The same project from three different perspectives

Dr Mihály Patai

Deputy Governor (International Relations, Cash Logistics, Financial Infrastructures, Digitalisation and Lending Incentives), Magyar Nemzeti Bank

During the joint work on the introduction of the instant payment service in Hungary, I was fortunate enough to obtain first-hand experience about the most important development in the history of Hungarian electronic payments to date from several vantage points. When I first heard about the Magyar Nemzeti Bank’s idea of introducing the system as the chairman and CEO of UniCredit Bank Hungary Zrt. and the president of the Hungarian Banking Association, I had no inkling that I would be switching seats to sit at the table where the key decisions influencing the design of the central system, the introduction of the service provided to end-users and the participants’ preparations were being made, at the most critical stage of the project.

I welcomed and supported the initiative since its inception, but it was clear to me that a major challenge would have to be overcome by all the players involved in the process of implementation. I am sure that the overwhelming majority of the stakeholders had completed large-scale and complex development projects before, one only needs to think of the introduction of the Hungarian intraday credit transfer system, but I believe that we had never been involved in a project of this magnitude. This is because ensuring 24/7 access to a service optimised for normal working days required most operational banking processes to be revisited and restructured in some way and also significantly enhanced.

At the same time, as the banking sector had been experiencing increasing pressure as a result of digitisation processes and the increasing presence of new service providers

who sought to obtain some share from payment services, new blood was required to promote continued competitiveness. This revitalising force manifested itself in the MNB’s decision to make the introduction of the instant payment service obligatory. I think this was a bold move in the right direction that shifted the Hungarian banking sector, which had been known in the past to have responded relatively slowly and clumsily to challenges. This was also confirmed by events, as the customers of all payment service providers in Hungary simultaneously gained access to a service that took credit transfers to a new level, a feat unparalleled internationally. In my opinion, despite the looming challenges, all future system participants knew right from the beginning that this development was necessary and important, therefore everybody took the implementation seriously and acted responsibly to keep pace with the intense competition from the new players.

While banks started working almost immediately after the official decision was made: project teams were set up, the first steps were taken in drawing up a timetable, processing the available technical documents, establishing the specific development needs and preparing the expert specifications. It soon became clear that all the stakeholders, the MNB, GIRO Zrt. that developed the central system, as well as the future system participants, have to work in close cooperation and consultation to ensure that all aspects of the project remained on track. We vigorously represented this requirement in the Hungarian Banking Association throughout the project, which led to numerous interactions among the central agencies and the other players within the sector. This joint work led to common ground and the establishment of a common platform for the stakeholders, even regarding the technical details of implementation. Meanwhile, countless unresolved issues had to be tackled: matters that had been settled before cropped up anew, along with others.

Even during UniCredit’s own internal project and the consultations in the Hungarian Banking Association, the complexity of this ambitious endeavour was evident to me. Nonetheless, after 22 April 2019, when I was appointed deputy governor of the MNB, my views on the introduction of instant payments in Hungary shifted somewhat. The insight I gained into the internal operation of GIRO that designed and operated the central clearing platform, which lies at the heart of the instant payment system, as well as the cooperation spanning multiple areas within the MNB regarding the developments related to the central system, its supplementary features and clearing membership, and the coordination of the nationwide project offered me a vast reservoir of new experiences. What is more, I joined the work in the MNB at a critical moment when major decisions had to be made in connection with the planned go-live date of the system. Taking this step and finding the right rhythm was greatly facilitated by the fact that my predecessor Dr Ferenc Gerhardt left behind a professional staff of experts in both the MNB and GIRO. I was happy and relieved to see day after day

the robust professional and human qualities of my colleagues at the Directorate Financial Infrastructures and the Directorate Banking Operations of the MNB as well as at GIRO. Making extraordinary efforts, they contributed to the achievement of our ambitious goal by various means, by developing the basic concept, designing the related regulation, establishing the technical details, coordinating the project and monitoring the processes.

Although the central infrastructure was absolutely ready to accept and process customer transactions by the originally planned deadline of 1 July 2019, some players that joined the system experienced risks in connection with smooth transition and a fully balanced service. Taking all the factors known at that time into account, in order to ensure secure operation and attain the original objective, namely that all Hungarian customers should experience a uniform system and a mature service from the first seconds following the launch, it was decided that a longer test period would be integrated into the process, which, in my opinion, was quite right. The success achieved jointly on 2 March 2020 confirmed this, proving that the intensive testing across the whole sector in the preceding eight months was necessary.

Overall, during the preparation, the factor that helped most in opening up the service to customers at the same time and without any glitches by the 35 system participants, who in many cases had fundamentally different backgrounds and technological solutions, was the compulsory live test run in the six months from 1 September 2019 to 1 March 2020. The importance and complexity of this period is attested by the fact that a very tight schedule was drawn up, along which system participants conducted numerous tests in close cooperation with GIRO and the MNB, to allow all stakeholders to prepare for 2 March 2020 as best as possible.

The project was a top priority not only for GIRO that implemented and operated the central system and the system participants who sought to fully prepare for opening up the service to customers by the new deadline, but also for the MNB. Preparedness monitoring was stepped up during the test run, progress was analysed and evaluated through biweekly or monthly surveys, regular consultation with banks and the banking sector as a whole as well as at executive forums. Regular follow-up consultations were held among senior managers of the MNB to adjust processes and take any necessary measures as soon as possible. Our efforts bore fruit, so apart from some minor fine-tuning, no major intervention was needed.

The night of 1 March 2020 arrived and we stood ready for the go-live of the service if not completely relaxed, but relatively calm. System participants had pending tasks even in the last minutes, because, depending on the technological solutions used, the go-live of

the instant credit transfer service and the related systems and system elements could not always be performed automatically everywhere and in every case. Naturally, based on the regular reports of the system participants and the consultations with the designated points of contact, the processes were also monitored in real time by the MNB’s project team.

In view of the information processed by the team, my fellow executives and I continuously assessed the progress, and although smaller risks arose, no major intervention was necessary. Apart from one-off and short-lived issues, which often did not even affect the service level experienced by customers, no serious shortcomings were registered. All players handled the difficulties in connection with the transition well, and any errors were eliminated as soon as possible. At 00:00 on 2 March 2020, transactions started to flow, and, as expected, sizable volumes of customers started testing the system even in the first seconds. We followed suit, and several small customer transactions were conducted by the project team. The first secondary identifiers were also registered. In the first days and weeks, the special focus on closely monitoring the central infrastructure and system participants was maintained, and we were relieved to find that the service was operating properly. This is best exemplified by the millions of payment transactions conducted in the first weeks, in a value of around HUF one trillion.

However, the work did not end there. A new era started in Hungarian payments, but this was only the first step on a long journey. The launching of the basic service is definitely a huge milestone, but if instant payments are to live up to their promise and provide a truly relevant alternative to cash in as many payment situations as possible, innovative payment solutions based on the central infrastructure are needed. Nevertheless, I am happy to report that headway is being made in this regard, too. By the end of the year, most banks will offer the request-to-pay service, and many of them will follow the MNB’s guideline and integrate QR code-based solutions into their mobile banking applications. Therefore, the incorporation of the instant payment method in bill payments and the establishment of merchant acceptance may be faster, whether in physical or online shopping.

I personally would like to thank all the players who participated in the project and contributed in some form to the achievement of our goals, for their extensive cooperation, the joint work and the exceptional performance. I am especially grateful to bank executives for mobilising all necessary resources to ensure success, providing guarantees with their presence at the right times and places. In closing, let me mention three colleagues to whom we owe this success, and who can be rightfully proud of their enduring professional and executive performance: Dr Ferenc Gerhardt, Lajos Bartha and Dr Zsolt Selmeczi-Kovács.