Future instant payments

January 2018 – Standardised legal framework for instant payments (ip) since November 2017. Retail can benefit from ip. HSH Nordbank will offer solutions in good time.

With instant payments, funds can arrive in the account of the recipient within 10 seconds. Payments can be made via online baking or a smartphone app. The Deutsche Bundesbank believes that these kinds of real-time transactions will soon be routine in Europe. Executive board member of the Deutsche Bundesbank Carl-Ludwig Thiele estimates that the service will hit the market by 2019, and will then gradually go on to become a standard procedure. “At first instant payments will be of interest primarily for individuals, but businesses that provide products and services directly to customers and/or have online stores will increasingly notice its influence on consumer behaviour and business models” says Yoram Matalon, head of transaction banking at HSH Nordbank. For the credit card industry however, the rise of instant payments represents a serious challenge, since they pose a threat to the need for credit cards at the point of sale.

“The idea that in the future a retailer will be able to accept real-time payments from a customer and have the funds available immediately is electrifying.”

Yoram Matalon, Head of Transaction Banking at HSH Nordbank

Instant Payment

From November 2017, these new instant payments will be subject to a standardised legal framework, and the first providers are already up and running. “Retail in particular can benefit greatly from instant payments”, says Matalon. “The idea that in the future a retailer will be able to accept real-time payments from a customer and have the funds available immediately is electrifying.” The banks are laying the groundwork for this by providing the infrastructure necessary for instant payments.

At the moment, instant payment transfers are limited to 15,000 euros. “But this is just the beginning, these amounts will rise,” says Matalon. The banking sector is open to this new technology. “Everyone has recognised the potential of instant payments, which have a whole range of applications. For example, logistics providers and shipping services can receive payment upon delivery within 10 seconds,” says Matalon. As the number of players betting on instant payments grows, the lack of market penetration will become less of an issue. “We are expecting the entire Sparkassen Finance Group to be on board by July 2018”, says Nico Frommholz, head of cash management at HSH Nordbank. According to Frommholz, we could see market coverage of 85 to 90 per cent by the end of 2019. In Europe, the pioneers in terms of instant payments are all in Scandinavia. “Peer-to-peer payments from smartphone to smartphone are particularly popular in these countries, where they are increasingly replacing cash,” says Frommholz.

Instant payment: a fertile ground for new business models

Fertile Ground for New Business Models

After coming up with paydirekt as an answer to online payment services like PayPal, the banking sector is now meeting the wishes of regulators with the instant payments system. The expected establishment of instant payment provides fertile ground for new business models, which are often developed by FinTech companies. All the more reason for increased collaborations between the banks and FinTech. The fact that in recent months several payment providers have changed hands for large sums of money is an

indicator of just how attractive this market is at the moment. Working committees from the German Trade association (HDE) are currently discussing how retail can gain access to this market, and HSH Nordbank is part of the conversation. “As a bank for entrepreneurs, we will provide our clients with appropriate solutions in good time,” says Matalon. However, before instant payments become relevant for business clients, the system has to be operational across the board. Financial service providers are looking at considerable investments here, in part because instant payment technology has to be available 24 hours a day, 7 days a week. Another problem is that in Germany, the NFC channel for transmitting the retailer’s payment details to the customer’s smartphone has not yet been enabled for Apple devices. “Despite newer iPhones already being equipped with the necessary NFC chip, the Apple community has to use a QR code to make instant payments. Solutions for this will have to be developed at the point of sale,” says Frommholz.