Mobile & instant payments
Payments were notably the first banking services to go digital (online and/or mobile) with the verification of the bank account balance being the most frequently used, and opening the door to new phases of digital banking. The digital customer expects payments to be seamless and mobile, and wants to be able to buy products and services whenever they want from wherever they are. All processes, infrastructures, systems, rules initially designed for “traditional” paper-based payments are currently being adapted/modified/created to cater for the new nature of payments.
Opportunities for banks and customers
• European banks offer new and innovative banking products to their customers in an environment where new technologies strongly stimulate innovation in payments. They have the potential to retain a key place in the payment chain, via their infrastructure and through the mix-innovative payment solutions they offer and – in addition - smart solutions offered in partnership with other providers such as financial technology companies (Fintech).
• Mobile and digital payments will offer the possibility to streamline many processes which are traditionally paper-based or manual via Digital Channel Service Interface, contactless payment systems and mobile wallets. This will be more and more the case with instant or real-time payments and real-time Peer-to-Peer payments allowing immediate transfers of money to another person. i.e. payments will be immediate, 24 hours a day, each day of the year.
• This will certainly help to meet customer demand and expectations including - but not limited to - the uptake of e-commerce and m-commerce services.
• Banks in Europe have developed a second-to-none payment infrastructure which is highly efficient, secure and reliable. Every day more than 400 million retail payments are processed without error in Europe. Maintaining and improving this infrastructure is costly and requires a sustainable business model.
• The Single Euro Payment Area (SEPA) makes all retail electronic payments in the euro area as easy as euro cash payments, providing fast and secure transfers between bank accounts anywhere in the eurozone, facilitating cross-border payment with the use of credit transfer, direct debt and payment card, ensuring transparent pricing and a foolproof guarantee that a payment has been received for its full amount. SEPA will also become a reality for euro-denominated payment in non-euro area countries from 31 October 2016. Banks are now busy adapting the infrastructure and systems to instant, digital payments, and providing integrated services across all payment channels and instruments.
• The use of cash may be reduced as well as any related management costs.
Barriers to consumer protection and security
• The challenge of new entrants and new models adds a new dimension to the changing role of banking. New entrants are establishing digital-only banking models, and established players in other sectors continue to develop products and services to challenge the incumbents. However banks’ infrastructure safely connecting the accounts of all customers will continue to be the backbone of the universal payment system.
• Banks recognise the need to change business models, to update systems, and processes. Nonetheless, a truly level playing field should be guaranteed to ensure that similar rules apply to all payment services providers. Those rules should remain the same regardless of the type of institution.
• The recently reviewed Payment Services Directive (PSD 2) stipulates that the “account servicing payment service providers” (namely banks) shall make it possible for “payment initiation service providers” (third-party payment providers) to rely on the authentication procedures provided by banks to initiate a specific payment on behalf of the payer. This means that third-party payment providers will have access to client accounts and customer data information via the banks’ infrastructure. The challenge is to ensure security and privacy for both banks and consumers in such a new scenario. Indeed, the structure behind the functioning of certain payment initiation services/third-party payment providers potentially calls into question the banks’ measures to keep online banking secure, and per se, might put at risk existing anti-money laundering and fraud prevention measures already in place. A clear liability framework, as well as appropriate technical standards, should be put in place to face fraud incidents and handle data protection. (See EBF Blueprint chapter on Better access and Removing regulatory inconsistencies).
• Digital banking services require a high level of security to protect against the risk of fraud, theft and misappropriation of data. The right framework should be put in place to guarantee a correct level of data protection and security at EU level.
E-invoicing per se is not directly a payment matter. It is a commercial or business matter between two counterparties in a sales transaction: the seller and the buyer. This said, the European standard on e-invoicing (as required by Directive 2014/55/EU) will be, together with the Single European Payment Area instrument, one fundamental building block to enable the development of fully automatic e-invoicing and payment solutions at the pan-European level.
A wide adoption of e-invoicing is expected to spread benefits in both efficiency and cost savings. In Europe, according to a research issued by Billentis5, the annual invoice volume is expected to reach €35 billion. Already, in 2015, the general expected volume of e-invoices is totalling €7,5 billion. The biggest incentive for accelerating the general diffusion of e-invoicing processes is represented by the potential cost savings. It is important to highlight the presence of Electronic Bill Presentment & Payment (EBPP) solutions that are managed either directly or indirectly via Payment Services Providers and can be used in the Business to Customer (B2C)/Government to Customer (G2C) and Business to Business (B2B) domains. For consumers, it means handling invoice payments faster and more easily and for business companies it increases efficiency throughout the payment as well as the overall reconciliation process.
Opportunities for banks, customers and billers
• At both national and international levels, the success is growing for services that allow a company or a governmental agency to send virtual bills to their clients. This enables the automatic payment through Internet - Electronic Bill Presentment and Payment (EBPP) - and simplifies the accounting reconciliation processes of these services for the bills’ issuer. Besides the companies which provide EBPP “Biller Direct” services, the banking industry, in the role of Banker Aggregator, has achieved new EBPP solutions that allow the consumer to make, on a bank’s website, payments to multiple billers that are pre-registered to receive payments.
• In addition, the banking sector is providing services for e-billing in a multichannel logic that allows payments through several channels such as Home/Corporate banking, ATMs and mobile phones, and a multibank logic that overcomes the limitations associated with a single bank system. Multichannel and multibank logics are considered the specific success factors for the development and diffusion of such services.
• For consumers, this e-billing solution will create a more satisfactory user experience (easier payments, availability 24/7, etc.), increase high security levels in electronic transactions and ensure availability of successful charge notice and reduced use of papers (electronic storage).
• For billers, it will offer a further extension of the commercial offer for clients and the possibility to reach a higher number of online users, both retail and corporate. E-billing will necessarily improve efficiency as transactions are quicker, more secure and traceable and accounts’ reconciliation processes, are simplified. The customisation of services will also offer advantages to suit specific requirements.
• The models, now widely used internationally, involving an active role for the banking community, are mainly based on centralised multibank application platforms, which are often managed by operators already active in payment processing or document management.
More recently, the need to integrate the document exchange process with the payment process has led several companies to enter into agreements with operators having a strong local presence, such as supermarket and tobacconist networks. They also accept other payments, such as credit cards. This model allows the consumer to authorise payments of expense accounts, at any local retail point.
• For the financial institutions, several opportunities could arise from this specific process including increased efficiency and reduced overall costs, decreased use of paper (electronic storage) and relative paperwork management. It also offers a higher level of traceability, process control and internal storage (due to the digital form of the data). In terms of security, e-billing will offer better collateral services because of their integration with security tools (digital signature, encryption, end-to-end, etc.). In general, e-invoicing with shorter payment delays will lead to fewer errors as well as reduced printing and postage costs. What is more, it will have a positive impact on the environment and energy consumption.
Barriers to e-invoicing implementation
The 2014/55/EU Directive has made e-invoicing in public procurement mandatory by 2016 and now calls for a European standard related to the semantic data model of elements at the core of electronic invoices. This said, the take-up of e-invoicing and related payment solutions in the EU is at an early stage and several barriers have been identified by the Euro Retail Payment Board (ERPB):
• Businesses and consumers have a limited knowledge of the advantages and added value owing to lack of motivation to initiate change.
• SMEs and micro-enterprises perceive e-invoicing/billing and the integrated presentment & payment solutions as complex and expensive to implement.
• Consumers lack access to comfortable and secure solutions for receiving and paying e-invoices/bills.
• The payers (and even the payees) might experience a lock-in effect because of divergent service levels and complexity in switching.