The 2nd episode of l'Instant paiement, Mercatel's trade and distribution podcast, focused on instant credit transfers. Charlotte Pagot, Project Manager at Mercatel, Bertrand Pineau, General Delegate, and Fanny Rodriguez, Operations Director at Fintecture and member of theAFEPAME board, discuss this new payment rail.
We look at the subject from a regulatory, security and technological angle, to understand why the European Commission is promoting this payment method and what the medium-term benefits will be for businesses.
To get to the heart of the matter, what are the challenges of credit transfers, particularly for you at Mercatel?
Bertrand: Credit transfers are a trend in Europe at least, with the European Commission and other European bodies keen to promote this payment method. It's part of the European payment strategy. In France, which is a card country, there are many challenges involved in developing this new payment rail. There are technological challenges, new routes to be implemented and camps that may be impacted by these new payment rules. That's what we're trying to develop at Mercatel with the whole community, merchants of course, but also all the players involved in this ecosystem.
Charlotte: Digital payments are progressing very strongly, which is also a good thing. But retailers feel that they need more competition to leverage prices. So credit transfers, whatever they may be, can help with this orientation and trajectory towards cost optimization, to offer companies levers for development.
How does instant transfer work? What's different about instant transfers?
Bertrand: It's an evolution, a new transfer paradigm. It's an instantaneous account-to-account transfer in less than 10 seconds, developed in particular by DSP2, which, along with Open Banking, has brought in new players who have worked to promote this instantaneous transfer. It is also accompanied by a whole set of regulations designed to harmonize these rules across Europe.
Fanny: The instant transfer complements the classic transfer. The classic transfer is made on D plus 1 business day. The instant transfer allows funds to be transferred in a maximum of 10 seconds, and in reality it's more like 2-3 seconds. It's a funds transfer with the possibility of reusing the funds as soon as they're in your account. Moreover, one of the advantages of the instant transfer regulations is that the price is identical to that of a conventional transfer. The choice of transfer type will therefore be based on usage, not price.
All right, so a classic CB transaction versus an instant transfer, who wins?
Bertrand: France is a country of cards. Card-based electronic payments are a complex chain with many players. Credit transfers, and instantaneous credit transfers in particular, are a much simpler, more innovative chain, with lower costs for the merchant. On the other hand, it's not enough for a credit transfer to be instantaneous or simple; it also needs to be backed up by a whole layer of services that have been designed into card-based electronic payments for many years. We hope that this work, which is currently underway, will enable us to wrap the instant transfer rail around high-performance payment solutions for merchants and users alike.
And in terms of standards and regulations, how are transfers governed?
Bertrand: As Fanny was saying, the instant credit transfer has evolved from the classic SEPA credit transfer. PSD2 with Open Banking, which has enabled third-party players to access bank customers' accounts to offer either account aggregation or payment initiation services.
But that's not enough. Europe was concerned that this payment rail was not developing fast enough, so it drafted a second regulation which was adopted at the beginning of this year. The cost of the transfer has been harmonized, i.e. an instant transfer must not be more expensive than a conventional transfer. It also lays down obligations for banking establishments to be reached by instant transfers, and to be able to issue and receive them. Finally, there are obligations relating to the security of instant transfers, with verification of the IBAN against the name of the person to whom the transfer is addressed.
Fanny: Yes, we know that bankcards can't be beaten for everyday purchases by individuals, except when they involve large amounts. So, in fact, the real contribution of payment by bank transfer and instant transfer is going to be for large-value payments. To give you an idea, the average Fintecture shopping basket is 1,000 euros. Payment by credit transfer is therefore a complement to the existing electronic payment system, not a replacement for the card. It complements it in cases where the card may not be as efficient as merchants would like, by recovering sales that were not being processed by the card. So it's a complement, not a replacement.
What we've noticed at Fintecture, and in general with AFEPAME members, is that private individuals particularly appreciate payment by bank transfer for purchases such as home furnishings, cars, DIY, travel, luxury goods... Anything that costs more than a certain amount, and for which the card doesn't always give a positive response.
There is also even greater potential on the B2B side for all those companies that work with small professionals, again due to the size of their purchases, such as in the building and civil engineering sector, the supply of service equipment, food wholesalers, etc. Professionals are expressing strong interest in this means of payment. And this means of payment can be offered both on the website and in-store, as well as by including a link in invoices. This is a real plus for merchants who want to be paid quickly.
Today, you can already pay by bank transfer at certain chains?
Fanny: Absolutely, you can pay by bank transfer in some stores. Behind this, AFEPAME members make sure that the reconciliation of flows is as simple as possible for the merchant, who doesn't have to do a thing. So it's already on offer, and the feedback is very positive. We know that conversion rates are high. We also know that there are merchants who increase their sales by more than 20% when this type of payment is offered.
Charlotte: Indeed, to pick up on what Fanny said, some retailers already offer payment by bank transfer. This is particularly true of the DIY sector, as Fanny mentioned, but it's not the only one. In fact, in addition to retailers, there are quite a few associations and charities that accept payment by bank transfer. The trend is growing all the time. The routes are not the same as those for the card, but in any case, having already used it, it's quite nice, quite smart, and it's bound to become more widespread in the coming months.
Charlotte, what are the current irritants surrounding this transfer?
Charlotte: We addressed these irritants as part of a working group we set up a few months ago. We essentially focused on the issue of the customer journey, because the customer journey is essential for a merchant. A tedious path for a consumer is, in fact, redundant. The more steps you multiply, the more it's going to prevent you from getting to the end. That's why we've decided that today, payment initiation (which leads to a transfer, whether instantaneous or not) is one of the subjects to be dealt with. The stages are a little more numerous than for traditional card payments, but as things are starting to develop, there's still time to do something about it.
In addition to the irritants associated with this concept, there is also the issue of potential pricing associated with payment by transfer, particularly instantaneous transfers. But the banks are thinking about it, and are bound to find a solution with the help of merchants.
Fanny: For AFEPAME, one of the main irritants raised by customers was clearly the price of instant transfers, which was not the same as the price of conventional transfers. It also depended on the bank, and even on the type of account you had: business or personal. But with the new regulations on instant transfers, we know that the price will be the same as for conventional transfers, so it will be simpler.
We also received feedback on the lack of accessibility to this type of transfer, which is not necessarily easy to find. On websites, on banking applications, and there were still banks in Europe that didn't offer it. There was no obligation for banks to receive or issue such transfers. France was more or less a good example, but this was not the case everywhere in Europe. Some banks only received transfers, others only issued them, and the third category did nothing.
What are the challenges facing merchant banks with regard to credit transfers?
Bertrand: For the banks, it's a complicated transition. Let me remind you that in the card world, card issuers are remunerated for every payment made to a merchant, whether online or local. So there's a whole new economic model for banks. Their main challenge is to find a new business model for instant transfers. Then, as Fanny said, they need to develop service offers that are relevant to both customers and merchants.
To find out more, what's happening to credit transfers at European level?
Fanny: Credit transfers are already well established in some countries, notably the Benelux countries. A little less so in others. Each European country has its own specific payment culture. But how are things evolving? Generally speaking, payment by credit transfer is developing. In France, we're thinking that, in some cases, it may replace cheques. But once again, it's to complete the offer, because the main objective is that, in the end, the payment is made. And you can never 100% guarantee a successful payment with just one type of payment method. So, in Europe, it helps to optimize conversion rates for merchants, and customers are satisfied because they know they'll be able to pay in any case.
So the demand is clearly there, both on the customer's side and on the merchant's side. There's a real desire, especially in a world where new technologies are increasingly present, where payment should no longer fail, except of course in cases of fraud or for duly justified reasons. Instant payment is evolving positively, and payment by bank transfer is on the increase.
The challenges we faced with Open Banking concerned the APIs, the access channels set up by the banks following the DSP2 directive (the European directive that imposed payment by credit transfer). Initially, the APIs were rather disappointing. But there were constructive discussions between AFEPAME members, with Mercatel present around the table and with the banks to develop these APIs. In parallel with these discussions on APIs, payment institutions have also developed expertise complementary to APIs in order to make this means of payment a success. So, to sum up, for us instant transfers are a real European breakthrough.
But once again, it's complementary to the classic credit transfer. And we mustn't forget the expertise of payment institutions, who will combine this type of payment with systems that enable flow reconciliation. What merchants want above all is for payment to be made, but not for them to spend time tracking down who paid what. A small example from the automotive sector. At Fintecture, we have a customer who has increased from 5% to 37% the share of instant transfers in just a few months. This is because customers who opt for instant transfers can drive off with their vehicle the same day. So it's a gain in terms of customer service, but it's also a gain in terms of inventory management.
And on the European front, we also have Wero.
Bertrand: Indeed, a number of European banks have joined forces to create the most harmonized experience possible in Europe around instant transfers. This initiative has been materialized within the framework of EPI, a European company that brings together major banks from five countries: France, Germany, Benelux and Germany. It will launch a European wallet called Wero, based on instant transfers. This European wallet complements the more B2B payment initiation service described by Fanny. With Wero, we're in the realm of mainstream payment, very B2C-oriented.
Wero will be expanding in the coming months, first and foremost for P2P payment solutions. This is to some extent what is done today in France with Paylib and in a number of other countries with other solutions. These solutions will therefore be harmonized around Wero, in the second half of 2024, for P2P. The use of this instant transfer-based payment wallet in e-commerce should see the light of day in early 2025, and proximity will most certainly follow in late 2025 or early 2026.
So when can we expect to see these new solutions on the market, especially this payment wallet made in Europe?
Charlotte: The Wero wallet will be available within the timeframes mentioned: from this year onwards for P2P, P2Pro, then for e-commerce from 2025 onwards and in close proximity during 2026-2027. This will necessarily require all players to communicate, and communicate well. Because, like any new means of payment, it's important to establish usage and, above all, to get consumers on board.
So it's going to take a lot of work on the part of the banks, but also Wero and the merchants, to ensure that this wallet is accepted and, above all, that cardholders use it. That's the vocation of any solution: to find a use for it and people to use it. So we'll be keeping a close eye on things. But, even if we're very optimistic on the subject, there won't be any big night because consumers aren't expecting anything. So it will be up to us to convince them to use this method of payment, which may not ultimately change their lives, but will enable them to pay differently and with value-added services that the players will have to build together.
What role does Mercatel play in these current and future developments? How are you positioned?
Charlotte: The vocation of the structure we represent is to decipher technological developments. Our ambition is to understand how credit transfers are going to change the game and, above all, to provide credible alternatives, since they are being pushed by Europe. So we're going to try and get everyone on board. When I say everyone, I mean merchants, but also banks, of course, and service providers such as TPP and Wero.
So how do we go about it? We set up a working group in April. It meets every two months to work on the main themes that we feel today merit particular attention. The first meeting was exploratory, designed to gather participants' opinions. There were quite a few of us, and we're very pleased with the turnout. The next meetings will focus on routes, which are a critical element for merchants.
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