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European Central Bank
What will Shape the Future of Payments?
Financial technology, also known as fintech, has often been referred to as a disruptor of traditional banking. However, whether we see it as a threat or an opportunity depends on our viewpoint. In my opinion, fintech is much needed both because it questions traditional ways of doing business and because it could potentially lead to improved efficiency and services.
Fintech companies navigate more easily through our increasingly digitalised society, managing to reflect the needs of consumers through alternative payment solutions. However, although the old ways of doing banking are losing ground, fintech may help to return banks to the forefront of payment innovation. It is therefore important to foster better collaboration between the established entities and the new players, be these fintech companies or non-bank providers of payment services.
Instant payments are another development that encourages innovation in the industry. These are electronic payments that involve the immediate transfer of funds from the payer’s account to the payee’s account. They are commonly initiated via banking applications or other mobile-friendly methods. Instant payments can support person-to-person, person-to-business or business-to-business uses and offer great benefits to users, such as optimised liquidity flows, immediate payment reconciliation, limited risk and 24/7 availability. After all, when most things are only a click away, why should payments be any different?
A number of national markets have successfully rolled out instant payment solutions. Denmark, Sweden and the UK are examples of countries where paying instantly is both possible and very popular.
However, in the broader European context there is a need to take a holistic approach when it comes to the introduction of an integrated and efficient solution for pan-European instant payments. To address this need, the European Central Bank has developed a new service that facilitates the real-time settlement of payments at any time of the day and on any day of the year. This service—TARGET Instant Payment Settlement (TIPS)—can be used by banks and other payment service providers in Europe. It is based on the SEPA Instant Credit Transfer (SCT Inst) scheme which was introduced by the European banking sector in November 2016.
Using SCT Inst, TIPS and PSD2 as a basis, European banks can offer enhanced payment services to their customers. They can collaborate with fintech companies and online payment providers to develop, with the help of new technologies, the solutions that will best serve their customers' needs. This will open the door not only to innovation but also to better business opportunities and increased competition in the industry. Ultimately, consumers will benefit from more secure and more efficient services, which have higher quality and more attractive prices. Widespread innovation in payments is just around the corner and we will soon be able to experience it ourselves in our daily lives.
