Definition and further development of instant payments
Hello Mr. Hülsiggensen, what are the main differences between instant payments and conventional payments – from the point of view of payment service providers, customers and SurePay as an IBAN Name Check provider?
The biggest difference is that instant payments are notified to the recipient’s account (i.e. the money is made available to the recipient) within 20 seconds. Normal payments usually have a delay of one business day. Naturally, this increases the risk of fraud when using instant payments. Verifying the correctness of the account holder, i.e. the payee, is intended to minimize the risk and provide additional security to the user who sends the money.
From a bank’s perspective, the proposed pricing concept of instant and traditional payments is an additional issue: instant payments are to be priced in the same way as non-real-time payments, although the implementation and processing costs for instant payments are significantly higher.
For retail customers, i.e. the primary target group of the IBAN Name Check function, the decision factor is the availability of the traffic light feature, which shows whether there is or isn’t a match between the IBAN entered and the account holder. Ideally, it also shows a “close match”. The vast majority of users[2] believe that this check of account holder against IBAN already takes place today. Given the information that this is not the case, these users would prefer a bank that offers such a check and would also be willing to change banks for it.
From SurePay’s point of view, there is no difference between instant payments and traditional transactions in terms of how the IBAN Name Check works – the check is always done in real time, even if the transaction is not an instant payment.
What opportunities and risks does the adaptation of instant payments entail for payment service providers and customers?
The main direct beneficiaries of the wider use of instant payments (and price controls) are merchants and corporate customers. It provides them with a cost-effective way to quickly have the money available in their account.
As far as risks are concerned, the risk of fraud is clearly higher with instant payments, as the payment is processed immediately. What’s more, there is no time for reversal, so there is an additional risk due to errors in entering the payee’s data. Implementing payee verification reduces the number of fraud attempts and erroneous transactions dramatically.
In particular, invoice fraud (giving false bank details), a very common fraud pattern, can be significantly reduced.
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Implementation of instant payments
From a risk perspective, what differences do you see between domestic and cross-border (EU) instant payments?
It is of utmost importance that all EU SEPA countries make payee verification mandatory for their payment service providers. Otherwise, there will always be fraud scenarios with non-participating EU countries.
On top of that, it is important to ensure communication between the verification systems. Numerous payee confirmation systems are being developed in the market and there is a need to establish communication between these systems both at the individual system/bank level and at the country level.
What effects does the introduction of the ISO 20022 standard have on the implementation of instant payments and what role does it play?
SurePay is ISO 20022 certified, but I suspect that IBAN Name Check will not run through this standard. The reason for this is that the response time would change from milliseconds (the way it works now) to 3–4 seconds. A communication time of 3–4 seconds is too long from the consumer perspective. To give you a comparison: we currently have an average response time of 0.08 seconds.
Nevertheless, ISO 20022 provides a good data structure and more information on the individual transaction – this information is very important for risk assessment.
SurePay experience with the IBAN Name Check solution
How does SurePay help payment service providers meet instant payments compliance requirements?
SurePay, as initiator and leading provider of the IBAN Name Check, makes online payments more secure. With the IBAN Name Check, our Dutch fintech company, which was founded in 2016, offers a solution for innovative real-time name verification which gives payers more security that their payments are sent to the intended recipient. It prevents transfers to the wrong persons or companies, whether intentionally through payment fraud or unintentionally through misdirected payments. We are already connected to more than 100 banks in Europe and the UK, as well as hundreds of organizations.
In which areas can the IBAN Name Check be helpful for banks and other financial institutions?
The main area is fraud prevention and user protection. Our service helps them check the payee’s details before making a transfer and ensure that the standard or instant transfer goes to the right recipient. However, there are also other implementation opportunities, e.g. in the insurance sector. Checking the accuracy of the data when entering the account of an insured person is of additional benefit there. Moreover, the service can be offered to corporate clients of financial institutions to help with establishing supplier verification.
Please share your experience with the implementation of SurePay’s IBAN Name Check. Is this another big payments project?
It’s not a giant project. The IBAN Name Check can be implemented very quickly – we usually organize our implementation projects (integration of the interface) in two sprints, which together take about four weeks. In addition, our customers should perform the integration at the process and IT/CBS[3] level themselves. Some CBSs are not fully ready for instant payments on the recipient side. Therefore, some banks need more time for the implementation.
In Germany, the industry is expecting the publication of the Rule Book on the IBAN Name Check. In all likelihood, banks will then implement the feature based on these rules.
How many erroneous/suspicious transactions can be identified using the IBAN Name Check?
Our strength is the algorithm – SurePay can match names very accurately. General statistics show:
- 90% of transactions receive a green light (or “match”) on the IBAN Name Check traffic lights,
- 7% of transactions are “yellow” (or “close matches”) – that is, they include small errors,
- 3% of transactions are red (or “no matches”).
Overall, we see:
- 81% less fraud based on IBANs
- 67% fewer misdirected payments
In summary, your view on the future use of instant payments
How do you see instant payments evolving in 3–5 years?
It has been officially confirmed that the penetration of instant payments in Germany is still very low at 2.5%.[4] However, there are also countries in the EU, such as the Netherlands, where up to 95% of payments are instant payments.[5] expect the share of instant payments to increase in other EU countries as well, as soon as payment service providers and banks are ready for it. And while the 95 percent level of instant payments may be too high for some EU countries, there is still a lot of unaddressed need for instant payments. Use cases include instant person-to-person (P2P) payments, point-of-sale (POS) payments as well as utility and commercial bill optimization and e-commerce.
How would you assess the following statement: “Instant payments enable efficient business and will soon gain strongly in acceptance.”?
Instant transfers are expected to become the “new normal”. Even if skepticism in the banking environment is still quite high, this is the envisaged goal.
Thank you very much for the interview. We wish you and SurePay all the best for the future.
