Eurozone scrambles to beat cryptocurrencies by consolidating instant payment system
EU moves to get fragmented scheme accepted by all banks before Facebook’s Libra hits the bloc
Brussels — The eurozone could have an instant payments system shared by all banks in the bloc by the end of 2020, finance industry officials say, as lenders face more competition from the likes of Facebook and other tech firms.
Real-time payments have been possible in the 19-country currency bloc since 2017, but only about half of the eurozone’s banks have joined the scheme that underpins these transactions and it is mostly used for domestic payments.
The project could now accelerate as banks feel the heat of new competitors such as Facebook, which last week unveiled plans for a cryptocurrency that would offer seamless payments to its users worldwide.
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“The clock is ticking,” said Etienne Goosse, director general of the European Payments Council (EPC), which brings together large European banks, including Spain’s Santander, Deutsche Bank and France’s Societe Generale.
Goosse said regardless of Facebook’s success with its move into payments, big technology firms were here to stay and banks needed to move more quickly.
He said the big tech firms had the advantage of being global, unlike the fragmented European banking industry.
“They come with a global solution, under a global brand offering many things that the consumers seem to find wonderful,” Goosse said when asked about the impact of Facebook’s plans for cryptocurrency Libra.
The EPC standard for instant payments has so far been adopted by about 60% of lenders and payment services providers in the eurozone, Goosse said, adding that it could be spread to all banks in the bloc by the end of 2020.
Without full coverage, some bank customers could experience transaction failures if transfers involve banks outside the system, which would reduce trust in the new service, another EPC official said.
Instant payments allow the completion of transactions between individuals and businesses in a matter of seconds. Traditional transfers take at least one day before the payment is credited.
Other industry officials confirmed that 2020 is a credible target. But for the system to work across borders, existing clearing and settlement mechanisms should cover the whole eurozone. These mechanisms ensure money is correctly transferred between parties.
Several private clearing houses use the EPC standard for instant payments, such as EBA Clearing, which brings together Europe’s largest banks or national counterparties such as Spain’s Iberpay or Italy’s Nexi.
The European Central Bank in November launched its own settlement system for real-time transactions, known as TIPS, which stands for Target Instant Payment Settlement.
But each of these different systems covers only a few dozen banks, making instant payments often impossible among lenders that are not members of the same clearing houses.
“The challenge now is to make these mechanisms interoperable,” said Piet Mallekoote, the CEO of the Dutch Payment Association. The Netherlands has already made instant payments available to all bank customers in the country via a project backed by seven major domestic banks, including ING and ABN AMRO.
But even if a payments system is rolled out across the eurozone, this may not be enough to attract customers away from fintech providers with easy-to-use apps.
Facebook can already tap into its established social media and chat services, but banks would need to agree on applications such as mobile payments or use customers’ existing payment cards to convince them to use banks’ instant payment services.