Exceptional opportunity for modernising payments

Kristóf Takács

Project leader, Magyar Nemzeti Bank

After the introduction of intraday credit transfers in 2012, it became clear that despite the major progress and enhancement in service quality achieved with the rollout, this solution could not support the general use of electronic payments. Although the few hours of processing time considerably broadened the applicability of credit transfers on working days, this was not enough in several payment situations. It was evident that even with intraday credit transfers and the increasing popularity of card payments, further improvements were necessary, because the available infrastructures and the increasing number of new and innovative market participants would not be able to provide a viable alternative to cash use in every payment situation.

In the end, the MNB started to assess the options for introducing the instant payment service in the summer of 2015. To engage in meaningful consultation with market participants, the options had to be carefully explored. During ten months of internal preparatory work, we examined in detail the planned or already operational systems abroad, the business and technical features of the available payment services and those planned by market participants for the years ahead as well as the implementation options of the potential operating models from a business, regulatory and technical perspective. The expected implications for banks’ liquidity management were also analysed, just like the possible legal framework of the implementation and the necessary legal amendments. The operation of the instant payment system was modelled on payment data from earlier years to produce appropriate estimates on banks’ liquidity needs in the new service and the system’s capacity needs. It was important to make it clear to all stakeholders at the beginning of our joint work why this development was necessary and what the options and

the potential implications were. This allowed stakeholders to provide the most meaningful information to the MNB on the development needs and consequences triggered by the new system on their side.

The establishment of instant payments was envisaged to provide a universal platform that utilises modern communication and data transfer solutions to support the already operating market participants in introducing modern services and accelerate the entry of innovative players. This called for a system that can execute customer credit transfers by using basic electronic payment services, without any unnecessary interruption or delay, among all payment service providers in Hungary. Another goal was to create a payment solution that can be a real alternative to cash in all payment situations in terms of technical operation and the availability to customers. This required progress in the existing features of the credit transfer and card systems operating.

The first step in the cooperation with market participants was taken as expected. While everyone showed a positive attitude towards the initiative, the introduction of the service did not receive full support, as many players said that the planned schedule should be revised and customers’ expected demand for the service should be explored in more detail. After taking into account the innovations in payments in Hungary and abroad, it soon became clear to everyone that the preparations had to start in 2016 if the Hungarian financial sector and thus the Hungarian economy was to remain competitive in the 2020s in terms of payment services.

By the time the joint work between the MNB, GIRO and the system participants as well as several other market players and state actors started formally with a nationwide project in mid-2017, everyone knew that the instant payment service had to be implemented. Accordingly, everyone supported the project during their work in the joint endeavour, and looked for the best answers to the questions that arose in their respective fields and for the most efficient ways those answers could be incorporated into the system. After that, the MNB team coordinating the project had several parallel responsibilities: the finalisation of the operating model’s details, the coordination of the MNB’s internal developments, which involved its role related to the central infrastructure and its own preparation as a system participant, the monitoring of clearing house developments, the preparation of market participants and the continuous coordination of all the above. From the perspective of the nationwide project, this holistic approach came in handy in several cases, because we had a first-hand experience about the central tasks and system participant’s duties, which provided adequate information that allowed us to find the right answers to the questions as they transpired.

Although almost all subtasks required intensive work in project coordination and were memorable in some respect, there were two particularly special periods in the project. One was mid-2019 when the original go-live date had to be modified. Weeks of intensive work ensued related to the preparation of the modification and the detailed establishment of the further project schedule and testing processes, while the project’s workflows had to be coordinated with uninterrupted intensity and attention to detail. It was important to ensure that no-one received word about the plans before the detailed rescheduling was done, because disclosing this information early would have had a negative impact on the intensity of several players’ cooperation, which could have further obstructed the introduction of the service. Because one of the key aspects of the Hungarian implementation model was that instant payments could only be launched at the same time for every customer of all market participants, the modification of the go-live date could not lead to a slowdown in the preparation of any player. That is why requiring joint and coordinated testing was important, because it ensured that all the players remained continuously active in the period until the new go-live date, irrespective of their own state of preparedness.

The other remarkable period was between late 2019 and early 2020, the few months prior to the launch of the service, when detailed summaries were prepared weekly on the progress of the preparations at system participants, the clearing house and the MNB, to ensure a smooth launch. Thanks to these, the project leaders gained even more insight into the workflows of all the players concerned, thus able to respond to all potential issues as fast as possible. In the last months, the very close monitoring of the preparation and our familiarity with the projects of all stakeholders contributed to the ease with which the team coordinating the project was able to manage its work on the night when the service was launched In spite of the size and the number of participants in the project. Only some of the system participants had to be consulted during the night, and the overwhelming majority of the smaller issues reported by them were eliminated by dawn, so most customers saw a well-functioning service on the morning of 2 March.

All in all, the four and a half years spent with project coordination was an intensive period, in which we cooperated very closely with several colleagues within and outside the MNB. This is attested by the thousands of discussions I took part in at that time, and the hundreds of kilometres I walked between the buildings of the MNB, GIRO and the Hungarian Banking Association, located only a few hundred metres apart. Coordinating the introduction of instant payments from start to finish from the MNB’s side while monitoring all workflows and processing all information proved to be a real challenge. I am most grateful to my colleagues who took part in the joint work of coordinating the project, for their undiminished enthusiasm and their tireless efforts to ensure smooth workflows across

the project and that the best possible answer was found to all the questions, whether within the MNB or in clearing house and market participant developments. It was especially motivating to work with people, whether they had been working for long in payments or just joined the team, who saw from day one the enormous positive implications of the instant system on Hungarian payments, and did everything they could for the success of the project, sometimes working during nights and weekends, without being asked to do so. I am also indebted to all the colleagues working on the MNB’s tasks for their perseverance and that they always strove to find the best solutions. And I wish to express my gratitude to the countless other colleagues at the MNB, GIRO, the market participants and state actors, for their proposals, recommendations and questions that moved the project ahead in several respects and contributed to the establishment of the best possible service.

The rollout of instant payments created an internationally unique core infrastructure in Hungary, which provides unparalleled opportunities for modernising payments. Since payments can be made between any two Hungarian bank accounts in seconds on a 24/7/365 basis, this service combines all the positive features of cash and credit transfers. Instant payments are available to practically anyone, since only a bank account and a mobile phone are necessary to use the service, which poses no difficulties to the overwhelming majority of citizens today. Transactions can be executed in real time, similar to cash, and their success is also evident to all participants, and just as in credit transfers, payments can be made in any situation without physical presence. Even more importantly, the supplementary functions, such as secondary identifiers, requests to pay and standard QR codes, offer several new service opportunities, which may lead to fundamentally new payment solutions. They facilitate the widespread use of electronic payment solutions that can be conveniently used in any payment situation, which in the long run will transform people’s payment habits and how companies conduct payments. This will increase the efficiency of the entire Hungarian economy and provide outstanding opportunities for the Hungarian banking sector to maintain its competitiveness. At the same time, it will make market entry easier and faster for the players entering the payments market. Building on the instant payment infrastructure, any market participant can develop modern payment services that will be able to communicate with the other services available on the market and access all Hungarian customers from the moment of the rollout, which is unparalleled in the world.