In the first panel of NextGen Nordics 2024, Finextra’s head of content Madhvi Mavadiya moderated the session: ‘Instant payments – how to prepare for RIX-INST on TIPS and the benefits of starting with Swish’.
Speakers on the panel included Dan Axelsson, head of payment and fraud at Swish, Antoine Cuypers, director of strategic alliances and key accounts at Intix, Martin Wilhelm Johansson, head of schemes and strategic advisory of group payments at Swedbank, and Majda Nogo, head of sales and business development in the Nordics and Baltics from Worldline.
Mavadiya opened with a Slido question asking, ‘why do we need instant payments?’. The majority (61%) of attendees responded that instant payments are necessary to ‘allow people to pay more conveniently’. Nogo highlighted how instant payments was designed to make payments more accessible and transparent, and to drive inclusivity in the digital banking ecosystem.
Nogo stated that the European Council and European Parliament have roles that are complimentary to the roles of central banks as they have the interests of European consumers and corporates in mind. She outlined three areas where the EC and EP quote about interests that are in mind to shape instant payments, which is to harmonise payments across Europe to create a level playing (or paying) field, payments legislation, and consumer protection.
Johansson says that payments legislation is becoming more detailed, but that approach to regulation has side effects on the production frontier:
“The more resources that we funnel into meeting regulatory requirements, the less we have left to deal with product and business development. Customer preferences and regulatory requirements do not always align perfectly, and it is likely that we are introducing deadweight losses into the customer proposition. Also, the harmonised approach to payment transaction squeezes the competitive space between PSPs, so you might end up in a market which looks same, is very interoperable and competitive within its own confines, but may not be very customer-centric.”
When asked about other spaces to look for instant payments innovation, Cuypers stated that while Europe is a heavily-regulated environment, South Africa has an instant payments scheme to keep an eye on. He stated that as there is not a lot of regulatory interference in South Africa, and there is a lot of competition.
“They have introduced two schemes of PayShap, which is the South African instant payments application. There you can see the banks competing heavily. It's almost like being in a big marketplace and trying to shout the loudest. What else is interesting in that space is that they are trying to try to do what P27 tried to do, daily transactions with cross border transference. The key element there is that they have less of a burden and more of a market they can play in.”
Nogo notes a few other successful countries for instant payments within Europe are Netherlands and the UK, both of which have seen rapid growth with systems that have been implemented:
“In every country where we will see instant payments have been implemented, that has led to what actually was the intention from the beginning: increased accessibility, efficiency, but also increased innovation. For example, in the UK, you can see a lot of fintechs that are innovating in the area of account payments, providing new solutions, and products to the UK market.”
Speaking on digital transformation and legacy systems, Axelsson said there has been significant growth, but there will always be some remnant of legacy systems:
“Many companies are definitely burdened by a legacy systems, I think that many of us, including Swish or member banks have seen this. We will not be saying that we do not have legacy system, it will always be the reality, but I don’t see it as a huge problem especially in the progress we have made in recent projects.”
Cuypers mentioned that there are significant challenges in the scaling process to ensure that customers receive the services that they need, but he concludes that there is no going back from instant payments, people are used to having what they need instantly and expecting that transparency with their transactions where they can track exactly where their money is and how it is being moved and managed.
Johansson spoke on the dynamics between instant payments and batch payments in the future: “Yes, instant payment is a very potent force in the payment landscape, but I think it would be naive to believe that batch payments are simply going to surrender without firing a shot. The landscape between sort of batch payments and instant payments, it's not going to be a static one, but a dynamic one, and there will be a tug of war before we find an equilibrium.”
Lastly, touching on the risks of ‘instant fraud’ as a consequence of instant payments, Nogo said that regulators are critical to preventing this, and collaboration in the tech industry is necessary to enforce security measures. Cuypers added that instant payments is increasing the burden of payments operations that opens up a higher risk of fraud, and Alexsson concluded that responsibility lies on everyone present to enhance security and continue to ensure compliance.