Open Bankink & Embedded Finance Forum - Instant Payments & R2P Summit (EUROPE)
21 April: Open Banking & Embedded Finance Forum | Stockholm
22 April: Instant Payments & R2P Summit | Stockholm
Open Banking and Instant Payments are a match made in heaven for Europe as Financial Organisations are aiming to unlock the true potential of open banking with instant payments. Especially Banks are combining Instant Payments and Open Banking in ways that enable them to increase their revenues, tap new customers and open themselves up to new collaborations to check more competition.
We are proud to announce the return of our – 4th annual ‘Open Banking & Embedded Finance Forum’ (formerly OB & SCA Forum) in the live format. Each year it is represented by Thought-provoking presentations, keynotes, intellectual panel sessions, networking meetings and much more.
In addition, this year we are collocating our OB & EF Forum with one of the longest running shows on instant payments in Europe – ‘6th annual Instant Payments Summit” Both these two shows will be held live in Stockholm on separate days, with separate set of speakers, live discussions, attendees and sponsors.
Each show would be represented by over 20 leading speakers (put together 40+ speakers) with some shared networking of an estimated 100-120 qualified attendees at each show (total 200+ attendees). You could join any one or both these shows as per your interest.
Open Banking and SCA Forum
Open Banking is a protected way of sharing customer’s financial information with third-party providers. With customer’s consent, banks can share account and transaction details with third parties through application programming interfaces (API). Open APIs enable exchange of information between the bank and third-party software provider. This helps banks to offer tailored products and services to acquire and retain customers.
For third-party service providers to be fully authorized to use Open Banking APIs, they must be registered under one of or both of the following:
AISP– Stands for Account Information Service Provider
PISP– Stands for Payment Initiation Service Provider
Open APIs expose a range of data to third-party financial service solution providers. They enable third-party developers to build applications and services around the financial institution.
These APIs are designed to support Open Banking regulations. Through the adoption and deployment of APIs, banks can extend and enhance their native services and offerings. Banks can rapidly advance their digital transformation agenda in the Open Banking world by leveraging third-party applications and service ecosystems that are enabled by API
- What are the benefits of Open Banking?
Advantages of Open Banking to Customers
- Customer reaps the benefit of choice:
Most banks offer similar services that are limited in scope. More importantly, most banks aren’t really good financial advisors. With Open Banking, customers can reap benefit of choice as they have multiple options, or service providers to choose from. Therefore, you are not forced to use any specific software because it is bundled with your account.
- More customized and relevant product offerings:
Most banking apps have the same set of service options. With entry of newer service providers, the factor of customisation and service personalisation will be introduced, which will massively benefit customers.
Advantages of Open Banking to Fintech
- Easy Way For Banks to Extend Their Services:
Most banks have embarked on the Fintech journey. Open banking provides them with the opportunity to expand their offering sand include more services under their umbrella.
- Meet The Customer Requirements:
Today’s customers are always looking for more. With open banking, financial institutions will have so much more to offer to their customers and keep them satisfied.
- Open Banking’s Five Key Challenges to banks
- Deep customer apathy
The prerequisite for open banking is participation by customers who voluntarily agree to allow access to their data. It’s vital for open banking to take off. However, open banking aspirations appear to have fallen on deaf ears — on an average only 26% of customers globally favor adopting open banking; this percentage is much higher in emerging markets.
- Lack of customer awareness.
As with any significant change, open banking requires massive education to familiarize customers with the concept and generate buy in. Customer apathy may well result from banks’ failure to effectively communicate and educate customers about the changes to banking terms and conditions that precede open banking.
- Better entrenched competition.
As banks navigate their way to the digital era, they are confronted by several non-bank forces such as fintechs, new pure-digital entities, large non-banks such as Amazon and technology vendors. Each of these have begun rewriting the rules of the banking game and are creating a new banking ecosystem, challenging banks to respond.
- Data sharing anxiety.
Open banking relies on data sharing. This marks a paradigm shift for banks. Their difficulties range from the prospect of losing control over customer data and product cannibalization that might result. Banks appear to be struggling with how much customer data they can subject to exposure in order to participate meaningfully in the open banking ecosystem.
- Legacy systems constraints.
Traditionally, departmental structures, product-centricity and compliance goals have influenced the rollout of core banking systems. Such legacy systems have become complex over time and are preventing effective interoperability with open banking APIs. The critical shift to customer-centric systems and agility enables banks to overcome the limitations of siloed legacy systems.
- What Is Strong Customer Authentication?
Strong customer authentication (SCA) is a requirement of the EU Revised Directive on Payment Services (PSD2) on payment service providers within the European Economic Area. The requirement ensures that electronic payments are performed with multi-factor authentication, to increase the security of electronic payments. Physical card transactions already commonly have what could be termed strong customer authentication in the EU (Chip and PIN), but this has not generally been true for Internet transactions across the EU prior to the implementation of the requirement, and many contactless card payments do not use a second authentication factor.
- What is the Strong Customer Authentication requirement?
SCA will require payments to be authenticated using at least two of the following three elements:
1) Something that the customer knows (e.g., password or security question)
2) Something the customer has (e.g., phone or hardware token)
3) Something the customer is (e.g., fingerprint or face ID)
- Which payments will be covered under SCA?
Strong Customer Authentication will apply to customer-initiated online payments within Europe. Most card payments and all credit transfers will require Strong Customer Authentication. Recurring direct debits are considered merchant-initiated and will not require SCA. A card payment will be in scope of the regulation if the cardholder’s bank and the business’s payment provider are both located in the European Economic Area (EEA).
- What are the implications of SCA?
One of the most important implication of Strong Customer Authentication (SCA) is that it will drive acquirers and other entities in the payment processing ecosystem to improve their fraud rate as that would mean they could offer frictionless flow at higher thresholds which will mean improved security in the payments space but it can also have an negative impact as its implementation can hinder customer experience and place additional burdens on merchants and Payment Service Providers (PSPs).
Instant Payments Summit
What Is Instant Payments?
‘Instant Payments’ as it’s named clearly means “paying or receiving payment instantly*” Instantly* means within few seconds anytime – 24/7, 365 days. Instant payments also known as “Immediate Payments” or “Real time payments” have been dubbed as the “New Cash” of this era of digital payments as it works at least as fast as cash (if not faster than cash).
According to the ERPB, instant payments are defined as –
“An electronic retail payment solution 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 with confirmation to the payer (within seconds of payment initiation). This is irrespective of the underlying payment instrument used (credit transfer, direct debit or payment card) and of the underlying arrangements for clearing (whether bilateral interbank clearing or clearing via infrastructures) and settlement (e.g. with guarantees or in real time) that make this possible.”
Why Instant Payments?
Instant payments are set to drive the most significant transformation in the global payments landscape since the introduction of today’s electronic payment mechanisms. In the digital era, it is incomprehensible why e-payments should take longer than e-mails or instant messages/ SMS, live movie streaming or Instagram. There is definite growing demand for immediacy of retail payments transactions and delaying things would be denying customers of their needs and expectations.
What are the key drivers of Instant Payments?
• Customer’s need for overlay services –
To meet the Customer’s growing demand for immediacy of retail payments Customers expect to pay for and receive their purchases as fast as possible. Suppliers, on the other hand, wish to have the certainty to be paid as soon as they release their goods and services.
• Need for banks to remain competitive –
Instant payments will help banks to not just stay competitive by improving the transaction velocity, reducing fraud risks in the transaction processing but also boost its business growth by offering holistic payments solutions spanning the value chain in order to differentiate from Non-Bank Players.
• Regulators need for encouraging competition and digitalization –
Regulators and central authority’s top agenda is to promote fair competition, Anti-Money Laundering, customer protection, and improving clearing & settlement mechanisms and digitalization of the economy.
• Need for ubiquitous Payments –
Industry’s growing demand to modernize legacy payments infrastructure across countries to offer more ubiquitous payments instruments.
• Non-bank player’s need for customer acquisition –
There will be a level field in a post PSD2 world and Non-Bank players want to enter into this space and use Instant Payments as a potent tool to drive significant market customer growth.
What are the main benefits of Instant Payments?
• Dramatically improves the transaction velocity, overall efficiency and therefore customer’s satisfaction.
• Reduces fraud risk in the transaction processing by reducing transfer time.
• Creates new revenue sources and business growth by offering holistic payments solutions.
• Reduces transaction, treatment and settlement costs and nearly zero cost of cash management, handling and reconciliation for merchants.
• Reach new markets
• Obtain competitive advantage of being providers of holistic payment services
Recent initiatives addressing Instant Payments
• Retail Payments Strategy:
In September 2020, the European Commission published the European Retail Payments Strategy (RPS), which will constitute the base for the strategy on payments-related regulatory changes in Europe for the following years. The RPS covers the matter of instant payments, which is expected to become the “new normal”. The RPS points to a possible need for a legislative initiative for instant payments, in order for it to become widely used in case adoption is not the desired one. This proposal could make it clear which payment service providers (PSPs) should be subject to obligatory participation in the SCT Inst scheme. Moreover, the RPS proposal points to a revision of the Second Payments Service Directive (PSD2) and states that ways to promote the use of electronic identity (eID) and solutions based on trust services will be explored as well in order to support the implementation of strong customer authentication (SCA) requirements under PSD2 for account login and initiation of payment transactions.
• Euro Retail Payments Board (ERPB) Framework for interoperability of instant payments at the point of interaction:
In March 2020, the ERPB established a working group on a framework for interoperability of instant payments at the point of interaction. In the context of this document, an instant payment at the point of interaction is a transaction based on SCT Inst, by a consumer to a merchant at the point of sale (POS) in a store or a payment page on an ecommerce/m-commerce website. Furthermore, it analyses instant payments and the point of interaction models involving a Payment Initiation Service Provider (PISP) or a Collecting Payment Service Provider (CPSP) as a collecting entity of transactions on behalf of the merchants and their respective impacts on the interoperability of instant payments.
In this document, it is also pointed out that a standardization of the message content/data would be needed on how the consumer or merchant data are exchanged between the consumer and the merchant. The interoperability solutions at this layer will depend on the type of transaction data that has been exchanged. The infrastructure needed to exchange the notification messages to the consumer and merchant would need to be developed as well as the standardization of the minimum data elements required in the message flows between the participants in the transaction.
• Public Consultation on Instant Payments:
In March 2021, European Commission launched a public consultation document that is aimed to inform the Commission on the remaining obstacles to the wide availability and use of instant payments in the European Union. The consultation also seeks to identify factors that would stimulate customer demand (corporate users and merchants alike) towards instant credit transfers. According to the document, for an instant credit transfer to be successfully completed, at each end of the transfer there needs to be a PSP adhering to the same set of rules, practices, and standards for the execution of a transfer, such is the SCT Inst scheme. An interoperable system that would lead to a broad level of participation by PSPs is a key precondition for the wide availability of euro instant transfers at the European level. As of March 2021, only 64.6% of PSPs from the member states have joined the SCT Inst. In addition, the consultation tackles the idea of incentivizing payments market players to offer convenient pan-European payment solutions based on instant credit transfers. The results of this consultation will be used to support Europe’s open strategic autonomy in the macro-economic and financial fields.
What are the challenges for Instant Payments?
• Instant Payments currently does not have a proven business case – there is uncertainty on if customers would be willing to pay premium for the service?
• Banks would face investment costs (both one-off & on-going maintenance) as a key challenge – depending upon the complexity of the implementation with the existing systems.
• Implementation would be challenge especially when banks would like to integrate it with its existing infrastructure/systems and implement in parts.
• How will banks handle AML and KYC requirements in an instant environment?
• Interoperability will be a key challenge – as different countries may operate with different schemes. There is a call from the payments regulatory bodies for at least one single uniform scheme to serve Euro transactions in Europe
• (According to EACHA – A published pan-European scheme is a pre-requisite to create the necessary clarity for infrastructures and operators in the clearing and settlement space, to design working solutions)
What are the types of use cases for Instant Payments?
There are four principal use cases:
• P2P (Person-to-Person):
Like – Instant money transfer of funds between consumers to instead of cash.
• P2B (Person-to-Business):
Like – instant e-commerce or bill payments for utility bills – electricity, rent, gas, other payments for services like – electrician, cleaner etc.
• B2P (Business-to-Person):
Like – instant pay-out of salaries, pensions, insurance claims, etc.
• B2B (Business-to-Business):
Like – instantly paying taxes or fines/penalties, or simply one company paying for certain services from other company. (eg printing brochures)
Define Instant Payments in the banking ecosystem
According to the European Central Bank (ECB) in order to preserve the ecosystem from fragmentation and leverage the harmonization and integration achieved with previous initiatives, the Instant Payment ecosystem should be divided in three main layers. These three layers are the:
• Scheme layer (end user scheme and banking scheme layers)
• Clearing layer
• Settlement layer
What is Request to Pay?
Request to Pay is a “pull payment” whereby a payee can initiate a request for a specific payment from the payer. It is a secure messaging framework which overlay on top of existing payment infrastructure and a new flexible way to manage and settle bills between businesses and organisations as well as among friends. For each request message, the payer will be able to pay in full, pay in part, ask for more time or decline to pay and begin a dialogue with the requester. It gives more control to the person or organisation being asked to pay and gives the biller all of the information to reconcile a payment when it arrives. The framework is not a closed community. This means payment service providers, fintechs and corporate will be able to develop services that interoperate with each other to deliver Request to Pay to their customers. It is said to be the next upgrade in real-time digital payments where merchants, billers, corporates and even consumers can pull payments from end payers and customers.
Request to Pay is a “pull payment” whereby a payee can initiate a request for a specific payment from the payer. It is a secure messaging framework which overlay on top of existing payment infrastructure and a new flexible way to manage and settle bills between businesses and organisations as well as among friends. For each request message, the payer will be able to pay in full, pay in part, ask for more time or decline to pay and begin a dialogue with the requester. It gives more control to the person or organisation being asked to pay and gives the biller all of the information to reconcile a payment when it arrives. The framework is not a closed community. This means payment service providers, fintechs and corporate will be able to develop services that interoperate with each other to deliver Request to Pay to their customers. It is said to be the next upgrade in real-time digital payments where merchants, billers, corporates and even consumers can pull payments from end payers and customers.
Why R2P/advantages of R2P
In the payments space there is the contest between physical and digital instruments. Within digital payments there is a battle for supremacy between payment instruments. While credit card, debit card and electronic wallet based payments are expected to grow strongly, R2P has a number of benefits that could result in mass adoption.
• Reach:
R2P provides real time access to bank accounts, reaching a larger population than cards or wallets
• Low cost:
R2P results in a step change in merchant costs, potentially moving to a model in which fees are measured in ‘cents’ rather than ‘percents’.
• Risk and Controls:
R2P may reduce fraud and chargebacks because the consumer authenticates with their bank and approves each transaction. A reduction in payment decline rates could improve customer experience.
• Reconciliation:
Information is captured along with the payment transaction ensuring a perfect match between payment and purchase. Rich information is facilitated by adoption of ISO 20022 messaging standards.
• Real time settlement:
When RTP schemes are built on real time payment rails, the merchant receives funds instantly rather than waiting for two or more days.
• Tokenization:
A powerful feature of RTP in some countries is that payments can be initiated through an email address or phone number; i.e. banking details are not obtained from the consumer. This makes customer registration easier, may facilitate consumer adoption, reduces merchant pain points with Payment Card Industry Data Security Standards (PCI DSS) and reduces the risk of personal data breaches.
• Reduction in late B2B payments:
Businesses in many countries suffer from late payments – an efficient RTP process may help them get paid quicker and reduce Days Sales Outstanding (DSO).
How R2P works?
R2P is a collective term for schemes that trigger payments from bank accounts. In contrast with Direct Debits, R2Ps are real time and suitable for single or ad hoc payments. They do not require a static upfront mandate from the payer and are not subject to extended rights of revocation. R2P may also be thought of as an upgrade of Electronic Bill Presentment & Payment (EBPP), enabling the payer to approve and execute the requested payment in real time.
R2P schemes work in broadly similar ways. This is the high level process for a Consumer to Business (C2B) R2P:
• Checkout:
A consumer shops on a merchant’s website and chooses to pay through their bank.
• RTP initiation:
The merchant initiates an R2P to the consumer’s bank, sending details of the purchase.
• Authentication:
The consumer authenticates with their bank through a web or mobile channel.
• Approval:
The consumer is presented with details of the payment then approves the transaction.
• Confirmation:
The merchant receives assurance from the payer’s bank that the payment is on the way, enabling the release of goods or services.
• Payment:
The consumer’s bank sends the payment to the merchant’s bank through a clearing system, ideally in real time.
Challenges to R2P
While R2P shows great promise, there are a number of concerns from merchants around the practical utility of the payment instrument. The following issues will need to be addressed for R2P to gain consumer and merchant acceptance.
• Strong Customer Authentication (SCA):
Customer experience is an overriding consideration in the digital world and merchants have concerns about users being forced through two-factor authentication requirements for every transaction. The most painful experience would be for a user to first log into their bank and then have to go through additional two-factor authentication to release the payment. Merchants seek a frictionless, risk based approach that enables smooth checkout and minimizes abandoned carts.
• Mobile Experience:
Mobile commerce is a fast growing segment of e-commerce that is particularly sensitive to the checkout experience given the small screen size and variable internet connection speeds. R2P needs to be optimized for mobile commerce through integration with banking mobile apps, fingerprint or One Time Password (OTP) solutions.
• Recurring payments:
Related to the issue of SCA is the ability for R2P to process recurring payments like monthly subscriptions, which can be fixed or variable amounts. Merchants are looking for a seamless customer experience and risk based approach, with only the first transaction subject to SCA.
• Confirmation:
R2P schemes must provide merchants with an unequivocal confirmation for each successful payment so that they can release goods or services in the expectation of being paid. An acknowledgement by the bank that they have received the R2P is not sufficient.
• Loyalty:
In the current paradigm, merchants are not content that their collections fees are used to fund loyalty with third party organizations through the medium of card rewards. In the new direct to bank world loyalty will be provided by merchants to encourage take up of new payment methods, and the merchants will seek to keep that loyalty within their own ecosystem.
How R2P works?
R2P is a collective term for schemes that trigger payments from bank accounts. In contrast with Direct Debits, R2Ps are real time and suitable for single or ad hoc payments. They do not require a static upfront mandate from the payer and are not subject to extended rights of revocation. R2P may also be thought of as an upgrade of Electronic Bill Presentment & Payment (EBPP), enabling the payer to approve and execute the requested payment in real time.
R2P schemes work in broadly similar ways. This is the high level process for a Consumer to Business (C2B) R2P:
• Checkout:
A consumer shops on a merchant’s website and chooses to pay through their bank.
• RTP initiation:
The merchant initiates an R2P to the consumer’s bank, sending details of the purchase.
• Authentication:
The consumer authenticates with their bank through a web or mobile channel.
• Approval:
The consumer is presented with details of the payment then approves the transaction.
• Confirmation:
The merchant receives assurance from the payer’s bank that the payment is on the way, enabling the release of goods or services.
• Payment:
The consumer’s bank sends the payment to the merchant’s bank through a clearing system, ideally in real time.
Challenges to R2P
While R2P shows great promise, there are a number of concerns from merchants around the practical utility of the payment instrument. The following issues will need to be addressed for R2P to gain consumer and merchant acceptance.
• Strong Customer Authentication (SCA):
Customer experience is an overriding consideration in the digital world and merchants have concerns about users being forced through two-factor authentication requirements for every transaction. The most painful experience would be for a user to first log into their bank and then have to go through additional two-factor authentication to release the payment. Merchants seek a frictionless, risk based approach that enables smooth checkout and minimizes abandoned carts.
• Mobile Experience:
Mobile commerce is a fast growing segment of e-commerce that is particularly sensitive to the checkout experience given the small screen size and variable internet connection speeds. R2P needs to be optimized for mobile commerce through integration with banking mobile apps, fingerprint or One Time Password (OTP) solutions.
• Recurring payments:
Related to the issue of SCA is the ability for R2P to process recurring payments like monthly subscriptions, which can be fixed or variable amounts.Merchants are looking for a seamless customer experience and risk based approach, with only the first transaction subject to SCA.
• Confirmation:
R2P schemes must provide merchants with an unequivocal confirmation for each successful payment so that they can release goods or services in the expectation of being paid. An acknowledgement by the bank that they have received the R2P is not sufficient.
• Loyalty:
In the current paradigm, merchants are not content that their collections fees are used to fund loyalty with third party organizations through the medium of card rewards. In the new direct to bank world loyalty will be provided by merchants to encourage take up of new payment methods, and the merchants will seek to keep that loyalty within their own ecosystem.
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