Sibos 2024: 24/7 payments processing: the road ahead

In today’s world, the economy runs 24/7. It’s a world driven by technological advances resulting in non-stop production, distribution and consumption of goods and services.

In today’s world, the economy runs 24/7. Our payments ecosystem needs to keep pace. But is it succeeding?

Our payments ecosystem needs to keep pace. But is it succeeding?

The non-stop global economy has not only reshaped industries but also expectations. We have all got used to the convenience of round-the-clock operations and business. Anytime, anywhere is what consumers expect.

For corporates, this has a real impact on their business models and the treasury that supports them. We see this in retail, insurance, logistics, and travel and leisure, among many other industries. In business-to-business (B2B), instant ordering, releasing and delivery of goods and supplies have also become more common.

Expectations and standards don’t just impact the pace of physical supply chains. The financial supply chain also needs to support the 24/7 rhythm, enabling the demand of B2B and B2C business. Without a financial system supporting the demand for an instant, always-on economy, business comes to a standstill.

So with payments acting as the oil in the financial supply chain machinery, are regulators and financial institutions keeping up with tomorrow’s 24/7 economy?

According to Maarten Lossie, ING’s Head of FI Product Management, a future of cheaper, faster and more transparent payments is a certainty. This is reflected by the actions of regulators and industry bodies to uplift the full end-to-end payment chain across all industry participants.

In over 60 countries, including those in the Single Euro Payments Area (SEPA), instant payments 24/7, 365 days of the year will be the standard in the domestic or regional arena. Since 2017, SEPA Instant Credit Transfers have opened the door for financial institutions and payments service providers (PSPs) to deliver real-time, cross-SEPA payments throughout the eurozone. But a real-time payment scheme needs scale and availability to support a 24/7 instant economy. With limited uptake till now, the SEPA Instant Payment Regulation has come into force.

This regulation means all banks and PSPs in the eurozone have to be able to receive instant payments by 9 January 2025 and must be able to allow customers to send instant payments by 9 October 2025. For non-euro SEPA-based banks and PSPs, this will be two years later in 2027.

For financial institutions, it is therefore time to act quickly.

For smaller and medium-sized banks, being ready for reachability by January 2025 and initiation by October 2025 is cumbersome and a real challenge, and requires large investments in technology, infrastructure and compliance.

Large SEPA banks in Europe, like ING, are providing solutions for bank and non-bank payment service providers that will help them to be ready on time.

That being said, even when opting for an indirect participation solution, the change remains a material undertaking, for example when considering 24/7/365 funding.

Taking instant payments further

Cross-border trade is not limited to the SEPA region in our global economy. So how do we translate this move to instant payments to global trade?

On a global level, the G20 has set quantifiable targets to enhance cross-border payments with a focus on speed, transparency, access and cost.

Some key projects have started under three pillars:

• Data exchange and messaging standards: for example, the migration to ISO 20022 for all cross-border and RTGS (Real Time Gross Settlement) traffic or the use of application programming interface (API) protocols.
• Payment systems interoperability: for example, bilateral and multilateral initiatives.
• Legal, regulatory and supervisory frameworks: this is of paramount importance since legal and compliance are often a cause of friction in international payments. Support from public authorities and central banks is conditional and crucial.

In order to reach the G20’s targets, there are several market initiatives currently taking place – for example, the Bank for International Settlements (BIS) Nexus initiative in Southeast Asia, the TARGET Instant Payment Settlement (TIPS) cross-currency initiative and the European Payments Council’s (EPC) One-Leg Out Instant Credit Transfer (OCT Inst) scheme from outside to inside SEPA and vice versa.

Two main developments are now converging: removing friction in international payments and enabling international payments on instant, 24/7 infrastructure that was originally designed for domestic payments. The latter is the catalyst to realise a true 24/7 international payments arena.

Of course, Swift initiatives like Swift Global Payments Innovation (Swift GPI) have already seriously improved the ability to measure the speed of processing cross-border payments, as well as pushing industry participants to move the needle. The industry currently sees 90% of cross-border payments reaching their destination within three hours and 75% within one hour. We now need to take a step further to improve these numbers.

As stated above, there are quite a few initiatives in the market, and each initiative requires broad support across the industry.

The challenge boils down to determining which initiative will make the most difference for clients, while also assessing uptake throughout the market. A key initiative to improve the process of euro payments from outside the SEPA zone into the SEPA zone is the EPC’s OCT Inst scheme.

It enables banks and non-bank PSPs located outside the SEPA zone to process international SEPA payments instantly, on a 24/7/365 basis, in full compliance with Financial Action Task Force (FATF) recommendations on transparency in the payment chain.

We believe this will materially improve the average processing speed (especially considering opening hours), transparency (especially because of status updates processed in the scheme) and costs.

There is fierce competition in winning international payment mandates and capturing the associated foreign exchange (FX) margin among financial institutions and fintechs around the globe. When talking to our FI clients, costs are a top priority, especially for low-value remittances, followed by instant 24/7 processing.

We believe the OCT Inst scheme can make these needs a reality for euro payments into the SEPA zone. However, the reach is currently still limited, unfortunately.

Our view is that there is a clear benefit for all industry participants to know that one-leg-out SEPA payments are processed via the OCT Inst scheme. This is a clear commercial incentive to promote the uptake of the scheme for banks and PSPs across the SEPA zone.

Therefore, we would advocate that the OCT Inst scheme becomes mandatory to make sure that we can all meet the G20 objectives, which is in line with the position of most transaction banks.

Our objective is to offer our non-SEPA FI clients the ability to offer their retail and corporate clients an international payment experience that is faster, cheaper and more transparent. This may take time, but we believe this will result in a consistent experience across the SEPA zone in the end.