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May 25, 2020

Nordic Payments and the P27 Initiative

Interconnected society demands integrated, efficient, and secure cross-border payments.

The Initiative

The uniqueness of the Nordic region lies in its open borders that its 27 M population can freely traverse without needing any documentation or permits. Languages and currencies differ, yet cultural similarities ensure that there is unity in this diversity. People in this region are exceptionally tech-savvy and have great expectations of speedy, secure, and frictionless payment alternatives, as thousands cross borders every day in their daily commute for work.

The adoption of wallets and new payment methods has already paved the way for cashless payments, and the demand for better user experience is causing a swift change in the digital payments landscape.

The P27 Initiative is a natural outcome of the demand of this interconnected society for an efficient cross border payment system. While P27 momentum builds up to enable common and cost-optimized, invoicing, and payments infrastructure, there are many roadblocks and considerations to ensure this huge undertaking creates significant value for all its stakeholders.
Statista: Most popular payment methods for online purchases in the Nordic countries in 2019


The Paypers: Payment Methods Report 2019

Source: Payment Methods Report 2019 - Innovations in the Way We Pay

The Predicament

While some of the banks in the Nordic region have a focus on providing real-time payments, others have a focus on e-bill payments or on collaborating with Fintechs to launch new products in the region.

However, major transitions are needed to make P27 a success. The clearing and settlement systems are fragmented, and each country has a diverse set of infrastructure, rules, processes, and technologies.

Most banks have legacy systems and aging infrastructures, some are in varying stages of modernizing and upgrading their systems, and not all share the same vision and priorities. However, the recent COVID-19 pandemic would probably fast track some of the priorities for the banks as they would support enhanced remote payments.

Many banks are in various stages of meeting the speed and compliance requirements that the sheer volume of a Nordic ecosystem demands. Even the larger pan-Nordic banks that grew out of the consolidation of smaller entities at the start of the century are looking to invest heavily in technology to keep up with rising customer expectations and aggressive competition from Big Tech.

The banks, who aim to leverage the P27 initiatives and investments, need to be in a technologically matured state to gain from the common infrastructure, while a reduced cost of operation will be a welcome side-effect in the long run.

The Bottom line

Even though Nordic banks do not need to join the P27 bandwagon, they have much to gain. While P27 will focus on creating a central infrastructure 'hub' to be financed by its member banks, the modernization of the banking systems, i.e., 'spokes,' will be funded by banks.

The ROI from upgrading their systems to benefit from the central infrastructure is what will drive the interest of the banks in this region. Driving enormous payment volumes by increasing customer engagement through digital enablement is an opportunity that none of the Banks will want to miss out, whatever their areas of focus.

The key is to support these Banks in their varying levels of maturity. An efficient central 'hub' infrastructure will have to be capable of supporting the 'spokes' that are at different levels of development. Investment in the 'spokes' themselves will depend on the perspectives of the Banks, their goals, and priorities.

For some of the Banks, the connectivity to real-time rails could be their chief concern. For others, an API-first, Mobile-first Microservices-based architecture might take precedence.

An industry-standard Digital Overlay Service could address many of these needs by enabling the underlying instant payment system to embrace modern digital technology driven by APIs and new data-rich message protocols like ISO 20022, enabling Fintechs and mobile-savvy users to get access to real-time payment rails.

Off-the-shelf products or traditional services are not enough to support the Banks in their quest to go digital. Products or frameworks would have to be flexible by design in order to adapt to different technical requirements and support the banks on their digital journeys.

The Paypers: Global and Regional E-Wallets in Europe

Source: Payment Methods Report 2019- Innovations in the Way We Pay

The Recipe for Success

With the COVID-19 pandemic threatening to change the rules of the game, it is becoming obligatory for society to adapt to a digital and contactless mechanism for business transactions between entities and cross-border trade/remittances.

The key to success will be to build platforms that will provide one-stop digital solutions for meeting consumer needs and fostering a network effect in order to face similar situations in the future successfully. The user behavior and user enablement will also need reimagining. For example, improving user inclusivity, adding dynamic access control mechanisms to keep users engaged, and repurposing platforms to serve the needs of society, are all crucial in these trying times.

As digital transactions increase, so does fraud. Banks, Networks, and PSPs need to be extra vigilant. Digital payments may be intercepted by fraudsters and channelized to fake accounts. A robust analytics-driven fraud and risk management mitigates these risks, predicts trends, detects changes, and takes necessary actions.

Banks that are focusing on digital transformation and platform modernization would be providing a level playing field for Fintechs to build services and solutions for producers and consumers. It, in turn, creates value and attracts and retains customers.

Banks will need vendors with the right experiences who can support their journey.

Technology players who have successfully implemented 'hub' infrastructures at a Central Bank level along with an array of associated flexible and resilient 'spoke' solutions would be ideal partners for P27 and the Banks to achieve their goals.

RS Software has architected and built successfully, the real-time payments platform (UPI), the bill payment network system (BBPS), and enterprise fraud and risk management platform (EFRM) at the country level in India. RS Software then enabled the banks in India with connectivity to these unique systems. These exclusively position RS Software to provide the scalability, reliability, and flexibility of both the 'hub' and the 'spoke' at the national and regional levels.

The Road Ahead

The banks play a critical role in making the integrated payment system envisaged by P27 a reality. The participating banks must agree on the design and architecture of the 'hub' and the values it will create along the journey.

The banks in this region are already acutely aware of where they stand and how they could gain, given their priorities. Nevertheless, even they will need to make important decisions on how to speed up to their digital journeys, whether to build and transform in-house or to take the help of third parties.

Employing the know-how of a seasoned technology partner will be a step in the right direction. By saving the time and cost of reinventing themselves, the banks can speed up the transformation journey to meet customer demands before Big Tech grabs their market share.

About RS Software

RS Software has engaged for over 27 years in building payment rails, with a mission to transform the lives of consumers, businesses, and nations with the power of digital payments.

RS Software built the bill payment network for India with a first of its kind architecture enabling the hub and spoke model. It is now in the third year since launch. The platform has proven to be one of the best use cases of faster payments, and achieving financial inclusion, critical to a country like India.

With the adoption come the challenges of fraud and risk management. RS Software has built a national-level electronic fraud and risk management platform, scoring more than two billion transactions a month, across 18 different payment channels, with fraud losses continuing to improve for the banks, month after month.

RS Software has implemented one of the most advanced faster / real-time payment systems in the world, called UPI [Unified Payments Interface], which is processing close to a billion transactions per month, within 40 months of its launch. The platform is transforming the lives of a billion+ people. In a global survey by FIS, Flavors of the Fast, the UPI platform has been rated highest with ranking of 5+, only faster payments platform to have achieved the rating.

Global platforms like Google, Alipay, and Whatsapp leverage this platform for their payments offering to reach to the mass consumers in India.

Facebook just announced an investment of $6 Billion to collaborate with the most significant telecom player in India Reliance-Jio, to leverage the fastest digital growth market that is served by digital payment infrastructure exclusively built by RS Software.

RS Software has delivered world-class Products and Platforms, benchmarked to achieve the foundation for a safer, smarter, faster digital payments world. The four world-class payment platforms RS Software has built and delivered process 200+ billion transactions annually.

Read about why leading payment brands trust RS Software