P27 was created in 2018 with the lofty ambition of establishing a single pan-Nordic payment infrastructure for the region’s 27 million citizens. The payments infrastructure is set to be a world first – incorporating real-time, batch, domestic, and cross border payments to be carried out quickly and securely on a single platform.

A joint initiative by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank, the project will align its standards to those in the Single Euro Payments Area (SEPA), further harmonising the European payments landscape.

Individuals and businesses across Denmark, Finland and Sweden will be able to utilise the payment capability, and while Norway is not currently fully committed to the project, the initiative views Norway’s participation as something of a future inevitability.

Following a recent NextGen Nordics webinar hosted by Finextra and P27, and in anticipation of the upcoming September event, we canvas some of the questions frequently raised around the initiative, to build a clearer understanding of its status and the potential it holds for cross-border payments in the future.

Why is P27 the initiative the Nordics need?

Many Nordic legacy payments systems are outdated, and a lack of investment over previous decades has rendered them ill-equipped to capitalise on the push toward digitalisation seen across payments in other regions. If this were to be left unaddressed, the cost of investment to rectify or future-proof incompatibilities would skyrocket.

Historically, when there has been a need for new solutions, new systems were built in parallel to those already in existence. In the Nordics, there are now over eight current clearing systems as a consequence of this reasoning, each built around different standards and for different purposes.

A sizeable portion of trade carried out in the Nordics tends to stay within the Nordics. Yet, while many corporates have a Nordic footprint, the region’s payments systems are built on domestic requirements and standards, which does not support region-wide commerce. Scale is extremely important to ensure efficiency of payments, however, the Nordics is faced with different currencies processed on these unstandardised payments systems.

Digitalisation has made it possible to re-think the way we can pay across the world, and as in many parts of the world, instant payments is already the path to the future. The banks which established P27 hope that by joining forces, they will be better equipped to manage the ongoing pressure of these payments systems from the rapid development of digitalisation through a single payments infrastructure for account-to-account payments.

What are P27’s plans around delivery?

After being initated in 2018, the group formed an interim company two years later with the agreement that Mastercard would operate the payments platform. With CEO Lars Sjogren at the helm,  the project is scheduled to go live with its first transactions in 2022/2023 dependent on the speed to obtain necessary regulatory approvals and central bank connections. The initiative has made good progress, with the bulk of platform development already completed, data centres ready, and most of the testing tied to the first services completed. Banks are now preparing themselves for implementation, while regulatory approvals and the final stages of testing remain the final hurdles to be addressed.

The account-to-account service is intended to encompass the platform - instant and batch in DKK, EUR and SEK, alias, and account assurance service, and preparations are being made to offer account assurance services. The platform will also support request-to-pay services and bill payments, and will be based on ISO 20022 in an effort to bolster standardisation across the Nordics.

Ahead of the launch, P27 intends to carry out detailed research and development, which will include a survey exploring how best to combat fraud and money laundering through the investigation of account monitoring services, and how this could help prevent criminal activities within the payments space.

Insofar as its geographic reach, P27 will offer services in three Nordic currencies mentioned above. It will also offer an EUR overflow to create a wider European reach for the Nordic banks involved. P27’s vision is to create efficiency across the Nordics for the banks active in the region, with potential expansion or collaboration reserved as a consideration for the future.

The platform also has the ability to develop a solution also for the NOK-market if the Norwegian payments market agree to join, but is prioritising the currencies for Denmark, Finland and Sweden.

Has P27 been given the regulatory green light?

The future of P27 was recently cemented by the European Commission’s announcement that the P27 Nordic Payments initiative has been granted merger approval. The approval marks a significant milestone for the initiative which is working toward the creation of a common payments infrastructure across the Nordic region.

The merger approval was an essential step for P27, enabling it to be begin preparations for onboarding customers in Denmark, Finland and Sweden. A press release states that P27 will now commence with preparations for pan-Nordic payments services an products, such as the Nordic bill payments service (one pan-Nordic alternative to the current request to pay and direct debit solutions in the Nordics).

In a recent blog post, Jussi Snellman, P27’s senior manager for business execution, commented that with regard to regulatory challenges: “This is a complicated soup with many cooks involved. The deeper you get into the details, the more it becomes less about the facts and the more it becomes about opinions and probabilities.”

Security and consumer data are key concerns being addressed in relation to P27, with the company currently looking into what type of institution should be protected by Settlement Finality, which regulates systems used by participants to transfer financial instruments and payments. The European Commission is seeking input as to whether, for instance, non-bank payment services providers should be covered.

Also, Snellman explained that as the PSD2 renewal process is due to commence in late 2021, this may raise questions around implementation. “One of the areas they are looking into especially relates to consumer protection and how measures established with the original PSD2 worked, what gaps may exist, and where we should go from here.”

Regardless, Snellman believes there is little doubt the EU’s Retail Payments Strategy will play an important role in shaping the trajectory of discussions regarding European payments regulations.

“We are all affected by one another. It’s a complex network…Everybody needs to learn how to cope with one another and play together, and that will take some time.”

Is P27 truly unique?

The P27 payments initiative is arguably the first in the world to build a system critical account-to-account payments infrastructure managing both domestic and cross border instant and batch payments in multiple currencies.

Across Europe for instance, the European Payment Initiative’s (EPI) focus remains within mobile wallets and cards rather than the infrastructure itself. The ECB’s TARGET Instant Payments Settlement service (TIPS) is solving an efficient way to settle instant payments. CBDCs and E-krona are aiming to solve the fact that the Nordics are almost completely cashless. Many, if not most of these initiatives, will be able to use the P27 infrastructure.

To govern or structure the service, the P27 initiative built a ‘SEPA-like Nordic rulebook’ for account-to-account payments. The rulebook is prepared and managed by the Nordic Payments Council, and was intentionally drafted as closely as possible to the existing SEPA schemes in efforts to reduce complexity.

What is happening with Norway?

Norway has proven to be a thorn in the side of unanimous Nordic commitment to the initiative. While Norway had been a driving force behind P27 in its first year, it stepped back from its involvement for layer one services. During the NextGen Nordics webinar, CEO Sjogren explained how that as P27 banks have a large market share in the country, there are significant positive benefits for consumers and companies in facilitating cross-border trade that a common payment infrastructure provides.

“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.”

Another webinar panellist, Martin Andersson, chairman of the board for P27 Nordic Payments, also 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.” 

You can watch the full NextGen Nordics Webinar ‘Changing Payments: P27, Europe and beyond’ on demand at this link. Finextra and P27 will be running a second webinar on the Nordic payment project in September, you can register here.