The strategy of payment regulations has been very clear and transparent since it started to develop at the European level almost 10 years ago. Convenient and secure payments are based on two pillars - on the one hand open banking and on the other - instant payments, including cross-border instant payments. Like many other things that are not directly dictated by the market, this happens with more resistance because the motivation to enforce the regulations is somewhat artificial.

The topic commented on the DIGI PAY Blog Vladislav Dimitrov, CEO of Dais Software.

The idea of ​​the European institutions is to enable more companies to enter a market that is dominated by the big card organizations. They have been practically an oligopoly for over 40 years, growing into multi-billion dollar companies without which we can hardly imagine daily life when it comes to payments. One of the indirect goals of these European directives is to break this oligopoly and introduce a parallel infrastructure, competitive in terms of functionality and convenience of card schemes, and why not even better.

But despite the idea, the pace of introduction of these regulations is happening slowly. PSD2 was supposed to be introduced by 2019, and this process has not even reached a maturity level yet. Formally, all requirements are met, but practically the motivation to turn them into real market instruments is extremely low.

What is needed

There must be an appropriate environment and situation - very few things in the world happen by force, especially since these are not critical directives for society. We are not talking here about topics that threaten the functioning of society, such as military action, climate change and the like, or those with any downright revolutionary potential. Open banking and instant payments are an opportunity for local players. It is important that players are active and use the open banking infrastructure to develop interesting and usable value-added services. Regulation leads to so-called embedded finance - ie. the ability for consumers to use payment services transparently as a seamless part of their daily activities.

The market is open to all – innovative players and fintech companies, as well as to traditional banks. The services can be extremely diverse - from very basic - such as payment for parking or on-site service, to complete management of company funds. Some time ago we gave as an example that in China, instead of a hat to collect money, on the street, they have a QR code, with which you can immediately make an instant payment. This sounds very exotic, but nothing prevents it from being real. Naturally, the new solutions must be tailored to the local specifics, the financial culture is one in Bulgaria, another in Western Europe, in South Asia or Africa.

Our contribution to value-added services based on open banking is the InfoPay platform, which will provide optimal management of company finances, collecting information on companies's stocks and transactions and developing additional services such as invoicing, payment reconciliation, cash flow forecasting and so called

"The market is ripe for instant payments" - Vladislav Dimitrov, CEO of Dais Software

After a bit of a rough start, instant payments are currently moving very well. This is one of the good examples where the banking sector itself has supported the specific initiative. Banks recognized these payments as a good service that in no way jeopardized their business and financial results.

In both instant payments and open banking, transactions are account-to-account, and the account is operated by the bank, and the bank will always be paid for that transfer, regardless of which player the payment is made through.

What services can be developed

The goal of new players is to profit from the value-added service. Even if a very popular innovative service appears on the market, it will hardly take the main business from the bank. Banks have two main types of income - interest and fees, mostly related to accounts and payments. They have an extremely powerful position and strong tools with which to retain customers through them.

Despite the entry of new online banks like Revolut, I don't know a single person or company that runs their entire business and personal finances through Revolut, there must be a reason for that. Traditional banks themselves could gain a lot from the development of such services by offering more diverse and diversified payment scenarios and value-added services based on them.

The development of instant payments will undoubtedly lead to the development of such services as well. For example, some cash payments will be converted to instant electronic payments.

Let's hope that the development will not only be evolutionary, but also unique services will appear, which will be in the right place at the right time, and sharply change the situation.

Banks have no motivation to actively develop new services

Rather, the problem is that traditional banks lack the motivation to actively develop and prioritize this area, and for now they are keeping the mass of customers. Like any business, banks have limited capacity and resources - a reason must be found for services related to open banking, instant payments and payment development to receive a high enough priority in the bank's huge list of projects and tasks.

Where to after instant payments in Bulgaria

Cross-border payments are coming, for which the regulatory framework is unconditional and there is a roadmap with relevant deadlines. At the time of full integration with the European payment infrastructure, this will also happen in euro after formal accession.

With our full opening to the European payment environment, again I would not talk about a threat to local players, but more about new opportunities. It depends only on them whether someone will take their market share.

In the local market, local financial institutions - banks or fintech companies - will always have an advantage, unless they miss the opportunity to take advantage of the fact that they know the local peculiarities extremely well and allow a multinational player to enter Bulgaria and seize a specific local business.

In order to realize such a threat, an international company must enter, which has yet to adapt its well-developed processes to local specifics, which is not very easy. On the contrary, it is more likely that Bulgarian players will benefit from easier access to payment infrastructure and data through open banking.

The balance between security and convenience

The bottom line in the industry is striking a balance between security and convenience. The fact is that in recent years there has been a great emphasis on convenience. But that doesn't tip the balance. As convenient as some payments are, security is a critical element of payment - if there is no security, the service is compromised and doomed. Whether we are talking about an immediate payment on the spot for BGN 50-100 or a huge bank transfer for millions, security is imperative and is applied depending on the risk and the process behind the transfer itself.

A number of current regulations such as DORA are not new, we can say that they simply formalize and introduce expressly new controls on certain processes, most of which exist. But still, the time factor is important, because all regulations come with some deadlines, which are often difficult to achieve and further slow down the dynamics in the development of banking services.

There is no adequate system to deal with money laundering

The difference between the topic of money laundering and the others we have talked about so far is that it has a very strong political undertone. Several factors are involved here, which are not exactly pure financial fraud, but very often crimes related to organized criminal activity, terrorism, military actions, embezzlement on a particularly large scale, corruption. These are things that are politically sensitive on a global level, because they are overcrowding that undermines the foundations of a society. In this regard, there is much to be desired and the subject is extremely complex.

Formally speaking, we are talking about collecting and processing information for such type of transactions. Every bank client must declare the origin of money, there is a limit on amounts, in every country there is a register of transactions above certain amounts, there is tracking of counterparties. Another is the topic of analyzing this data, which is lagging behind.

A comprehensive bank and interbank system is needed to adequately analyze all this data and identify risky transactions and customers and follow-up actions.

This is by no means within the power of one bank, banks are obliged to use anti-money laundering platforms, but the task is much larger and concerns the entire financial system, so we do not have the comfort that the process itself is actually working.

Without large-scale efforts by all players, both financial institutions and national financial institutions, as well as cross-border cooperation with international organizations, it will be difficult to achieve radical progress in this regard, comments the executive director of Dais software Vladislav Dimitrov in conclusion.