P27 sets Nordics on the path to accelerated payments innovation

Even before the pandemic, the banking industry was introducing products and services catering to digital-first customers. We saw multiple regulations and compliance standards such as ISO 20022 that were brought in to ensure safe, secure transactions. The pandemic and the resulting lockdowns accelerated much of this innovation in the payments landscape across Europe. Banks need to stay agile and quickly modernize their infrastructure to deliver customer priorities like last-minute billing and payrolls and improve account payables.

The next couple of years are expected to represent an important milestone in payment modernisation for the Nordics. Not only is the go-live of P27, the new cross-border Nordic Payments Platform, set to take place in 2022, but the Swedish clearing system Bankgirot will also be closing down several payment types such as salaries, invoicing, and pensions. This will trigger a migration of customers away from Bankgirot towards the more efficient, real-time clearing system of P27 that makes use of modern ISO 20022 payment standards.

A follow-up to the blog on the evolution of Nordics payments, this blog presents a concrete plan that outlines steps to be taken to embrace payment scheme upgrades in Europe. 

There are four main areas affected by the impact of the current uplift for banks to manage real-time payment upgrade in the Nordics and Europe. These areas are:

1. Improvement in onboarding and customer communication
   
   The expectation from corporates and merchants is to take advantage of the ISO standards since this has been an investment for a long time on the customer side. Corporates are expected to leverage modern corporate solutions and APIs to reduce the onboarding time from weeks to days. Traditionally, the integration projects to onboard customers are labor-intensive and technical with multiple manual steps. 
   
   Creating a digital, automated registration site to open corporate accounts is crucial since the amount of information is considerably larger than consumer/standard accounts. Also, workflows for authorization of corporates include multiple sources, such as shareholders' and directors' details or approvals needed from all authorized signatories.
   
   Improving the onboarding process can positively impact economies of scale in that such processes can be adopted across geographies, e.g., Pay.UK, UK/US TCH
   
   
2. Enhancement of the current legacy system
   
   Modernizing legacy systems and securing data can be accomplished without a full 'rip and replace' approach. By building new workflows that work in parallel, it is possible to maintain current operations while new products/services slowly replace incumbent products/services with a future-proven orchestration that is both compliant and valued by the customers. It is important to remember that the new infrastructure will expand into many more APIs for messaging and services like request to pay and confirmation of payee in the near future.
   
   
3. Defining a vision and identifying opportunities
   
   Banks should start with defining the vision and strategy they want to adopt and get executive alignment with the business case for upgrading their legacy systems strategically for P27 Nordic Payments. The next step would be to identify potential new product opportunities aligned with the business vision yet taking into consideration the realities of existing technology and operational limitations. The opportunities can be classified into:
   
   
   1. Low hanging fruits – Products that are easy to implement but have limited revenue potential like 'confirmation of payee' and P2P payments
      
      
   2. Quick wins – Products that are easier to implement but have much higher revenue potential like 'pay by account' at PoS 
      
      
   3. Big goals – Products that are complicated to implement but align with the long-term direction of the bank like 'request to pay' 
      
      
   4. Not worth doing – Opportunities that do not align with the strategic vision of the bank and are quite complex to implement 
      
   
   Once the product opportunities have been identified, it's critical to create a heat map of the impacted systems and align them with operational processes, which will invariably need to be adjusted for P27, like real-time liquidity modeling, exception handling, etc. The rest flows into the IT and Ops delivery stages of solution design, agile build, industry, scheme testing, and migration.  
   
   
4. Need for continuous evolution
   
   P27 is not just a one-time infrastructure change but a fundamental change in the way payments are made. The scheme defines the core infrastructure letting banks and financial service companies innovate and create overlay services. Banks should leverage this opportunity to develop products and services on top of P27 in an agile manner. It is strongly recommended to build in development and test automation frameworks now to support rapid product changes.   

Embracing P27 

The movement is now from mainframe to modular, which is the key to achieving success with P27. The first release of P27 is purely clearing of batch files containing payments for invoicing and salaries. Yes, it's a significant improvement, but it still represents the baseline of real-time. It is the first step followed by multiple releases such as request-to-pay, confirmation-of-payee, 2nd generation of direct debit, business monitoring, and a multitude of future overlay services.  

Exploring cross-currency instant payments

The European Central Bank (ECB) is collaborating with Sveriges Riksbank to bring TARGET Instant Payment Settlement (TIPS) to support payment transactions across different currencies. TIPS is a service that settles payments in central bank money in real-time and around the clock. It currently supports the settlement of instant payments in euro, but also has the functional capability to support other currencies. TIPS will start to settle instant payments in Swedish kronor as of May 2022. This interoperability allows consumers to buy/transfer money to any Euro area country and the reverse direction, where a customer in the Euro area can transfer Euro in payment for goods in Sweden in the same way. 

Pay.UK transforms payments in UK

Looking further, Pay.UK is working to transform the way payments are delivered in the UK and, in time, it will bring all these products and services closer together. The initiative is to build the rails on which UK payments will move. Through infrastructure and services, Pay.UK enables £19.2 billion in payments every single day. Pay.UK is working with the Payment System Regulator (PSM) and Bank of England (BoE) to define the New Payments Architecture (NPA) and fundamentally redesign the country's payments systems to be launched within the next five years. 

Adapt new scheme trends to stay relevant

Real-time payments will benefit the banks, corporates, merchants, consumers, and society by: 

• Offering faster funds transfers and automated reconciliation 
• Building new products out of 'request to pay' that will become the new standards
• Offering enhanced visibility into payments by enabling better cash management 
• Helping businesses better manage day-to-day operations by improving liquidity and forecast