What was the objective of the trial?
Olivier: We set out to improve the user experience in cross-border payments, providing traceability, transparency and speed. Today, processing a cross-border payment in Europe sometimes requires a delay when TARGET2, the Eurosystem’s real time gross settlement system, is closed. The trial set out to demonstrate that this can be overcome by using a pan-European instant payments system, and enabled gpi in the ECB’s TIPS for faster cross-border payments 24x7x365. There was a large appetite among our member banks to participate in the trial. We expect that appetite to grow now that the trial has been a success.
Terol: The trial was meant to show that we can use an infrastructure like TIPS settling instant payments and leverage on its 24x7x365 availability of central bank money settlement to support payments originating beyond the EU.
Olivier: None of the participants underestimated the fact that the trial would be complex, but everyone involved was willing to make it happen. They also wanted to make it as close to ‘real life’ as possible so they didn’t avoid any of the processes involved with a typical transaction, such as compliance with anti-money laundering and sanctions rules. That added further complexity to the trial but ensured that it was truly valuable in preparing the community for a live environment.
We realised that the SCT Inst scheme on TIPS was somewhat limited because it was not designed for cross-border payments; at the same time, many of the European banks had developed instant payments for their own customers that did not accept payments from customers of another bank. This meant that banks had to find solutions and this too has provided valuable lessons that we will use as we move on to the next steps.
Terol: The trial leveraged the TIPS infrastructure that was already available. Much of the merit in the trial is due to SWIFT and the banks who participated and whom we were happy to support. Some of the participants were testing gpi and TIPS at the same time – they accepted the challenge to test many elements at the same time and succeeded.
What were the main outcomes of the trial?
Olivier: It works! We found that it is technically possible to have a cross-border payment initiated in Australia, for example, that could be translated into TIPS and settled, without manual intervention, in Europe. The fastest payment in the trial was sent from Singapore, cleared via Germany, and credited to the end beneficiary account in Spain in 41 seconds. Also, the extension of operating hours was validated with payments sent from 7 non-EU countries outside of European business hours, so the set-up works.
Terol: The main message is that it can be done. Another positive element is that banks took the trial seriously, wanting to make it as close as possible to live operations and having automated elements to make it work, so that payments could be processed during the European night. From a TIPS perspective, our “large” contribution to the trial was to offer our 24×7 availability to overcome time differences across hemispheres. Our “small” contribution was to process the transactions within 60 milliseconds
Olivier: Banks recognise the need to change, given increased competition in the payments landscape.
Terol: There are many non-bank initiatives positioning to facilitate remittances or other cross-border, cross-currency payments. The banks in the trial aim to position themselves as better providers of cross-border payments going forward.
What are the next steps?
Olivier: We are confident we can go even faster in a live environment because there is still room for further optimisation. We have work to do to make sure the standards and schemes that will be used for this instrument will include all the necessary AML, fraud and sanctions elements so the payments can be processed efficiently. This may require new versions of the SEPA standards and banks will need to adapt to this.
Terol: From the Eurosystem’s perspective, TIPS has been created to process instant payments and to provide 24x7x365 central bank money settlement. We remain steadfast in our support for SCT Inst, while we are open to the idea of bringing in other instruments for which there is a demand. We will discuss this in our user group with the TIPS participants.
Olivier: The reaction from the market proves we have done the right thing. We have created a live instrument that has been accepted by the wider bank industry and once banks can offer this to their clients, that will be the real success.