Erste Bank’s four-year project: 25,000 person-hours on 53 systems

Radovan Jelasity

Chairman & CEO, Erste Bank Hungary Zrt.

THE BEGINNINGS

In the spring of 2017, the news of a new, nationwide project, instant payments, spread like wildfire among our colleagues working in payment services. Unsurprisingly, at the first meetings, we mainly listed the questions. 24-hour balance management? What happens to the end-of-day closing? How to ensure continuous availability? What exactly has to be available on a 24/7 basis? What are considered secondary identifiers? In which situations are requests to pay useful? Which risks should we prepare for?

The longer we analysed the task at hand, the clearer it became that it was not simply a matter of ‘expanding’ the existing payment services. It meant systems and their operation. Architecture. Processes. Channels. Account statement and customer information. Besides payments, lending and risk management are also affected (as interest rates have to be calculated). The same goes for telephone customer service and for providing the information in our branches. Complaint management. Internal and external reporting service. It became clear that similar to the introduction of intraday clearing cycles in 2012, another new dimension will be added to Hungarian payment services.

We mulled over the solutions over and over again. We were looking for the place of instant payments in the everyday lives of customers and of the bank at various debates and discussions. However, the details just kept raising new questions. The number of the sub-cases to be solved increased. In the end, the number of the affected systems was over

50, and there were just as many suppliers to be coordinated. Business matters were built on the requirement of capping the processing time at five seconds.

Before such momentous changes, it is standard practice to take a look around the world and try to utilise the experiences and solutions of others. But here we could not do that. Although there were countries where instant payments appeared in 2018–2019, introduction was not obligatory anywhere. Besides the simultaneous introduction across the whole market, the capping of the processing time at five seconds meant much more stringent requirements than the previously known SEPA Instant. Therefore we could hardly draw on the experiences of the neighbouring countries. Since the rollout, we have shared our experiences and the lessons learnt at various forums.

We had a similar experience with the suppliers. They understood what the instant payment system was, but they had never been faced with requirements such as the Hungarian system demanded. We learnt this together and eventually formulated the solution jointly.

ON THE ROAD

Like the other market participants, Erste Bank started a project for the introduction of instant payments. The working groups within the project, business/IT/testing, tackled the tasks with continuously expanding capacities.

Based on the established system, the project team prepared a specification and a testing plan, negotiated with the suppliers and conducted integration tasks. It tested partial developments and then increasingly complex processes. Along a jointly agreed go-live strategy, it involved more and more elements in the live environment to ensure that these tasks would be completed ahead of the weekend before 2 March 2020. The success of this work is attested by the fact that Erste Bank sent the first successful instant payment transaction in Hungary during the nationwide live pilot.

One of the most burning questions was how to manage the rollout and long-term risks affecting the system. What happens in a system outage? How to strike the right balance between protecting customers’ money and executing orders fast?

We can say that almost all the areas in the bank took part in the system’s preparatory work. The members of this very diverse team sought answers to highly complex questions, and they had plenty of opportunities to familiarise themselves with the full impact mechanism of the payment process. We all participated in this massive learning process.

Even Erste Group watched closely what happened in the Hungarian project. We regularly reported to Vienna at the level of executives and experts as well.

NOVELTIES

Besides the basic requirements tied to instant payments, some easing elements of the payment order also appeared such as secondary identifiers and requests to pay, a new type of product. These concepts put services and products, earlier demonstrated by the ECB and seen in the fintech world only, on the roadmap of Hungarian payment services.

Debates could not be avoided here either. How to develop the most suitable solution for our customers’ segments? How much will corporate and retail needs differ in terms of these services?

Just like banks in general, Erste supports convenient and broad-based solutions. But how can we achieve this if the standard of the instant payment system had already been developed, and the SEPA standard is still being formulated?

SIX MONTHS OF NATIONWIDE TESTING

Some people may claim that launching a service happens in a second. In a certain sense, this is true, and this is what happened early in the morning on 2 March 2020, as that was when the instant payment service became available to customers for interbank orders.

However, the preceding six months were necessary to come to that moment. I do not know whether any other banking market had seen such thorough and deep testing as we experienced in Hungary between September 2019 and February 2020.

We were testing day and night. On weekdays and weekends. From Monday to Wednesday, on Thursday and Saturday. We were testing using our in-house simulator. We were testing with selected partners on the market. With willingly cooperating banks. With a single partner bank. With all the partner banks that were available at the given time. We were testing functions and performance. And then analysed the results, again and again. We asked questions, discussed issues, fine-tuned settings, then tested again, and started analysing once more.

To us, the cooperation between GIRO and the banking sector’s participants was especially instructive. Everyone fought their own battles with their own difficulties, but the common

goal and deadline, the professional community and helping each other contributed enormously to launching the instant payment system on the Hungarian banking market without any major flaws on 2 March 2020. The task was a great challenge, but I am proud that Erste Bank completed it to a high standard.

WE HAVE ARRIVED. HAVE WE ARRIVED? WHERE TO GO FROM HERE?

The system has successfully gone live. Between 2 March and 30 June 2020, Erste Bank alone sent or received almost 8 million instant payment orders. The average processing time of these orders was 1.16 seconds, less than 2 seconds in more than 96 per cent of cases. Over 40 per cent of the transactions were initiated at times when the given amount would only have become available on the next working day prior to the introduction of the instant payment system. Of the secondary identifiers, a novelty to customers, 7700 were registered, mostly mobile numbers and email addresses.

However, we are not at the end of the road yet. We are proud that Erste Bank was to first to announce the request-to-pay service to its customers which was very popular in March. Since early July, we have opened up this option towards the other banks, but the volume of such orders is currently low. We have to raise awareness among customers, and the service has to be made available as batch transaction to companies that collect money from a large number of customers on a regular basis.

Instant payment initiation through a static QR code built into mobile banking applications and the requests to pay initiated with a dynamic QR code are the way instant payments can truly become part of the everyday lives of a wide range of people.

Undoubtedly, the world is moving towards continuous, 24/7 availability in all human interactions. In the case of the forint-denominated payments, the instant payment system now provides a very firm footing. We have to continue building on this in the future to provide solutions to our customers that utilise the opportunities of real-time transactions. We have to press ahead on the road and we have many ideas left.

With respect to the instant payment system, Erste Hungary is the benchmark within the Erste Group, in other words it is a good example that a subsidiary bank may even surpass not only the parent bank but also several other, much larger and more significant subsidiaries and we are definitely proud of this.