Towards a single platform for all payments…
By Emmanuel de Bouard, Head of Cash Clearing Services for SG GTB,
& Frantz Teissèdre, Head of Interbank Relationships for SG GTB
“Better, cheaper and faster is what customers want but we have to find a subtle balance between tailoring and harmonisation to achieve this.” Frantz Teissèdre, Head of Interbank Relationships
Some markets are responding to the real-time payments trend by engaging with their stakeholders in strategic thinking to determine how best to move towards a single, multi-functional platform for all payments, not just domestic payments. What makes the business case to justify a major overhaul? What are the benefits, challenges and risks in creating a single, fast, hybrid infrastructure? And what role will new technology and new entrants play in this re-invention?
- Regulators are pushing strongly for financial institutions to adopt single platforms for all payments, which would cover different countries, time zones and currencies. Technology innovation and a more mobile global population have raised the question of how payments can be harmonised. Regulators want a single, universal payments system that will ensure stability among different currencies and security of payments regardless of the currency, time zone or country.
- Building a single payments platform is complex from a technical viewpoint because it is not just about making payments across borders. At present local and regional payments schemes have emerged, such as SEPA, but there is still diversity. Within SEPA, for example, there are more than 20 clearing systems. This is because there is a need to tailor solutions for local requirements. This diversity also can be seen beyond Europe. The strong legal principles governing payments infrastructures – based on G20 regulations –lack harmony across jurisdictions because each local regulator has translated the principles in a different way, according to the country’s risk sensibilities, ways of doing business and legal landscape (including bankruptcy laws, consumer protection and data privacy). Improvements in the way the principles are applied, in order to achieve harmony, must be found.
- How to ensure adequate liquidity within a single platform for each of the currencies and payments types involved is a big question. Rather than a single platform, different platforms may emerge depending on the type of payment to be made and the reachability required. In Europe, for example, a distinction has been made between low- and high-value payments because they have different risks and liquidity requirements. As a result there are currently purely domestic retail payments platforms such as CORE-France and Equens, a retail European platform in EBA Step2 and finally large value payments platforms such as Target2 and Euro1. Different banks’ communities are linked to these systems; while Step2 hosts European retail banks, , Target2 is predominantly used by the major banks that make very large value payments for foreign exchange and capital markets transactions. If you put these communities on the same payments platform the liquidity requirements will not be the same. Moreover, the liquidity requirements will be in different currencies.
- As regulators and the market also push for real-time payments, financial institutions and other payments stakeholders have to ensure that payments can be made across borders quickly and securely. Ensuring this in the case in one currency is difficult, but within the more global current environment it is an extremely complex challenge.
- Clients – both corporate and consumer – must not be overlooked when considering a single payments platform. The continuing existence of multiple payments systems across the Eurozone, post-SEPA, is due to the cost for corporates of adapting to the SEPA instruments. Corporates have already made substantial investments in their treasury systems and are not in a position to make further investments in their infrastructure. Moving to a single platform requires the involvement of all payments stakeholders, including regulators, financial market institutions, payment services providers and clients. The technology exists to develop single payments platforms, but it is difficult to expect actors to invest in costly change that might not deliver a return on investment.
- The business case for a single platform is attractive as it means financial institutions would require only one link to one platform. At present, Societe Generale has multiple connections to multiple clearing systems. It is costly to manage these connections and ensure the liquidity required is available. The complexity of building a single platform is still too great at present. Future developments in technology – an already fast moving industry – may lead the industry to a single platform over time. But there are other issues that also need to be addressed in addition to purely technical ones, such as standards and formatting, governance of the platform and resilience and backup.
“A single payments platform needs to provide a business case for all payments industry participants. In the absence of more advanced technology, such as system would be complex to build and there are still questions over governance and standards. A single payments platform will come in the future but the time is not yet right as there are still too many unresolved issues.” Emmanuel de Bouard, Head of Cash Clearing Services