Community

Has the EP considered extending this rule to Euro payments originating outside the EU?

Strictly, the SCT rulebook does not allow payments originating from outside the EU to be processed as SCTs within the EU.

An EU PSP receiving an incoming payment from outside the EU can ony forward it to its final destination in an EU account through Target2, Euro1 or a bilateral arrangement, all far more expensive than a SCT.

This restriction makes remittances into the EU expensive, creating friction in cross-border payments, in particualr for consumers and SMEs - a barrier to new business models (eg internet of things), new payment flows and trade.  

Payments originating from outside the EU all have to screened under the funds transfer regulations, but once done, they should be allowed to be processed as SCTs (as they are in other domestic clearing systems such as FPS in the UK and IMPS in India).

This highlights the deficiencies of the store and forward messaging system used by Swift where payments are initiated without certainty they will reach their destination, pass screening checks along the way or with knowledge of fees - it is surprising that it has taken so long for a utility like this to be developed and it is an indication that banks are taking more seriously the money laundering risks in cross border payments. Still, IIN is an information system rather than a payment system and it is curious it is on a blockchain, it is unclear what this adds over a simple database .

“3.1 biilion transaction reports” on money laundering! When will the FCA do something about it instead of watching it happen in front of them? The U.K. National Crime Agency figures for money laundering in the UK are £36bn - £90bn pa, and believes these numbers are an underestimate (despite all those transaction reports) Assessment 2017 indicates that previous figures of £36 billion to £90 billion for all money laundering impacting on the UK could be a significant underestimation. Money laundering is also an enabler of serious and

ATMs are a 20th century innovation that developed in a competitive environment without regulatory intervention. Now their use is coming to an end we have a regulator with a remit to promote competition and innovation focusing on the past rather than the future. PSR - preservation of superseded rails?

Time is running out for retailers to provide their own payments service , both in store and in app, and regain control of the customer experience at checkout. They risk becoming dependent on device manufactuers and the “Pays” in a similar way they are on card companies.

A new management team, a new operator (NPSO), a new owner (Mastercard) of the central infrastructure outsourcing service, a new regulator (PSR), a new payments architecture (NPA) under consideration, transactions volumes ticking up towards 2bn....there are a lot of moving parts in FPS at the moment. I hope otherwise, but is this a symptom of too much change too quickly?

The BIS evidently have not read my blog from yesterday!

The issues they raise are solvable by issuing CBDC/crypto-cash through commercial banks rather than directly to the public and businesses. In the same way central banks do with banknotes, distributed through commercial bank branches and ATMs.

Central Banks should also consider the wider picture of open innovation for the good of society, beyond monetary policy and mechanisms.

https://www.finextra.com/blogposting/15126/powering-up-a-crypto-cash-society-with-central-bank-money 

Contactless mobile payments are following a classic positive network effect. I expect the narrative will be along similar lines to that for contactless cards in the UK after their launch in 2008:

2015 11m mobile contactless txns, valued at £83m "slow start"

2016 38m txns £288m "not really catching on yet"

2017 126m txns £975m "Apple Pray" "where's the S-curve? it's flat lining"

2018 400m txns £3bn "tiny adoption compared to 15bn contactless plastic txns"

2019 1.5bn txns £10bn "mmmmm..."

2020 4.5bn txns £35bn "wow, didn't see that coming"

..... etc

Retailers thinking about launching their own mobile app for omnichannel shopping (and using account to account payments with PSD2 APIs to bypass card networks and fees) have a very short window to launch one before their customers are wedded to the xxx Pays. Same for Fintechs launching innovative PISP propositions.

The role of the Direct Debit in the New Payments Architecture is confusing, although the NPA in its final report on its consultation makes very clear that DDs are here to stay and will be complemented by a new request-to-pay service, rather than replaced by it.

The confusion occurs because "push" and "pull" normally are used to refer to the way a payment is initiated - a "push" by an account holder, resulting in a credit transfer, and a "pull" by a third party (biller, retailer etc) resulting in a direct debit or a card payment.

However, my understanding of the NPA is that it refers to "push" in the context of clearing. Currently, UK direct debits clear by aynchronous application (i.e. separate processing) of the credit on the beneficiary account and a corresponding debit on the sending account. The issue with this, is that if the sending account rejects the debit (eg lack of funds), the credit on the beneficiary account has to be reversed, creating a processing/reconciliation problem/exception and a credit risk.

With the NPA, I understand the intention is to apply the debit on the sending account first (and this I believe is the NPA's definition of "push"), and allow the credit on the beneficiary account only if the debit is successful, thus simplifying the process, reducing exceptions in clearing and removing the credit risk (from the payment system, the beneficiary is still at risk).

Under the NPA, I assume billers still submit DD files ("pull" payments) into clearing as they do now, but each DD is first checked against the sending account before it is cleared ("push" clearing), and any where there are insufficient funds are rejected from clearing. I further assume that this is a synchronous process, where the debit and credit are applied synchronously (as in Faster Payments), so that if there are multiple DDs on the same account in the same file, they are individually cleared, thus ensuring the funds-check on each DD is always against the cleared balance after the previous DD was cleared.

To me, this is a sound approach, and I agree it will open up many opportunities under open banking and PSD2. For example, recurring payments for subscription services which are increasingly popular, and also DDs at POS (used extensively in Germany for example) can be done without credit risk to the retailer. Additionally, DDs are exempt from strong customer authentication under PSD2, potentially making them more flexible than credit transfers in some use cases.

DDs have a bright future.

At this rate, UK mobile contactless will hit 3bn transactions in 2020, the same level as plastic card contactless last year.

Total UK contactless transactions are on course to hit 6bn - 9bn transactions this year.

Some big changes going on in how UK consumers pay.