation of a monopoly is prevented, as instant payments payment apps can be offered both by banks and by third parties (PISP = payment initiation service providers). b) Interface between the customer/principal and the bank holding his/her account Bitkom calls for the mandatory applicability of the Payment Services Directive 2 (PSD2) to instant payments, so that it is not solely the bank holding the account that can offer instant payments applications. c) Interface between the bank of the customer/principal and the bank of the trader/payee The relevant regulations for the interbank sector are currently being drawn up by the EPC. Bitkom calls for the requirements under a), b) and d) also to be taken into consideration. Alternatively, competence must be established if this does not come within the field of responsibility of the EPC. d) Interface for transmission of the information that the trader/payee has the funds at his disposal or that the payment was not executed. The suitability for the payment procedure at the physical point of sale presupposes that the instant payments payment application is informed of the execution of the payment or can obtain the information. This applies to both positive and negative cases. If instant payments meet these conditions, the greatest barrier to the use of mobile payment, i.e. substantial market fragmentation with mutually incompatible procedures, will be overcome, as payment is possible everywhere with an instant payments payment app. At the same time, it is ensured that competition is intensified, as instant payments payment apps can be offered by both banks and third parties. 2. Completion in near-time On account of the areas of application at physical POS, strict near-time conditions must be met. The German Retail Association (Handelsverband Deutschland (HDE)) suggests as a benchmark that the entire payment

13 Page procedure must be completed in seconds and that the authorisation of the payment may not take longer than two seconds. 3. Openness to additional services such as anonymity or buyer protection So that instant payments can also be used in areas which are currently closed to SEPA credit transfers, the following functions must be offered at the request of the customer or trader: anonymous payment at physical POS, i.e. the trader will not be communicated customer information such as name, address and bank details if the customer has not explicitly authorised this; the trader can offer the customer buyer protection which enables the customer, for example, for a limited time, to subsequently reverse the transaction. Through instant payment, in our opinion, additional B2B applications will become possible. These could be, for example, payment on delivery or cash concentration.