The Swedish Trade Federation On Why FI Collaboration Is Key To Instant Payments Ubiquity

Global consumers moved online in droves to fulfill their financial needs in the wake of the ongoing pandemic, leaving businesses and financial institutions (FIs) to catch up with increased payment volumes. Many consumers expect to send and receive funds as quickly as possible and are expressing little patience for slow legacy methods, such as cash or checks.

The global financial sector is responding with renewed interest in the idea of cashless societies or those that are less dependent on cash. FIs and payment providers need to collaborate accordingly, both inside and outside their own markets, for this to happen. This is the key to the rise of instant payment solutions in the Nordic countries, a region where many in the financial sector are attempting to put the cashless ideal into practice, explained Bengt Nilervall, payment expert at the Swedish Trade Federation, the employersʼ association that represents the trade and commerce sector.

Instant paymentsʼ popularity in Sweden and the greater Nordic region has been increasing for nearly a decade, ever since Sweden launched its own instant payment solution, Swish, in 2012, he said. Approximately 7.5 million Swedish consumers out of the countryʼs 10 million residents now use Swish, and Swedish FIs are also helping grow pan-Nordic payment network P27 for faster and more seamless cross-border transactions.

“I think the advantage we have in Sweden is it is a small population [with] few larger banks that do cooperate,” Nilervall said in a recent interview with PYMNTS. “They do have competition between them, of course, but with [some] projects, they [work] together and make things happen … and I think that is the key. [That is] one of the main success stories [here]: to sit down and collaborate on one thing, and then you go back and you start to compete on features, prices and so on. It is the same with P27 — I mean, if small countries like Sweden, Norway [and] Denmark [try] to do [it] all by themselves, they do not have a chance, so we do need to [collaborate], and that is what we have
been doing with P27, for example.”

This type of collaboration allows Nordic FIs to move swiftly toward their common goal of a cashless future — an approach other FIs and financial players may be able to use as an initial blueprint toward the development of such solutions in their own markets. Examining how instant payments have progressed in the Nordic region — and where they are held back — could provide businesses and financial entities worldwide crucial insights.

Bringing Instant Payments Into The Brick-And-Mortar Mainstream

Instant paymentsʼ availability has progressed rapidly for some use cases in the Nordic region and more sedately for others. The aim of becoming a cashless society means that many entities are focusing their attention on bringing more digital payment capabilities to areas of daily use, such as brick-and-mortar shopping.

“In the Nordic region, it is a little different compared to the rest of Europe because … we are directly going toward a cashless society,” Nilervall explained. “If we stick to the brick-and-mortar [space, what has been] going on for the last 10 years is the decline of cash payments, done very rapidly. [If we look at] the retail sector, I would say that around 10 percent of all transactions are made [in] cash, and that is usually [for] small amounts.”

Card payments still dominate brick-and-mortar shopping, however. Instant payments may be popular in eCommerce, but they represent only about 4 percent to 5 percent of payments made at brick-and-mortar stores, Nilervall noted — a significant development for just under a decade of work. Nudging these solutions into the physical shopping mainstream therefore remains a top goal. Another area in which instant payments have more ground to cover is disbursements, or the ability to send funds instantly to consumers as well as merchants or banks, he added.

“Well, we are not there yet,” he said. “[Instant payments] has not come from retail to business to consumer [transactions], except in traditional customer-merchant [interactions] when you have a chargeback or something like that. It has not come to the other kinds of arrangements between a consumer and an insurance company, or a consumer and a bank, to pay out [with] Swish.”

There are some indications that bringing this capability to disbursements may be part of Nordic instant paymentsʼ future road map, with services like Swish exploring potential uses for payouts to consumers on digital gambling sites, for example, though the feature is still in its nascent stages. Creating support for instant disbursements will require a high degree of consensus among merchants, banks and regulators for it to be a success.

Consensus And Collaboration

Regulation represents the next great hurdle to crafting an instant payments ecosystem that spans the globe and not just a particular region. Regulators may still have qualms about eliminating cash from the financial ecosystem entirely, Nilervall explained. Developing consensus on what the instant payments ecosystem will look like, and whether it will leave room for outdated methods, such as cash, is the next question that must be addressed.

“I think the idea and the goal is that everybody wants [instant payments], … but the problem is [being able] to sit down and to agree [on] regulation and so on. That usually takes some time,” he said.

Exploring how the Nordic region reaches that consensus and puts the next phase of instant payment development into action could offer a critical advantage to FIs and other payment players when it comes to crafting their own solutions. Staying one step ahead of other regions where “instant” is fast becoming a byword in payments may well prove to be the key to future success.