The transformation of the European payments landscape - White paper - Swift
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
White paper The transformation of the European payments landscape
The transformation of the
European payments landscape
SWIFT would like to thank the
following institutions for their
contributions to this paper:
BNP Paribas
Deutsche Bank
ING
Sberbank
Unicredit
European Central Bank
EBA CLEARINGContents The transformation of the
European payments landscape
A global transformation of both wholesale and retail
payments is underway, driven by many forces. In Europe,
the Eurosystem has set a clear path for financial market
infrastructure renewal. This, along with regulations such as
the Second Payment Services Directive (PSD2), is putting
the region at the cutting edge of payments transformation.
In this paper we outline the drivers, challenges and
opportunities for financial institutions and other market
players in a transformed Europe.
Executive summary 4
Chapter 1: Introduction – a changing global landscape for payments 6
Chapter 2: The drivers for change – a global view 9
Chapter 3: The European payments market 14
Chapter 4: The Eurosystem’s blueprint for a transformed market infrastructure 20
Chapter 5: The evolution of EBA CLEARING’s payments systems 24
Chapter 6: The way forward for financial institutions 27
Chapter 7: View from the banks: visions of the future payments landscape 29
3Executive summary The transformation of the
European payments landscape
A global transformation of payments
is underway, challenging incumbent
providers and re-shaping long-established
relationships, timescales and payment
methods. Nowhere is this more the
case than in Europe, where far-reaching
infrastructure renewal and regulatory
intervention are prompting a generational
step-change.
In this white paper, SWIFT analyses the
key drivers and trends impacting the
industry globally and takes a close look
at the challenges and opportunities for
payments providers in European markets.
4The transformation of the
European payments landscape
Drivers of industry change: customer Key global trends • Redesign and renewal of payment market
expectations, technology, competition •O
pen banking infrastructures supports innovation
and regulation Open banking is set to transform the Payment market infrastructures are
Digitisation is driving expectations for fast, payments landscape, making it possible renewing ageing infrastructure. At the same
frictionless and borderless payments that for fintechs and other innovators to offer time, they are taking the opportunity to
are embedded in transaction chains and new products and services to a wide redesign and provide their communities
eco-systems, whether for retail purchases or market. Open banking will take time to with new functionality, such as instant
business transactions. This is a challenging become established, but it is a global trend, payments, centralised collateral and
environment for financial institutions (FIs) that most notably in the EU but also in other liquidity management, and data-enriched,
have invested in branded payment channels countries such as Australia, Hong Kong standardised messaging.
and use clearing mechanisms which are not and Singapore.
yet instant. • Global adoption of ISO 20022 for financial
• Instant payments and faster cross- services is a game-changer
Technology is offering opportunities for border payments will lead to payments Over the next five years, major payment
innovation and efficiency: In particular, convergence market infrastructures worldwide will
artificial intelligence and cloud technology Instant payment services, which settle migrate their operations to ISO 20022,
are combining to reduce cost and enhance in seconds or minutes, round the clock, confirming it as the de facto standard for
performance, for example, in compliance 365 days a year, are an industry response financial services. In the same timeframe,
and customer service. Application to changing customer expectations and cross-border payments will also migrate
programming interfaces (APIs) are making are set to become the new normal, with to ISO 20022. Interoperability and data
product integration and information services now available in many markets richness are key parts of the success of
exchange fast and easy. Creating APIs that across the world. But current services are ISO 20022, making global adoption of the
are standardised, secure and easy to use mostly domestic and not interoperable standard a real game-changer.
is a challenge that the financial industry is across markets or borders. In the EU,
addressing in collaboration with SWIFT. efforts to combat fragmentation of these Regulatory drivers are pushing payments
Technology is also enabling competitors – services include a standard message transformation in Europe
fintechs, global retail giants, card networks format for instant payments (SCT Inst); EBA Within the EU, the ongoing political objective
and digital start-up banks – to challenge CLEARING’s RT1 cross-border euro instant of creating a single, competitive market
incumbent providers and existing business payments platform and later this year, the for Europe is giving heightened impetus
models. introduction of the Eurosystem’s TARGET to the global drivers. The implementation
Instant Payments Settlement (TIPS) service. of the Second Payment Services Directive
Regulators are intervening to foster (PSD2), the planned consolidation of the
competition, protect consumer rights and The industry has also responded to the Eurosystem’s TARGET2 and TARGET2-
promote payments efficiency and innovation, need for more efficient cross-border Securities, the evolution of EBA CLEARING’s
for example, by requiring banks to open payments. The Global Payments Innovation EURO1 and the introduction of pan-European
customer data to third party providers for service (SWIFT gpi) guarantees same-day instant payments services (the Eurosystem’s
account information and payment services credit for cross-border payments, usually TIPS and EBA CLEARING’s RT1) are
(open banking). within seconds or minutes. The ambition is challenging FIs to redefine their business
to achieve global adoption of gpi by 2020. models.
A logical future development is the This paper describes these developments
convergence of payment types to deliver in detail and suggests some choices facing
global instant payments. incumbents looking to defend and grow their
business. The report includes the views of
a number of banks on the challenges and
opportunities in this changing European
landscape.
5Contents The
The
Thetransformation
transformation
transformationof
European
European
of
ofthe
the
the
Europeanpayments
payments
paymentslandscape
landscape
landscape
Introduction –
a changing global
landscape for payments
1
The global payments business
continues to grow, stimulated
by increasing world trade
and by the accelerating move
away from cash to electronic
and mobile payments. New
CHAPTER
payment providers are
challenging incumbents for
market share, using technology
to disrupt traditional networks
and business models across
retail and wholesale payments.
Regulation is increasing;
payments platforms and market
infrastructures are consolidating,
renewing and re-designing.
Customers want everything –
including their payments – to
be seamless. It all adds up
to a transformation in global
payments.
6Chapter 1 The transformation of the
European payments landscape
Payments is a growth business. Global One such response is the Global Payments customers with richer data and more valuable
cross-border payments totalled $131 trillion in Innovation service (SWIFT gpi), developed services. Examples here include:
20171. International trade growth is forecast to by SWIFT in partnership with the banking
continue at 7% compound annual growth rate industry. SWIFT gpi is transforming the cross- • Payments Canada’s Modernisation
(CAGR) to 2022, to reach $23.5 trillion, driving border payments experience. Traditional Programme
further payments growth1. While payments correspondent banking networks can take • RTGS, automated clearing house (BACS)
other than B2B trade continue to grow at 5%, 48 hours or longer to deliver funds to a and instant payments (Faster Payments)
select low value payments in e-commerce will payee’s account, but with gpi, payments renewal in the UK
show much higher growth of >15% through can be tracked in real time throughout • Federal Reserve’s ISO 20022 migration
20222. Payments associated with securities their journey and are credited same-day, • Prospective Payments System in Russia
transactions are also significant, representing usually in just seconds or minutes, with full migration to ISO 20022
at least 30% of all payments traffic over fee transparency. 30% of all cross-border • Migration of Hong Kong’s RTGS (CHATS)
SWIFT3. Overall securities traffic is estimated payments traffic over SWIFT now uses to ISO 20022
to grow at around 9% annually to 2021. gpi and the ambition is to achieve global • Payments Association of South Africa’s
adoption of gpi by 2020. In major corridors, Project Future
Digital networks and devices continue to such as US-China, gpi already accounts for • Banco Central do Brasil’s “Pagamentos
transform the way we communicate, work more than 60% of payments traffic.6 Instantâneos” project
and transact. Cash is in decline as more • EBA CLEARING’s launch of RT1 for instant
value is driven to a variety of payment Instant payments are another industry payments and the renewal of their payment
channels. Global electronic payments response to changing customer expectations system EURO1/STEP1
transactions are predicted to grow at 12% for fast, anytime, anywhere payments. These • Eurosystem’s plans for a future
through 2017-2022 across segments2. payments settle in seconds or minutes, 24 consolidated platform for TARGET2 and
Global digital commerce volume exceeded hours a day, 365 days a year, dramatically TARGET2-Securities (T2S), TARGET Instant
$3 trillion in 2017, and will more than double improving customer experience and providing Payment Settlement (TIPS) and a new
by 20222. Wholesale payments will also see a platform for additional services. The UK’s centralised liquidity management facility
a pronounced shift with the share of Faster Payments and Singapore’s FAST are (CLM) that operates across all TARGET
electronic on total wholesale payments early examples. Now HKMA has launched Services
expected to reach over ~50% in number FPS in Hong Kong and Australia’s real-time
and ~85% in value by 20224. New Payments Platform went live in February Critical to all these plans is the adoption
this year. In Europe, some 17 domestic by payments market infrastructures of a
Competition is fierce systems are operational or in the process common standard, ISO 20022. Its impact
This growing payments pie is fiercely of implementation for instant payments in on our future payments landscape will be
contested. Fintechs, telecommunications euro and other European currencies, and by significant. If announced deadlines are met,
companies, social networks, global card the end of 2018, Europe will also have two by 2023, ISO 20022 will dominate high value
networks and online retailers are disrupting cross-border instant payment services: EBA payments, supporting 79% of the volume
the payments business. Apple Pay CLEARING’s RT1 and the Eurosystem’s7 and 87% of the value of transactions world-
transactions tripled in 2017/8, with analysts Target Instant Payments Settlement (TIPS). wide.8 ISO 20022 is also widely used for
predicting more than 227 million users by instant payment systems and is preferred by
2020.5 In China, two-thirds of point-of-sale Payments market infrastructures are re- many large corporates for communicating
transactions are now made over WeChat designing as well as renewing with their banks.
and AliPay and they are also expanding Payments market infrastructures, including
beyond China. Remittance providers such as clearing and settlement mechanisms (CSMs) Europe is the crucible for payments change.
TransferWise and start-up banks such as the and real-time gross settlement systems On the one hand, bold and ambitious
UK digital-only challenger banks are moving (RTGS) are principal actors in the global regulation and infrastructure renewal
up the value chain, targeting SME businesses payments transformation currently underway. is driving innovation. On the other, it is
as well as individuals. As ageing infrastructure comes up for grappling with the legacy and productivity
renewal, they are taking the opportunity issues of mature markets. This report looks at
With this level of competition, delivering to re-design as well as renew, so that, the challenges and opportunities for financial
payments at speed, with transparency, when current plans come to fruition, their institutions’ payment businesses in Europe
traceability and certainty has never been communities will benefit from more efficient and outlines some of the strategies that
more important. Banks are responding. processing and the ability to provide their banks are adopting. In a companion paper,
we set out how SWIFT is supporting its
1
McKinsey Global Trade Map communities and customers.
2
McKinsey Global Payments Map
3
SWIFT data
4
Based on 45 countries covering ~90% of global GDP
5
Banking Industry Concerns grow as Big Tech Turn to FinTech, Payments Cards and Mobile, 7 August 2018
6
SWIFT data
7
The Eurosystem comprises the European Central Bank and the national central banks of countries that have joined the Euro.
8
SWIFT ISO 20022 Migration Study Consultation, April 2018.
7Chapter 1 The transformation of the
European payments landscape
WHY IS ISO 20022 SUCH A GAME-CHANGER?
ISO 20022 offers a single, global, open requirements under the General Data players in the Euro retail payments market.
standardisation approach for financial Protection Regulation (GDPR). With ISO In addition, the EPC recently published the
business flows, covering methodology, 20022, FIs can meet these requirements SEPA Single Credit Transfer INST (SCT Inst)
process and a standards repository across and operate more efficiently themselves. to standardise the use of ISO 20022 for
payments, securities, cards, trade services instant payments in the Eurozone. ISO
and FX. Anyone can use the existing models ISO 20022 is internationally accepted 20022 also offers interoperability of systems
and schemas or contribute new candidate as the de facto standard for financial and works across legacy and emerging
models and messages for approval by the services. This has not happened overnight technologies such as APIs.
ISO 20022 registration bodies. – recognition is built on years of detailed
standards work backed by strong Market infrastructures world-wide have
ISO 20022 can accommodate more governance. adopted ISO 20022 and will be migrating
data – and more structured data, allowing their systems to the standard over the next
for much more information to be carried Interoperability is a key part of the five years.
and processed across a chain of market success of ISO 20022. Market practice
participants, from originator to beneficiary. groups formulate guidelines to ensure The payments industry has signalled its
This enables FIs to deliver more information that the implementation of the standard interest in the migration of cross-border
linked to the transactions and better service is harmonised for particular use-cases. payments (FIN MT messages) to ISO
to their customers. For example, the HVPS+ group, formed 20022, following a market consultation
of high-value payments system operators by SWIFT earlier this year. In September
FIs also face increasing regulatory demands and commercial banks, creates guidelines 2018, the SWIFT Board approved a plan
to deliver more and more structured data, for the use of ISO 20022 for high-value for the migration of cross-border payments
for example, for transaction screening payments. The European Payments Council and cash to coincide with the migration of
and anti-money laundering reporting; to (EPC) successfully introduced ISO 20022 key market infrastructures, starting with
meet requirements under PSD2 to provide for all SEPA Single Credit Transfers in 2008. TARGET2 and EURO1/STEP1 in November
payment and account information to third ISO 20022 proved to support the required 2021.
parties (open banking); data portability interoperability between the different
8The transformation of the
European payments landscape
The drivers
of change
2
Customer expectations,
technology, competition and
regulation are powerful drivers
of change, transforming the
payments landscape and
challenging FIs to re-define
their business models. MI
infrastructure renewal is
prompting a moment of
generational shift.
CHAPTER
9Chapter 2 The transformation of the
European payments landscape
Innovation and new entrants are changing consumer behaviours
Rising global market places blur the frontier between payment and purchase processes
The rise of global market places leads to more low-value cross-border transactions
$178B 31% >$10B
Facilitating access to Sales for 2017 Yearly sales 2018 projected
international sellers growth 2017 sales on business
platform
4B 78 $37B
Internationalising
domestic monopolies
Rides 2017 Countries Gross bookings
in 2017
Source: Amazon and Uber
Ever faster communications continuously – and safely delivered, with no risk of loss or
re-shape how we connect with people and fraud. Increasingly, financing offers are part
markets. Giant retailers bring a wealth of of the mix, as well as rich customer data,
opportunities right into our homes so we can invoice and transaction information. As consumers, investors,
choose, shop, and consume 24 hours a day merchants and business
from anywhere around the globe. Goods are It is a challenging environment for FIs people, we are starting to
shipped world-wide and delivered rapidly to that have invested in their own branded
our door. This trend is supported by analysis payment channels, be that for retail or see payments as just one
of SWIFT transaction data between 2014- wholesale customers, and use clearing step of a transaction chain
2017 which shows a 17% rise in low value mechanisms which are not (yet) instant. that must be fast, frictionless
(below $500) cross-border transactions. And, while payments data may represent a
source of business intelligence for FIs, data and embedded.”
Customer expectations for faster, confidentiality concerns require it be treated
frictionless payments with utmost care.
Digitisation in all industries is driving more
frequent and faster financial transactions.
This is the 21st century experience, and it
is dramatically shaping our expectations of
payments and payment providers to ensure
the money can follow the goods at the same
velocity. As consumers, investors, merchants
and business people, we are starting to see
payments as just one step of a transaction
chain that must be fast, frictionless and
embedded. It must also be price transparent
10Chapter 2 The transformation of the
European payments landscape
Payments industry disruptors Challenges for the payments industry
Online environments drive price transparency
Many disruptions coming together in a short timeframe and cost-pressured environment
and market consolidation, making this a
key battleground for payments providers. In
some parts of the world, the retail payments
market is dominated by non-bank companies
– such as Tencent and Ant Financial in China.
If FIs are not able to deliver on present and Regulatory
future customer expectations, then the worry pressure
is that global players with scale – such as
Amazon and Google – will take the customer
relationship and turn banks into “dumb
pipes.”
Technology, and the speed of technological New consumer
Technology
change, is one driver of customer behaviours &
changes
expectations and the ultimate disruptor of needs
the payments market. FIs – even the largest
transaction banks with the deepest pockets –
have been hampered by legacy infrastructure
and cultural and regulatory hurdles
compared to nimbler, less regulated fintechs.
Speculation has been raised as to whether,
Market
or when, non-bank payments providers will infrastructure
New entrants/
be regulated in the same way. competition
changes
Of course, some serious competitors to
incumbents are fully regulated as banks:
UK digital start-ups Monzo and Starling are
seeing success with millennials by offering
innovative features such as categorised
spending. Monzo, which started up in New technologies, new possibilities For the present, much attention is focused on
2016, expects to have 1 million accounts by Which are the critical technologies for the development of Application Programming
autumn 20189; Starling now offers business success in this dynamically changing market? Interfaces (APIs). They expose services or
accounts. Klarna, a Swedish bank founded Those that can be harnessed to increase data (such as account information or liquidity
“with the aim of making it easier for people customer satisfaction, facilitate new business positions) for consumption by other programs
to shop online” offers a range of payment and reduce operating costs. (such as account aggregation or treasury
options, including pay later financing. Klarna management services) over the internet or
claims 10% of the e-commerce market share Although FIs have invested a lot of research private networks. APIs are very widely used in
for northern Europe.10 time and budgets experimenting with new the on-line retail sector and elsewhere.
technologies such as blockchain and crypto-
Yet not all new competitors are new entrants. currencies, these have so far not fulfilled
Card networks, for example, have long been their early promise in the area of payments.
active in many payment areas, looking to Applications based on distributed ledger
expand, diversify, protect or consolidate their technology (DLT) have already been found
business. When Mastercard announced its in various industries, including the financial
acquisition of Vocalink, which runs BACS industry, and a good example of this is
and Faster Payments in the UK, it was with ASX’s replacement of their CHESS system.
the stated objective of adding bank account- However, trials in the cross-border payments
based payments alongside the card network area have so far not demonstrated that the
to extend their business reach and meet all technology is ready for wider use in areas
payment needs of businesses, governments such as payments, given the requirements
and consumers.11 that the market has for speed, scalability,
availability and reach.
9
Digital bank Monzo’s losses more than quadruple, Financial Times, 2 July 2018
10
Klarna website
11
Mastercard wins approval for £700m Vocalink deal, Financial Times, 17 April 2017.
11Chapter 2 The transformation of the
European payments landscape
API-sation at industry level
Moving from the retail world to banking
API usage in retail is booming Regulators / institutions encourage this trend Industry looking for
API standardisation
Daily API calls
15B
15B
12B PSD2
10B 10B 10B Despite the high perception of risk, 44% of banks plan
to provide an open bank offering in the next 5 years
5B 5B
5B
64%
Intend to integrate 32%
foreign products or Expect to offer new
functionalities into own functionalities that
1B
digital offering are essential for ISO 20022 paper on
0B
44% existing ecosystems a common standard
er
er
x
ay
e
ok
ce
for APIs (“JSON”) &
fli
gl
Are planning to
itt
th
eB
or
bo
et
oo
Tw
ea
Proof-of-concept
sf
N
ce
G
integrate own products
le
W
Fa
Sa
ISO 20022 API
cu
or functionalities into
Ac
Source: PwC foreign ecosystems development tool
APIs dramatically reduce the time needed to Growing use of cloud technology is also
develop and integrate new applications or opening up new opportunities and generating
services – and therefore can present a threat, operational efficiencies. Storing, managing
as well as an opportunity, for incumbents in and processing data in the cloud means Exposing financial APIs in
the payments industry. Open banking is an organisations can reduce the costs of owning a way that is standardised,
obvious example. and operating their own infrastructure. Last
year, DTCC suggested that the technology
secure and easily consumable
But at the same time, APIs offer FIs had reached a tipping point in financial by services is one issue facing
opportunities to easily partner to deliver services with the capability, resiliency and the industry.”
innovative services, or to make their own security of services surpassing on-premise
services – such as financing - easy to capabilities.12 And when cloud processing
integrate into transaction platforms and is combined with artificial intelligence, the
broader ecosystems. They could also be costs of customer service, compliance
used to exchange information flows with and other operational requirements could
market infrastructures or core banking be dramatically reduced. In future, many
systems, for example, for liquidity or believe artificial intelligence is likely to
compliance monitoring. Exposing financial become the primary means of responding
APIs in a way that is standardised, secure to customer enquiries, detecting fraud on
and easily consumable by services is one instant payments in run-time and supporting
issue facing the industry; SWIFT is building compliance screening processes.
an API platform that will deliver this.
12
White paper: Moving Financial Market Infrastructure to the Cloud, DTCC, May 2017
12Chapter 2 The transformation of the
European payments landscape
Regulators are catalysing payments payments business. Know Your Customer Market infrastructures evolving
innovation (KYC) and anti-money laundering (AML) The financial crisis of a decade ago
Significantly, regulators are intervening regulations require banks to make extensive demanded global regulatory action and
to foster competition, protect consumer checks on correspondents, counterparties responses. Since then, financial market
rights and promote payments efficiency and transactions. These demanding infrastructures have increasingly moved to
and innovation through use of developing processes and new frameworks are shifting respond to regulatory or technology change.
technologies. By such intervention, they the economics of correspondent banking Greater collaboration and interoperability
are acting as a catalyst for game-changing models, making some banking relationships between market infrastructures will be the
development. One example is PSD2, expensive to maintain. key to harnessing the benefits of these
which has established the framework for changes for market participants.
far-reaching change by mandating ‘open As a result of these increased costs –
banking’ across the EU; this is expected to combined with low interest rates and Global acceptance of ISO 20022 and the
dramatically alter the payments landscape downward pressure on pricing and earnings accelerated migration of financial market
and payments ecosystem. as a result of increased competition – many infrastructures to the standard, (facilitated
financial institutions have consolidated their by the work of the HVPS+ group) is a clear
Open banking, which facilitates third- networks: today fewer than 150 banking example of this. The result is a generational
party access to customer information and groups are responsible for 80% of the step-change for the industry.
accounts held by banks, will allow non- international payments messages sent over
traditional players to provide new services. SWIFT.13 In many mid-sized economies, the Together, these drivers are transforming the
The customer must give permission for same “de-risking” trends have led to even the global payments landscape.
an authorised third party to access his or largest bank in the country having a single
her data, and there are stringent security correspondent for the main cross-border
requirements. Another aspect of open currencies, and the smaller banks struggling
banking is payment initiation; this can be to have even one.
done by the payment service provider
(PSP) on behalf of the customer (retail or Combating cybercrime Protection against cybercrime
wholesale). Protection against cybercrime is an is an escalating concern and
escalating concern and cost for all payments
Open banking is a global trend, most notably markets participants, but the industry cost for all payments markets
in the EU but there are also initiatives at is continuously improving its defences. participants.”
different stages in Australia, Singapore and Following payment frauds in some banks’
Hong Kong. In the UK, the nine largest locally managed infrastructure in 2016,
current account providers developed SWIFT introduced its Customer Security
standards and implemented open banking Programme (CSP), which aims to improve
in response to instruction from the country’s information sharing throughout the
Competition and Markets Authority ahead of community, enhance SWIFT-related tools
the implementation of PSD2. for customers and provide a customer
security control framework. Last year, the
The impact of compliance on market Eurosystem set up the Cyber Resilience
dynamics Board for Financial Infrastructures to foster
Regulation is also having a significant impact collaboration and joint initiatives between
on operational models across the financial market participants and public authorities,
industry. and has also enhanced self-certification
requirements for TARGET2 participants;
For example, the Financial Action Task Force this will make use of information from the
(FATF) targets money laundering and terrorist SWIFT Customer Security Programme.14 The
financing and, through local regulators, Framework for Threat Intelligence-based
places heavy monitoring and reporting Ethical Red Teaming (TIBER-EU) enables
requirements on financial institutions. At European and national authorities to work
both regional and local levels, there is also a with financial infrastructures and institutions
raft of regulation addressing financial crime. to put in place a programme to test and
The compound effect of these is proving improve their resilience against sophisticated
challenging for the traditional cross-border cyberattacks.
13
SWIFT data
14
TARGET Annual Report, 2017, page 54
13The
The transformation
transformation of
of the
the
European
European payments
payments landscape
landscape
The European
payments market
3
Regulatory drivers are putting
Europe at the cutting edge
of payments transformation.
PSD2 and open banking,
instant payments and market
infrastructure renewal are
presenting FIs with operational
and strategic challenges.
CHAPTER
14Chapter 3 The transformation of the
European payments landscape
The European Union – an area encompassing The European payments market today22
28 member states and 512.615 million people In 2017, the total number of non-cash
– has made strides towards harmonisation payments in the EU, comprising all types of
and the reduction of friction for cross-border payment services, increased by 7.9% to 134
payments within the region. Today 19 member billion. After cards, which accounted for 52%
states have the euro as their currency and the of non-cash payments in the EU in 2017,
Payment Services Directive (2007) established credit transfers were the most used payment
the Single European Payments Area (SEPA), instrument at 24%, followed by direct debits,
which enables consumers and businesses at 19%, according to ECB statistics.
to make euro payments under the same
conditions across 33 countries. In this context,
it is worthy of note that 63% of all EU exports
flow between EU member states.16 Chart 1: Use of the main payment services in the EU
Still, Europe remains a diverse region with 80
a wide range of payments systems and
customer preferences. For example, in the 70
retail sector, card payments accounted for
52% of all transactions across the EU in 2017, 50
with citizens owning on average 1.6 payment
cards each17. Yet in Germany, cash is still 40
preferred for payments – 74% of all consumer
payment transactions by volume18 – compared 30
to 34% in the UK19. Sweden is generally
considered Europe’s most cash-free economy;
20
seven out of ten people questioned said they
could cope without cash20 and consideration
10
has been given to digitising central bank
money21.
10
Historically, there have also been stark
variations across markets in preferences 0
for credit transfers and direct debits and 2000 2002 2004 2006 2008 2010 2012 2014 2017
differences in terms of legal requirements Card payments Direct debits (Number of transactions per year in billions, estimated)
and liabilities, depending on the set up and Credit transfers Cheques
operation of national clearing houses.
15
Eurostat, 1 January 2018
16
World Trade Statistical Review, 2017, World Trade Organisation – figures for 2015.
17
Press release: Payment Statistics:2017, European Central Bank, 14 September 2018
18
Payments Behaviour in Germany, 2017 survey. Deutsche Bundesbank, February 2018
19
Press release: Convenience of debit card payments puts cash in second place, UK Finance, June 2018
20
Payments Patterns in Sweden 2018, Sveriges Riksbank
21
https://www.riksbank.se/en-gb/financial-stability/payments/e-krona/the-e-krona-projects-first-interim-report/
22
Statistics and charts in this section are taken from Payments Statistics: 2017, a press release from the European Central Bank,
14 September 2018.
15Chapter 3 The transformation of the
European payments landscape
Retail payment systems23 Chart 2: Retail payment systems in the EU in 2017
Retail payments are low value payments
(value of transactions in EUR trillions (left-hand scale) and number of transactions in billions (right-hand scale))
made by individuals or businesses for
everyday needs. 16
In 2017, there were 43 retail payment 14
systems in the EU, 22 of which were in the
euro area, representing 73% of the EU total 12
by value. The largest of these by value is
EBA CLEARING’s STEP2, which processes 10
and settles SEPA Credit Transfers and SEPA
Direct Debits for participants across SEPA. 8
Around 57 billion transactions were
6
processed by retail payment systems in the
EU in 2017, with an amount of €44 trillion.
4
High value payment systems24
High value payment systems (HVPS) provide 2
real-time and irrevocable settlement. They
are designed primarily to process urgent or 0
high-value interbank payments, but some
R)
2
K)
E)
E)
)
K)
)
)
S)
L)
r
FR
PT
(IT
he
EP
(P
(D
D
(E
(U
(D
(F
ot
I(
)(
L/
s
ST
also settle a large number of retail payments.
ir
E
RE
S
SM
S
KK
O
U
(N
ix
32
C
RP
C
(E
C
El
O
SN
BA
D
C
ns
SI
PA
C
During 2017, 12 systems settled 842 million
g
n
ue
rin
lia
SE
Eq
ea
Ita
payments with a total value of €702 trillion in Source: ECB.
cl
m
Value of transactions
the EU.
Su
e
Number of transactions
Th
The two largest HVPS systems in the euro
area, (TARGET2 and EURO1/STEP1) settled
143 million transactions amounting to €528 Chart 3: Large-value payment systems in 2017
trillion (75% of the total value). (value of transactions in EUR trillions (left-hand scale) and number of transactions in billions (right-hand scale))
1400 350
In the non-euro area, the United Kingdom’s
CHAPS Sterling is the largest HVPS in terms
1200 300
of both value and number of transactions,
followed (by value and excluding CERTIS)
by Poland’s SORBNET, Sweden’s RIX and 1000 250
Denmark’s KRONOS25.
800 200
In the foreign exchange market, Continuous
Linked Settlement (CLS) is the most
important HVPS. In 2017 it processed 198 600 150
million transactions in multiple currencies with
a value of €1,193 trillion.
400 100
200 50
0 0
tatistics and charts in this section are taken from Payments
S
2
P1
g
s
LS
23
PS
ET
lin
E
C
er
Statistics: 2017, a press release from the European Central
RG
LV
ST
St
1/
TA
EU
Bank, 14 September 2018.
S
RO
AP
er
24
Statistics and charts in this section are taken from Payments
EU
H
th
Source: ECB.
C
O
Statistics: 2017, a press release from the European Central
Bank, 14 September 2018. Value of transactions Note: Other EU LVPSs exclude CERTIS,
25
ECB Payment Statistics, Comparative tables, Statistical which act as both LVPSs and retail systems.
Number of transactions
Data Warehouse, European Central Bank
16Chapter 3 The transformation of the
European payments landscape
Payments change and renewal in Europe innovation, rapid growth in the numbers of understand and choose the new providers
The European Union is a unique project electronic and mobile payments and new and services that will come available. So
with a long regulatory reach. While the types of payments services,” and states that payment providers still have a short window
global drivers of change described earlier “equivalent operating conditions should be to prepare, comply and decide how to
are causing payments markets everywhere guaranteed, to existing and new players on use the new conditions to retain customer
to evolve at a very fast rate, within the EU, the market, enabling new means of payment relationships and win more; for instance,
the ongoing political objective of creating to reach a broader market and ensuring by themselves becoming third party service
a single, competitive market for Europe is a high level of consumer protection.”26 To providers.
giving heightened impetus and immediacy achieve this market competition, consumer
to this transformation. In the sphere of choice and protection, PSD2 requires FIs When Deloitte asked 90 EU banking
payments, this can be considered to be one to open customer account information to institutions about PSD2, most said PSD2
of the main drivers behind the opening up of authorised third party providers for payments represented an opportunity. Major top tier
the payments market as facilitated by PSD2. as well as for information; creates two new incumbent banks and established fintechs
categories of Payment Service Providers were seen as the biggest threats in the
Financial institutions and payment providers (PSPs) – Account Information Service PSD2-enabled ecosystem. Respondents
are facing three significant changes which will Providers (AISPs) and Payment Initiation saw financing and enhanced decision-
not only require large operational adjustment, Service Providers (PISPs); and places strong making around lending, and the potential to
but also impact their future business models: customer authentication requirements on offer more services to SMEs, as some likely
• PSD2 and open banking providers of online and mobile payment benefits of open banking for established
• The move to instant payments services. payments providers, while perceived threats
• Major market infrastructure change – were to savings and investments and
such as the TARGET Instant Payments Open banking will drive profound change reduced use of cards for online payments.27
Settlement (TIPS), the consolidation of the in the industry, but this will take time. Some
Eurosystem’s RTGS TARGET2 and T2S, countries have yet to transpose the Directive A challenge for the industry is balancing
and the migration of EBA CLEARING’s into national law and Regulatory Technical the demands of open banking for access,
EURO1/STEP1 to ISO 20022 Standards for strong customer authentication frictionless payments and customer
will not be implemented until 2019. Before experience against security concerns and
PSD2 and open banking rolling out services, PISPs and AISPs obligations; these include how to implement
PSD2 will come into full force in September must complete registration procedures. customer authentication, the liability of third
2019. It responds to recent “technical And consumers will likely take time to parties and customers’ rights under GDPR.
Key dates for PSD2
March 2018 –
RTS on SCA &SC are
formally approved and
Jan 2016 – March 2017 – published in the Official
PSD2 came Final draft of RTS on Journal of the European
into force SCA & SC published Commission
July 2013 – Q3 2016 – Nov 2017 – September 2019 –
European First RTS on SCA & RTS on SCA & SC PSD2 comes into full
Commission (EC) SC* Discussion are adopted by the force and Payment
proposals published paper published European Service Providers (PSPs)
Commission must have implemented
the RTS security and
functional requirements
*Regulatory Technical Specifications on Strong Customer Authentication and Secure Communication
26
Directive (EU) 2015/2366 paragraphs 3 and 6.
17Chapter 3 The transformation of the
European payments landscape
PSD2 – The basics Instant payments
It is now accepted that instant payments are
set to become the new normal. According
to research from Ovum,28 85% of banks
Competition & Authorised Third Party Providers: surveyed expect real-time payments will drive
Innovation – Payment Initiation Service Providers (PISPs) revenue growth – up from 53% last year.
– Account Information Service Providers (AISPs) Yet the development of instant payments
Open Banking highlights the continuing diversity of payment
Granted non-discriminatory access to customers habits across Europe. Of the 17 domestic
data / accounts via Dedicated Interfaces (API) instant payments services in Europe,
eight are in non-euro countries and nine in
countries within the Eurozone. In large part,
they have been developed for their own
domestic markets with interoperability initially
a secondary concern.
Customer Strong Customer Authentication and Secure
Protection Communication To address this, the European Payments
Council (EPC) made available the SEPA
– 2-factor authentication mandated for remote Instant Credit Transfer (SCT Inst) scheme
payments initiation and other potential fraud in November 2017. It sets minimum
inducing actions requirements and implementation guidelines
for instant payments in euros including
24/7/365 operations, a settlement speed (i.e.
settlement at the final beneficiary account
level) that must be below ten seconds and a
maximum transaction limit of €15,000.
SCT Inst is a voluntary scheme and there
A challenge for the industry is no requirement for payment providers
is balancing the demands to offer, or receive, euro instant payments.
of open banking for access, Because it establishes only a minimum set of
frictionless payments and requirements (rather than specifying a strict
set of rules), providers can choose to offer
customer experience against services that exceed these requirements –
security concerns for example, faster settlement speeds for
and obligations.” larger transactions. Both Belgium and The
Netherlands, for example, have selected
to offer a settlement speed of below five
seconds and no transaction limit for their
instant payment schemes.
27
uropean PSD2 Survey, The Voice of the Banks, Deloitte, January 2018
E
28
2018 Global Payments Insight Survey: Retail Banking, Ovum
18Chapter 3 The transformation of the
European payments landscape
Instant Payments Market context
Focus on Europe
SCT Inst scheme
Other schemes
NO Bits
Different
TIPS SE BiR/ LV EKS IP liquidity
Swish models,
LT CBoL different
DK NETS ambitions
RT1 Uk Vocalink NL Equens
PL KIR Variations
BE STET on domestic
levels
HU Giro
FR STET
SI Bankart
RO Transfond
IT NEXI
ES Iberpay
TR RPS
PT SIBS
In November 2017, EBA CLEARING The next pan-European development will TIPS is a key element of the planned new
launched RT1, a new pan-European be the introduction of the Eurosystem’s financial market infrastructure in Europe.
payments platform, open to any account- TIPS in November 2018. This is expected to While the implementation of instant payments
servicing payment service provider adhering accelerate the adoption of instant payments presents both a challenge and an opportunity
to the SCT Inst scheme. As at September at pan-European level, even beyond the for banks, it is expected that TIPS, with its
2018, RT1 was processing 20,000 Eurozone. Currently, for example, the pan-European scope and use of central bank
transactions a day on average, on behalf of Swedish Central Bank, Sveriges Riksbank, is liquidity, will be a game-changer.
29 participants and over 1,000 registered consulting the market on whether settlement
payment service providers29 in 13 different of instant payments in Swedish Krona should
countries. be made available on the TIPS platform.30
29
EBA CLEARING press release, 11 July 2018
30
Consultation on instant payments and the Riksbank’s role in the payments infrastructure, Sveriges Riksbank, 5 June 2018
19The
The transformation
transformation of
of the
the
European
European payments
payments landscape
landscape
The Eurosystem’s
blueprint for a transformed
market infrastructure
4
“A single market for Europe is a
key priority for both the ECB and
the European Commission. This
requires an integrated financial
market infrastructure where
consumers and businesses are
offered Europe-wide products at
competitive prices.”
CHAPTER
20Chapter 4 The transformation of the
European payments landscape
“A single market for Europe is a key priority for both the ECB and
the European Commission. This requires an integrated financial
market infrastructure where consumers and businesses are
offered Europe-wide products at competitive prices.”31
When PSD2 comes into full force in A new pan-European, instant payments But with some 17 domestic instant
September 201932 it will be a key pillar of service: TIPS payments initiatives across Europe using
payments transformation in the European The increasing ubiquity of instant payments different currencies, market practices and
Economic Area (EEA) and beyond. By systems, and the drivers of this development, formats (not all using SCT Inst), there was
requiring banks to open customers’ account are described earlier in this report. Instant a clear risk of a new fragmentation of
information to third party providers, the payments are now expected to become “the payment methods across the region. The
Directive will put Europe at the forefront of new normal” for low value payments, but Eurosystem considered it essential to have
open banking development – and further the services have mostly been introduced at the a market infrastructure for instant payments
EU’s single market objectives by increasing domestic level. that provides full European reach and took
competition and fostering innovation. the decision to develop the TARGET Instant
The European Payments Council responded Payments Settlement (TIPS) system, for
Ambitious change is also underway in promptly to bring instant payments into settlement of domestic and cross-border
Europe’s financial infrastructure; change that the SEPA orbit; a standardised scheme for instant payments in central bank money.
goes well beyond legacy renewal to deliver instant payments in euros, the SEPA Instant TIPS will go live on 30 November 2018.
deeper integration and efficiency for financial Credit Transfer (SCT Inst) scheme, was
markets. launched in November 2017.
The Eurosystem33 is tasked with delivering
an infrastructure for central bank money
settlement which serves the Europe-
wide, integrated financial market (for both KEY FACTS ABOUT TIPS
money and capital markets) that is key
to realising the overall objective of an The Eurosystem’s TARGET Instant Payments Settlement (TIPS) will:
efficient single market. This infrastructure
currently comprises TARGET2, the large • Settle payments within ten seconds in central bank money, round the clock,
value payment system for the settlement 365 days per year, using ISO 20022 (the SCT Inst standard)
of national and cross-border transactions • Be capable of handling multiple currencies
and TARGET2-Securities (T2S) for securities • Use the same participation rules as TARGET2:
settlement, both in central bank money.
– participants will hold one or more TIPS accounts in central bank money
Now, following market-wide consultation,
the Eurosystem is evolving its infrastructure – reachable parties will settle payments on participants’ TIPS account
to meet changing requirements. The vision – instructing parties (i.e. clearing houses, technical service providers) will be
was first outlined in 201534 and is now well able to provide technical access to a participant or reachable party
into its realisation phase. There are three key • Charge 0.2 eurocents per transaction for first two years of operation35
projects:
• Be available from 30 November 2018
31
Marc Bayle de Jessé, Director General, Market Infrastructure and Payments, European Central Bank, 14/05/18
32
https://www.finextra.com/newsarticle/31380/commission-extends-deadline-for-banks-to-meet-new-payment-standards
33
The Eurosystem comprises the European Central Bank and the national central banks of countries that have joined the Euro
34
The future of Europe’s financial market infrastructure: the Eurosystem’s Vision 2020, Yves Mersch, member of the Executive
Board, European Central Bank, 14 October 2015
35
T
IPS pricing structure finalised, ECB, 6 August 2018
21Chapter 4 The transformation of the
European payments landscape
Consolidation of TARGET2 and T2S Towards consolidated services
The Eurosystem is also in process of
delivering another significant infrastructure
project: the consolidation of TARGET2 and
T2S. This new project will enable operational
efficiencies and savings through shared Central Liquidity Management
services and operations (for example,
common reference data, data warehouse
and security components) and will provide T2S RTGS Services TIPS
users with a flexible, highly automated service
based on industry standard ISO 20022 Securities High-value Instant
messaging. (T2S was introduced in 2015 settlement payments payments
and already uses ISO 20022, but TARGET2,
which has been operational since 2007, will
migrate to ISO 20022 in 2021.)
T2S and the future TARGET2 will, together
with the TIPS service, form the Eurosystem’s Common Reference Data
TARGET Services.
Shared Operational Services (Billing, Scheduler, etc.)
Access to all the TARGET Services will be
via a single gateway, the Eurosystem Single Data Warehouse
Market Infrastructure Gateway (ESMIG).
TIPS and T2 will be accessible via ESMIG Eurosystem Single Market Infrastructure Gateway
from November 2021, and T2S from June
2022. Network service providers will need
to comply with technical and business A third project is the Eurosystem Collateral
requirements and compliance checks and Management System (ECMS). Currently
offer access to all the TARGET Services. The there are 19 different local systems used by
Eurosystem has not yet issued a detailed national central banks for managing collateral
tender document for ESMIG connectivity. assets held against central bank liquidity.
SWIFT is a certified network provider to TIPS. ECMS will provide a harmonised platform for
collateral operations across the Eurosystem
Efficient use of liquidity is a critical with harmonised functionality and using
component of integrated financial markets. ISO 20022 messaging. ECMS will go live in
The Eurosystem is addressing this through November 2022.
the introduction of a central liquidity
management facility for the TARGET Services
which will give participants a single pool of
central bank liquidity for use across their
high value payments, securities and instant
payment settlements. So, for example,
a TIPS participant will hold a dedicated
account at their central bank from which
instant payments can be settled round the
clock. The balance on these dedicated
accounts would count towards minimum
reserve requirements. Centralised liquidity
management will enable participants in
TARGET Services to manage their liquidity
more efficiently and help to reduce risk.
22Chapter 4 The transformation of the
European payments landscape
Central liquidity management
All operations with
Central Banks
• Open market
• Standing facilities
• Cash operations
• Intraday credit
MAIN ACCOUNT
• Billing
Central Bank
ADJUSTMENTS liquidity
T2S RTGS TIPS
Funds dedicated to
specific businesses
• Securities • Ancillary system • Instant payments
• High-value payments
A clear vision with challenges ahead
The evolution of the Eurosystem’s market
infrastructure may so far have attracted
less attention than PSD2 or GDPR, but it At the ECB, we are currently developing large-scale
stands to play just as important a role in the
transformation of payments in Europe.
projects to form the new generation of TARGET Services.
TIPS and the TARGET2 and T2S consolidation will foster
The plan is challenging: for the Eurosystem,
the interdependency of different projects and the uptake of innovation and optimise efficiency, using
a tight timeframe for implementation, as well across-the-board functionalities like the central liquidity
as 24/7 operations for TIPS, are demanding
targets. Bank readiness requires migration management tool. Our aim is to steer a stable and state-of-
to ISO 20022 in addition to strategic choices the-art market infrastructure, which will facilitate seamless
about connectivity and transaction routing.
payment, securities settlement and flow of collateral,
What should banks be doing to be ready ultimately supporting the creation of an integrated
for the new infrastructure and how can they
harness the opportunities it offers? In the European market.”
companion paper to this report, we explore
Marc Bayle de Jessé, Director General, Market Infrastructure and Payments,
how SWIFT will support its community in this
European Central Bank
future environment.
23The
The transformation
transformation of
of the
the
European
European payments
payments landscape
landscape
EBA CLEARING
payments systems
evolution
5
Private-industry payment
systems of pan-European scale CHAPTER
Founded in 1998 by 52
payment banks operating in
Europe, EBA CLEARING’s
mission is to deliver market
infrastructure solutions for
the pan-European payments
industry. The strategic aims of
the company are to ensure a
pan-European and country-
neutral approach for the
development and delivery of
user-driven and highly robust
infrastructure solutions, allowing
cost minimisation for their users.
24Chapter 5 The transformation of the
European payments landscape
EBA CLEARING manages and operates the increasingly impacted by the ramp-up of real-
payment services EURO1, STEP1, STEP2 time euro payment instruments, the industry-
and RT1. Both EURO1 and STEP2 have wide migration to ISO 20022 standards as
been classified as systemically important well as evolving regulatory and oversight In line with this user mandate,
payment systems (SIPS) by the European requirements affecting many relevant areas, we are seeking to maintain
Central Bank, which oversees the systems including liquidity management and payment
with the participation of National Central system operation.
the core components of the
Banks of the Eurosystems. system while putting cross-
“The blueprinting exercise and subsequent service alignment – with the
The evolution of the RTGS-equivalent user consultation we completed earlier this future euro RTGS but also
EURO1 System year confirmed that, while there is a need
EURO1 is the only private-sector large- to ready EURO1 for the longer-term future, with our other systems, the
value payment system for single same-day the system continues to be highly valued retail payments platform
euro transactions at a pan-European level. by its user community in its current set-up, STEP2 for SEPA transactions
It offers an RTGS-equivalent net settlement as a liquidity-efficient channel for large-
system combining high liquidity efficiency value and non-SEPA commercial payments, and the instant payment
with immediate finality of each processed operating alongside, and as an alternative, to platform RT1 – at the top of
individual transaction. On average, 1 euro of TARGET2. Against this background, it came our strategic agenda for the
injected liquidity enables the processing of as no big surprise that our users set out two
110 euro in the system. goals for the future of EURO1: ‘keep the next few years.”
core’ and ‘align to the maximum’,” says Hays
The EURO1 System has a market share of Littlejohn, CEO of EBA CLEARING.
close to 40% processing on average over
200,000 payments per day with an average “In line with this user mandate, we are
total value of about EUR 200 billion. 95 seeking to maintain the core components
percent of the EURO1 transactions settle in of the system while putting cross-service
real time at system level. alignment – with the future euro RTGS
but also with our other systems, the
In order to optimally support its users in retail payments platform STEP2 for SEPA
recycling their liquidity, EURO1 offers a transactions and the instant payment
liquidity bridge, which enables banks to platform RT1 – at the top of our strategic
proactively and independently manage agenda for the next few years.
their liquidity. This makes it possible for In light of the complexity created by the
participants to withdraw excess liquidity multiple payment systems banks have to run,
and inject additional funds into the system it is key for financial market infrastructures
throughout the day as needed. (FMIs) to support their users in the integration
of management and monitoring tasks for
Future outlook for EURO1 and pan-European the different services they participate in, via
large-value payment processing tools and interfaces that enable and facilitate
EBA CLEARING plans to migrate EURO1 cross-service views and activities.”
to ISO 20022 in 2021, which matches the
Eurosystem timeframe, to allow its users To give a sneak preview on the cross-service
full business interoperability between deliverables to come, EBA CLEARING and
EURO1 and TARGET2. This is in line with SWIFT presented a proof of concept of
the company’s programme for the future a liquidity dashboard in mid-2018, which
positioning and evolution of the EURO1 provided an overview of the payment
System, which EBA CLEARING started capacity and position of participants both in
in 2017. The aim of the programme is EURO1 and in RT1 based on existing EURO1
to develop and position the system in a and RT1 APIs.
large-value payments environment that is
25You can also read
