The European Central Bank’s (ECB) Governing Council, in line with the European Commission’s (EC) objectives, has taken an important move towards the full reach of instant payments across the euro area.
Its ultimate objective is to enable European citizens to make real-time electronic payments in euro from and to any country, including in physical shops and online.
In an interview with the European Payments Council, Ulrich Bindseil, Director General Market Infrastructure and Payments at the ECB gave more information about this decision, its benefits and development.
Q: The ECB’s Governing Council last July took significant steps in the infrastructure domain to support the full deployment of instant payments across the euro area. Can you tell us more about these various measures, their timeline and the underlying rationale of this decision?
The ECB has always aimed at pan-European reach of instant payments. This way we can ensure that citizens and businesses across the European Union (EU) can equally benefit from the Single Market and the Single Euro Payments Area (SEPA).
This was our motivation behind launching TARGET Instant Payment Settlement (TIPS) as well as adapting TARGET2 to allow ancillary systems to handle instant payments. Despite these solutions being available, today no viable interoperability framework is in place between the different automated clearing houses (ACHs) that process instant payments in the EU.
As a consequence, payment service providers (PSPs) can hardly find a way to support instant payment transactions between each other at pan-European level. Hence, they are in breach of the SEPA Regulation and the SEPA Instant Credit Transfer (SCT Inst) scheme. In this context, the European Commission had raised the point that the right market conditions were not in place to comply with such regulation.
The ECB discussed with the market how to resolve this issue and consensus was reached that the Eurosystem was best positioned to provide solutions.
As a result, the ECB’s Governing Council has taken significant steps to ensure the pan-European reach of instant payments across the euro area, in line with the objectives shared with the European Commission.
These measures require that by the end of 2021:
- All PSPs that adhere to the SCT Inst scheme and are reachable in TARGET2 become reachable in a TIPS central bank money liquidity account, either as a TIPS participant or a reachable party;
- All ACHs offering instant payment services migrate their technical accounts from TARGET2 to TIPS.
Q: What are the main benefits of these measures for PSPs and CSMs? How will the ECB ensure that PSPs and CSMs will implement them?
Our package supporting the pan-European reach of instant payments brings benefits to both PSPs and ACHs that would like to settle instant payments across the entire euro area by:
- Enabling SCT Inst compliant PSPs to meet their legal obligations as stipulated in the SEPA Regulation without depending on the actions of other PSPs or ACHs.
- Making reachability a commodity, reflecting the fact that it is a legal requirement: Not only would TIPS benefit from 100% pan-European reachability, but all ACHs competing in the provision of instant payment services would automatically include this feature as part of their service offer. In this regard, ACHs would no longer depend on bilateral agreements to establish links, and there would be no potential credit exposure for cross-ACH transactions.
- Removing liquidity traps: With the implementation of the aforementioned measures, ACH technical accounts can be funded and defunded from central bank money accounts in TIPS at any time, not being limited any longer by the opening hours of TARGET2. This also facilitates moving liquidity from one ACH to another around the clock, which can be particularly valuable during long weekends.
- Fostering the creation of a competitive marketplace where each PSP may decide independently about two important factors: (i) where to instruct (in an ACH or in TIPS) and (ii) where to hold its liquidity and settle (in an ACH or in TIPS).
To ensure the timely implementation of the measures, the entire Eurosystem including all national central banks will assist the market in its preparations.
Q: What other steps does the ECB believe may be needed to achieve its objective of pan-European instant payments by the end of 2021?
We believe that the adopted measures are powerful, and we now need to make sure that they are adopted in a timely manner. The fact that the market embraces this change is critical for each and every individual market participant.
Furthermore, it is indispensable to ensure that the overall instant payments landscape will improve and will reach a more mature state both in terms of uniformity and usability of the new payment instruments.
TIPS will now undergo the necessary changes to accommodate the decision of the ECB’s Governing Council to keep providing state-of-the-art technology and services to the euro area as a whole and beyond.
Q: How will the future euro-area-wide reachability of instant payments ultimately impact on European consumers’ and businesses’ payment behaviours?
Our ultimate goal is to provide certainty that European citizens and businesses can instantly transfer funds in euro, both in physical shops and online across the EU.
They will be certain to reach their counterparty and confident that their instant payments will be settled, and not rejected just because different PSPs and ACHs are involved.
The pan-European reachability between all actors in the chain is necessary to foster innovation for front-end solutions which will benefit businesses and consumers.
The ECB and the entire Eurosystem believe that instant payments should become the “new normal”.
The key element missing to fulfil this vision is pan-European reachability and the recent decision of the ECB’s Governing Council will ensure it materialises.
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