In the latest edition of our ongoing Fireside Chat series, Volante’s own Peter Larson sat down with Gianluca D’Imperio, regulatory compliance specialist at UniCredit, and Alessandro Impellizzeri, Head of Standards at CBI, to discuss the current state of instant payments in the Italian market, particularly as it relates to the rapidly evolving regulatory landscape.
Here are some key takeaways from their conversation:
Emerging legislation around instant payments is welcomed but could use improvement
When it comes to instant payments, the European Commission’s recent legislative proposal of mandatory implementation has become the main focal point for banks and financial institutions in Italy and across the continent. According to Gianluca, while market participants throughout the country have been largely receptive to the Commission’s efforts, as banks in the region have been ahead of the curve in adopting real-time payments capabilities, there remains a notable disconnect between regulatory objectives and the actual mechanics of the Italian banking industry.
More specifically, Gianluca stressed the need for regulators to better understand the fundamental differences between instant payments and ordinary SEPA credit transfers, and that instant payments can be implemented on a broader scale without eliminating the option to transact through more traditional means.
“One of the main issues is that according to regulators, instant payments should replace the ordinary SEPA transfer, but from our perspective, those are still two different kinds of payments services,” he said. “The thing is, sometimes the perception of regulators isn’t consistent with the real market’s activities.”
Request to pay, confirmation of payee, and standardization will be critical to addressing fraud concerns
While instant payments are known to dramatically improve speed and efficiency, this still may come at the cost of an increased vulnerability to fraud. This is largely due to the fact that once an instant payment has been made, there are currently no reliable mechanisms in place to cancel or reverse the transaction.
“[Security] is one of the main tradeoffs,” says Alessandro. “In one way, instant payments solve the problems of user experience and faster payments, but on the other, we have to consider that an instant payment is also a one-shot transaction that cannot be revoked. Once the money is sent, there’s no easy way of getting it back if something happens.”
One way to solve this problem is through emergent processes such as Request to Pay and Confirmation of Payee, which give the sender a chance to review the nature of the payment and where it’s being sent before the transaction is actually processed. Moreover, Request to Pay comes with the added benefit of allowing businesses to integrate future revenue and income into accounting processes and better control liquidity and overall financial planning.
However, as Gianluca pointed out, while these processes should be considered critical to instant payments, they are not enough to address the totality of fraud concerns emerging from new payment services. More specifically, as the European and global payments landscape becomes more complex through the introduction of new and different payments rails, harmonizing these individual systems and promoting transparency through standardized processes will be essential to their overall security.
“One thing we need is some form of standardization that can be adopted by all the market participants,” he said. “And this is something that, according to what I know, so far doesn’t exist at the European level, and we will need that in the near future.”
Want to learn more about the current state of payments modernization in Italy, including additional insights on evolving regulations, as well as the importance of standardization to improving the efficiency and security of cross-border transactions? Click here to access the full discussion.