Nordic payments evolving

One year ago, I posted an article What’s next for Nordic payments? Rise of real-time that is cross Nordic border – the P27 initiative that now has become a de facto infrastructure with a real plan going forward. Even further, Lars Sjögren (CEO@P27) states that there is no plan B!

In this work, there are multiple parallel streams to gain traction to stay on plan and reach important milestones. First, there is the go-live with the new Clearing House (ACH) that makes use of modern payments standards of ISO 20022. The work is very much in progress and we can expect that the ACH have an official launch in first half of 2022. The go-live is an important milestone since that will mark the start of open for business and banks can start move out from Bankgirot and in into a highly effective clearing that is based on real-time DNA.  

This brings us to the second stream of making use of the new clearing house. Two very complex activities are related. First, banks can re-define the current bank flows/processes that have been built on old legacy streams where validations, enrichment, business and processing rules etc. becomes very different. This type of work is very time consuming and carries risks if the process flows fail and are incorrect. 
Alternatively, banks may build a completely new set of products and services for example processing flows for salaries and invoicing. This rationale is most often preferred since that will not ruin the existing flows during the transition and pave the way for a streamlined communication between the bank’s customers and the clearing (future proofing). Remember that the new infrastructure in a near future will expand into much more API’s for messaging and services such as Request to Pay and Confirmation of Payee etc. I personally recommend building new flows since that will streamline and simplify the orchestration for future use. 

Now, there is also a second complexity – how to connect and make the best use of P27? Several banks who I speak to identifies that building in-house have several risks that are taken too easily. It’s often the case that the estimates are not considering all needed steps and requirements. It’s all ISO 20022, but the amount of message flows back and forth with P27 are several where each have a relationship with a specific payment that is in a unique status and requires orchestration for multiple scenarios. Build or buy is naturally within each and every bank to consider. Often it comes down to the culture or the strategy where the bank is now and what they look for. Other considerations are if this still aims to be part of core business of banking or is the appetite better served as a function/service that is maintained and always compliant as an outsourced service? 

Deciding the way forward on these complex issues are major steps for the management at banks. Looking further this transformation is a major investment running up to the migration in 2022. Within one (yes one) year, several payment types such as salaries, invoicing, and pensions are to migrate out from Bankgirot and connected/directed towards P27. For migration purposes, there are several ways to address that, that is of very high importance to think about. This work will need to become phased as well, since first out are salaries and invoicing followed by the usage of alias management (solving the lookup of Bankgiro- and Postgiro-number towards accounts). Also keeping in mind that there are payment types that are de-commissioned as well, such as paper based Värdeavi and Inbetalningskort, and that needs to be addressed. In any of the cases, one piece of advice is to have the option to stay connected to both Bankgirot and P27 until your team at the bank have completed the entire migration.   

2020 has been a sharp reminder that unprecedented events can result in abrupt, yet long-term change and every industry must adapt to keep pace. The challenges ahead are not only to perform the daily business as usual; it is to take steps forward that reduce the friction for customers in driving new and up-to-date capabilities that are relevant for each and every one. Having this in mind, think about the core values you offer as a bank? Think new and different in the way you address your market, and how that will be carried out.  

P27 is on the mind for the majority within our industry, but it’s not the end-goal by all means. The European Central Bank is kicking off a project with Sverige Riksbank offering TIPS as a service that settles payments in central bank money in real time and around the clock of instant payments in euro, but also has the functional capability to support other currencies. TIPS ads the extra leg in response to the increasing consumer and business needs that stem from the growth of cross-border e-commerce, tourism and migration flows with the first settlement of instant payments in Swedish kronor scheduled for May 2022. This interoperability offers consumers to buy/transfer money into any euro area country and the other way where a customer in the euro area can transfer Euro (€) in payment for goods in Sweden in the same way. 

So far, I have not elaborated on the true benefits of the investment ahead. I’ll save that for my next blog that digs deeper into Request to Pay and several other services that will deliver return-of-investment and differentiation for you as a banker. 

My final words, David G.W. Birch wrote in September a brilliant article about European Payments Initiative (EPI) or, as he call it, Le Third Scheme. In time, we will experience a similar initiative that spreads in Europe because it truly adds value. The Nordic countries are somewhat more aligned and framed towards a modern infrastructure that goes beyond clearing in a faster pace. Still, the same principles apply for both infrastructures on the fact that it can only be achieved based on economies of scale, the fear of Big Tech, authorities coming together and as David mention… it applies to the whole bank, not driven from business development and IT – there has to be an understanding and buy-in from leadership. We all care. Vive le third Scheme and Vive l'initiative des pays Nordiques!!