Is it possible to make a payment the same way you make a phone call? Just using the recipient’s number, you could send them money. This is already possible, and the European Central Bank (ECB) is enabling this on all smartphones by as early as next year.
ECB announces mobile number payment system
The ECB announced in January that as early as 2018 people would be able to make transfers just using the mobile phone number of the recipient by linking your mobile number to your bank account or credit card. Named the “Eurosystem”, this instant payment scheme will incorporate a standard look-up feature that will allow a payment via mobile number, instead of using the International Bank Account Number (IBAN).
Directory of numbers for mobile payments planned
The main idea is to build a directory of mobile numbers for mobile payments. The number chosen as the recipient would automatically redirect the funds into the recipient’s bank account. These person-to-person (P2P) payments would enable cross-border payment throughout Europe as a step forward in the EU goal of a completely shared economy.
Other similar systems are already online
PayPal has already launched a platform similar to this, which allows P2P transfers to mobile numbers or email addresses. The service, which is free for all transactions within the European Economic Area (EEA) is an extension of their current payment service using the mobile app for their customer’s PayPal account. And Square, the Californian company who specializes in services to small businesses, is planning a European launch later in 2017. The company has just opened a subsidiary in the UK, Squareup Europe, and is based in Dublin.
Fragmenting is a major concern of the ECB
In Europe, this is a worrying concept. A major concern of the ECB is that multiple mobile number payment systems will emerge, fragmenting an already fragile economy, resulting in mobile payment “zones”, where the different mobile payment systems are incompatible with each other. With the Eurosystem asking providers to ensure that the payment option is available by the end of 2017, this could mark the end for IBAN payments. The Eurosystem payment option is required to be an instant transfer, while IBAN takes at least one working day.
ECB proposes moving from the current payment system
ECB are also proposing a complete switch from its current payment platform, Target2. The proposal is a move away from the system all European central and commercial banks have been using for decades, to a new system that will allow real-time payments. This could be of massive benefit to the banks, as it would allow them to make the transfers within around 25 seconds. Fast transfer like that would mean their capital would not be immobilized for the duration of the transfer as a guarantee of payment.
Innovative actions to be in place by end 2017
Throughout this year, several new things will have to happen in order for the Eurosystem to be fully in place by the end of 2017. The first action for the ECB will be to require all Euro-based payment providers to enable their clearing systems to allow the instant payments to be sent. These automated clearing houses (ACHs) will then need to enable the clearing systems to allow the instant transfer of funds, and not end up with backlogs due to insufficient bandwidth to cope with the expected volume of payments. Eurosystem has finally got to make the hard decision as to whether or not to provide the pan-European payment settlement service, which will guarantee the payments to the recipient in cases of failed transactions where the funds are not automatically returned to the sender. This is critical in terms of customer service and experience and could break the Eurosystem if it is not implemented.
Payment solutions must work across the Euro-zone
One major challenge is ensuring that the digitalization of the payments industry does not result in a fragmented market. According to Yves Mersch, a member of the Executive Board of the ECB, any payment solutions that are not enabled to be used in a pan-European environment are not going to be in line with the goals of the proposed single market.
The new Eurosystem is empowered to improve the user experience in all three areas of retail payments. The Eurosystem is already encouraging payment service providers to make their instant payment solutions available before the end of the year. The Eurosystem is requiring the market to work on the development of an integrated market economy according to the provisions laid out by the Payment Services Directive and the Regulatory Technical Standards. If the Eurosystem decision to develop the Target Instant Payment Settlement system in June 2017, full operations would commence in 2018.
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