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The European Central Bank unveiled its plan to offer instant payments in the European Union. To be more precise, this service will ensure the transactions cost less than one recent to complete. A market consultation is underway to determine the user requirement for developing this service. In a way, the ECB plans to compete with Bitcoin for instant and cheap transactions across borders.
According to the ECB, 2017 is a decisive year for innovative retail payment services in Europe. A dedicated roadmap has been presented during a recent conference, indicating the time is now to start offering affordable cross-border payment solutions. Delivering real-time payments across the different member states is a challenge, though.
The European Payment Council laid the foundation for a cross-border instant payments project. Banks and service providers will come up against a proposed deadline to make this level of innovation possible. A lot of work needs to be done over the coming twelve months; that much is certain.
A Bold Plan By The ECB
Instant cross-border payments are one thing, but gross real-time processing is a different creature entirely. Tips, the proposed settlement service to facilitate these transfers. Aims to remove credit risk from the equation. Tips will also aid participants in complying with the Sepa Instant Credit Transfer scheme.
It is important to keep in mind participation in the Tips scheme is entirely voluntary. Market participants who do not aim to participate can establish a contractual agreement with a Tips member to use their account. In doing so, instant settlement of payments can be achieved without friction.
ECB Executive Board member Yves Mersch stated:
“First, payment service providers will have to deliver instant payment solutions to the end users. Second, most ACHs will be ready to launch their instant payment clearing systems. And last but not least, the Eurosystem will decide on whether or not to provide a pan-European instant payment settlement service in central bank money to payment service providers.”
On the cost front, it is estimated the price per transaction will not surpass the 1 euro cent threshold. The ultimate goal is to settle transactions for the sum of half a euro cent in the coming years. Quite an ambitious plan, as it would reduce the current fee structure to near zero. The ECB will decide whether or not this service will be developed in June of 2017.
One could argue the ECB wants to compete with innovative cross-border payment solutions. Bitcoin is one example that comes to mind. With its instant settlement and cross-border capabilities, the correlation is difficult to miss. Moreover, Bitcoin is a network designed to make transactions cheaper, and the ECB wants to mimic this approach. That said, Bitcoin is available today, and the new ECB service may never see the light of day in the first place.
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