The multitude of tasks in payments remains enormous. For many projects, 2022 will be a decisive year. However, in view of the difficult framework conditions – not least due to the ongoing pandemic – the question arises as to whether all of them can really cross the finish line on schedule or be substantially advanced.
Among the most significant initiatives of 2022 are certainly the major projects in international and high-value payments; the go-live of the TARGET2 consolidation and the start of the SWIFT migration to the ISO 20022 format, both in November 2022. The user tests and their monitoring by the central banks, which will pick up speed in the spring, will provide reliable information on how far the financial services industry has really come in its preparations for the TARGET2 migration.
In addition, two further international payments projects are already waiting in the wings: the processing of cross-border payments in real time and the simplification and improvement of international payments for smaller companies and consumers. The drivers behind this development are the G20 countries and the success of alternative providers such as Wise.
In mass payments (SEPA), payment service providers must prepare themselves this year for the migration of SEPA schemes to the newer ISO version, which is due to take place in 2023. They also need to assess the concrete impact of the EU directive against VAT fraud on their business operations. Background: the EU is taking massive legislative measures to curb the VAT gap within the Union by introducing a kind of tax database in payments. The new reporting obligations will affect financial service providers from January 2024.
Decisive year for Request to Pay (RTP)
With regard to SEPA procedures, the focus this year will be on whether Request to Pay (RTP) can be successfully introduced into the market. There are plenty of application scenarios. Among other things, RTP can be used in e-commerce, in the e-billing process and for recurring payments, even at the point of sale. Nevertheless, financial service providers seem to be hesitant about the concrete implementation. So far, hardly any efforts to launch products based on RTP use are discernible. Possible reasons for this are a lack of demand as well as economic or technical hurdles:
- Customer-bank interface: there is currently no central register of which customer has their account at which institution.
- RTP clearing: so far, only EBA CLEARING offers processes that are compliant with RTP. In order to cover as many payment recipients and payers as possible, other clearing houses must follow suit.
- Payment process: on the one hand, a technical solution is required for matching, i.e. for assigning response messages to the payment recipient's bank to the original RTP. Secondly, it must be decided which payment options are to be offered.
In the RTP payment process, many use cases rely on the use of SEPA instant payments. 2022 will bring clarity as to whether the EU Commission will make instant payments mandatory for all payment institutions as part of an amendment to the SEPA regulation or the Payment Services Directive (PSD) – at least with regard to accessibility. Because by the end of 2021, only around 60 per cent of all European payment service providers had subscribed to the corresponding scheme. Accordingly, only – or at least – a good ten per cent of all transfers in the SEPA area are made on the basis of the SEPA instant credit transfer (SCT Inst) scheme.
Little momentum expected for the European Payments Initiative (EPI)
The spread of RTP and instant payments will also play an important role in the realisation of the European Payments Initiative (EPI). At the moment, however, it is questionable whether a uniform pan-European payments solution can be created as an alternative to existing international payments solutions and systems. In Germany, only the Sparkassen-Finanzgruppe (German Savings Banks) and Deutsche Bank seem to still be following the initiative. If the EPI fails, Europeans will ultimately make themselves dependent on US procedures and probably Chinese procedures as well. Hope remains that both politics and the public sector will once again significantly increase the pressure on but also the support for the financial sector. Perhaps a French-German core will form the central part for the EPI.
And what will happen with the digital euro in 2022? The future project is still under scrutiny. The premise is that the digital euro should not replace cash, but complement it. From the consumer's point of view, the digital alternative must ensure the highest level of anonymity and security. Furthermore, provision, availability and interoperability are of high importance. According to current information, the ECB wants to involve commercial banks and payment service providers (PSPs) in the plan. They are to act as intermediaries between central banks and consumers.
One way or another: the digital euro is coming
But digital money does not necessarily have to be issued by a central bank. Financial institutions can also create solutions for so-called programmable payments. One example are euro-based stablecoins; digital tokens backed by a specific monetary value. Progress in these procedures is also expected in 2022.
In whichever form it happens, the digital currency will become reality. This is the only way for the German industry to fully benefit from the potential of the Internet of Things (IoT). Especially the progressing automation in goods logistics or increasingly popular asset-as-a-service models are hardly conceivable in the long term without fully autonomous payments in real time.
In view of the costs associated with aforementioned changes, financial institutions – mainly tier 2 institutions – will increasingly outsource payments or at least purchase payments software as a service in 2022 as well.
The battle for talent
Last but not least, a trend in society as a whole in recent years will continue to intensify: the lack of – and the battle for – resources. Prices for experts and services in IT will continue to rise. Because the question is increasingly no longer who can take on a task, but whether anyone can be found to do it at all. The procurement departments of financial institutions will be headhunting external resources.
Author: Hubertus von Poser, Head of Consulting Payments, PPI AG
