Diederik Bruggink is Head of Innovation and Payments at the European Savings and Retail Banking Group (ESBG) and Chairs the Cash Working Group at the European Payments Council. He also is a member of the CashEssentials Steering Committee. He will be presenting at the next Future of Cash Conference in Madrid.
Payments were a hot topic in 2019. It will remain so in the new decade.
That’s especially true for Europe, driven in large part by the authorities who have been giving increasing attention to European payments. Take the European Commission’s (EC) vision and plans for achieving greater European sovereignty in the payment domain. That vision follows from the December 2018 Commission Communication on the strengthening of the international role of the euro. The EC sees instant payments as an important building block to achieve this vision. In parallel, the European Central Bank (ECB) alerted the banking industry that payments relying exclusively on non-European and new ecosystems present certain risks and outlined a Eurosystem retail payment strategy that should be matched by the industry.
The question is not if European payments will move to instant payments, but more by when must it be achieved? The Commission has already hinted at two dates that will probably be milestones in the roadmap they are working on: by the end of 2021 a full rollout of instant payments should have been established, meaning that from then everyone should be able to use instant payments everywhere and in all situations. To that end, all banks and bank accounts should be able to initiate instant payments and should be reachable to receive instant payments, which is expected to be achieved by year-end 2020 – so this move to instant payments will certainly keep banks busy in the short term. Apart from working on the necessary infrastructure, or the rails on which these instant payments can run, some market participants are now also launching initiatives to develop end-user solutions based on instant payments.
Don’t expect that one “killer” solution will replace other current highly popular payment products such as ubiquitous cards and even cash
It is worth mentioning that different consumer preferences exist when it comes to retail payments. Also don’t expect that one “killer” solution will replace other current highly popular payment products such as ubiquitous cards and even cash. Moreover, different payment habits exist across Member States. Payment statistics collected for 2018, as published by the ECB, show that nearly 142 billion non-cash payments were made in the European Union, equaling a compound annual growth rate (CAGR) of 7,5% over the past five years. Some 76 billion (54%) of these transactions were made with cards, which showed an even higher CAGR of 10,9% over the past five years. Credit transfers and direct debits accounted for 23% and 18% respectively. These figures cover the entire EU and they show significant differences at a country level.
Banks are being assigned the role of stewards for cash distribution
Despite swelling numbers of cashless transactions, cash retains a large slice of the payment mix as used by consumers. This evidence cannot be ignored. When it comes to cash, we observe a growing concern – especially from users of cash – about the need to ensure continued access to notes and coins. Banks realise that they are being assigned the role of stewards for cash distribution. Given this backdrop, there needs to be a proper debate, choices made and expectations set for areas such as what cash services banks and other stakeholders render to the wider public and at what cost. Following a proper debate, these “stakeholders” could be widened to include merchants as well as payment services providers and FinTech companies.
While cash handling remains labour intensive, a converse relationship has formed between a decline in cash usage and cost. Less cash use has knock-on effects on related unit costs, which tend to rise. To address the need to achieve greater efficiency in the cash cycle, the Cash Efficiency Working Group (CEWG) of the European Payments Council (EPC) issued in 2019 a new version of their Cash Recirculation Paper. It’s worth a read. In the document, they believe that payment service providers and other participants in the cash value chain, should pursue two main, complementary strategies, namely shortening, and thus optimising, the cash cycle and continuing to reduce manual handling and any redundant processes. As the payment’s debate comes to a boil in 2020, and beyond, Europe’s some 800 savings and retail banks are standing ready for them.