Long reads

Changing payments: P27, Europe and beyond

Sebastian Zawada

Sebastian Zawada

Content and Community Officer, Finextra

Project P27 has been in motion since late 2017, designing the operational model for a first-of-its-kind, multicurrency, real-time clearing system across Nordic countries Denmark, Finland and Sweden. 

The aim is to break down barriers for trade and financial interaction between the Nordic countries by making payments more efficient, including cross-border.

An open-access, common infrastructure will deliver a state-of-the-art payment experience to customers across the Nordic region and provide a foundation for future developments.

By developing common standards for payments and improving the customer experience when carrying out cross-border payments in the region, the realisation of P27 will provide tangible benefits for societies.

There has been a cumulation of progressive efforts around the modernisation of payments, regulatory frameworks are being placed in the spotlight and being advanced and adapted, but some of the exact challenges or compromises that lie ahead remain unknown.

This was exemplified in a NextGen Nordics webinar hosted by Finextra and P27, which identified the biggest regulatory challenges and revealed the roadmap to P27-go-live.

P27 progress

Lars Sjogren, CEO, P27 Nordic Payments, started by updating the community on progress during the Covid-19 pandemic. “Covid-19 is pushing trends that we were seeing before, but [the pandemic is] accelerating some of the changes for us. We are seeing an extra focus on the importance of cross border transactions. We see the need for further standardisation across the many schemes and the infrastructures.”

Sjogren added: “We have, of course, experienced some challenges based on the current pandemic, but it has been manageable because we are, in a way, a start-up. We are onboarding people in several countries, growing quite fast and we are doing it in a very virtual organisation.”

Sjogren outlined that there has been no change in striving towards providing the Nordics with an effective future-proofed and very resilient infrastructure, but they are experiencing regulatory challenges.

He added that adjustments are still necessary to strengthen the overall set-up of P27, to proceed and go-live in Sweden, which is being addressed. These modifications have been driven by regulators in regard to outsourcing.

Martin Andersson, chairman of the board, P27 Nordic Payments, explained: “There are extremely high requirements on [an organisation like] P27 when it comes to outsourcing, but at the same time, there are hundreds of institutions out there that use outsourcing quite a lot, and they haven't had the same kind of scrutiny.”

Sjogren echoed the comments made by Andersson and spoke about the different domestic regulatory challenges they are experiencing across the region, such as obtaining a domestic clearing license.  

“Obtaining a clearing license is something that we need to have in place predominantly to be able to process Swedish batch payments. This license is a license that is only valid in Sweden. So, if we look at Denmark for example, you don't need a Swedish license to do clearing in Denmark, there you need to be registered as a payment system with the Danish National Bank.”

Sjogren continued: “We have seen a lot of changes in the payments landscape, but I would say we still have a situation of a very fragmented landscape when it comes to payment infrastructures.”

Confronting challenges

The project also means confronting several never-before-seen challenges in cross-border regulatory compliance and coordination. As mentioned, regulations are constantly changing and therefore, require modification to the project, which Sjogren highlighted.

“When you're running an initiative like P27, what we thought was the way to do it two years ago, is certainly not the way to do it today.”

Sjogren moved to explore the developments made by P27 on regulatory and technology requirements.  

“We have developed the standards and the Nordic Payments Council have been doing a great job in implementing these schemes. There are many banks that have signed up to use this project already, which is really great.”

Sjogren added: “On the tech side, things are going really well when it comes to P27. We have the first data centres which are up and running. We also have been doing user testing together with frontrunners, with one bank which has completed 100% of all tests.”

The panel also discussed the next steps in the roadmap for P27 going live and touched briefly on the types of Layer 2 services, a method that internet service providers use to segregate their network for their customers, allowing them to transmit data over an IP network.

The importance of collaboration

Henry Ohlsson, deputy governor, Riksbanken then analysed the current roadmap for P27 and the importance of collaboration across the Nordics to provide benefits for consumers.

“The roadmap for P27 to simply create a faster, cheaper, more transparent and more inclusive cross border payments takes around 90 building blocks. The basic objective is to find a system that will make cross border payments easier than they are now.”

Ohlsson added: “The P27 roadmap discusses the present and organises the challenges we have regarding cross border payments today and it's quite obvious to me that there are some necessary conditions to fulfil the objectives. We need more harmonisation and more standardisation within this area.”

Ohlsson elaborated on the significance of cooperation between the countries to introduce harmonisation across cross border payments, which can then offer economic benefits to the Nordics.

“If we can create a situation where we can cooperate, we will be much stronger than any single country within the payment area and in many other areas, there are huge economies of scale available for us and if we cooperate, we can take advantage of these economies of scale.”

The panellists agreed with the points stated by Ohlsson and reiterated that the next steps for P27 would be to address instant payments in multiple Nordic countries, with the understanding that transparency is of paramount importance. 

Sjogren explained the next steps for P27: “We are currently addressing instant and batch payments in Finland, in Sweden and in Denmark. We are solving almost all the very critical aspects for cross border transactions to be treated the same way as a domestic transactions, then we're also having a [look] at the Layer 2 services.”

Sjogren elaborated on the points made on Layer 2 services, stating they are exploring different possibilities with Mastercard to create a Nordic solution that will deliver customer value. He mentioned that P27 are looking into bill payments: normal invoice-based payments, which will be made available across borders due to work completed with the Nordic Payments Council on the Request to Pay standard. 

"This will create a Nordic solution on the market with new functionalities.” Sjogren outlined the benefits of having cross border functionality for Nordic companies, believing this will revamp business models across the region.

Keeping an eye on Norway

The panel were asked about the involvement and the commitment from all the Nordic countries, particularly keeping an eye on Norway. Sjogren explained how important Norway was to the project, as P27 banks have a large market share in the country.  

“We love the Norwegians, I say that all the time but at the same time, I really don't understand why they are not fully part of this project. We will be active for Norway to join fully, and the same goes for Iceland.”

Andersson expressed that collaboration and dialogue between all Nordic countries will ensure the project is successful. “We need to be transparent and communicate each step with everyone involved. This will allow us to reach out fully to other Nordic countries.” 

Summarising the discussion, all webinar panellists outlined their expectations for P27.  

Andersson: “My expectation is that we must come even further than we already have. We have a very ambitious agenda which we want to achieve. We can prove that we can do cross border payments as easily as domestic payments, that it will be cheaper and easier than domestic payments today.”

Ohlsson commented on the point made by Andersson and requested a more visible response to P27 developments.

“I would very much like to see more action and to see concrete things. There are many reports being written right now and many webinars being held about P27, but it's also important to see action.”

Sjogren responded to the comments made by Ohlsson, focused on the opportunities ahead and the partnership with MasterCard.

“We are really moving ahead with great speed, building the organisation, earning the right from the [European] Commission and the authorities to bring new services to the market. We are in a really good spot for the rest of the year.”

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