P27 Platform is one step closer to create the world’s first area for domestic and cross-border real-time payments in multiple currencies. Swift will be history in the near future for Nordics.

Delivering fast, cross border, multi-currency account to account payments to the Nordics.

Nordea, along with Danske Bank, DNB, Handelsbanken, OP Financial Group, SEB and Swedbank have been working together for over one year in order to create the world’s first area for domestic and cross-border payments in multiple currencies including the Swedish Krona, Danish Kroner, Norwegian Krone and the Euro. P27’s ambition is to connect 27 million people in the Nordic region and enable national and cross-border real-time payments in all Nordic currencies.

The work started late 2017 with the ambition to go live 2021. The Nordics is already leading the world in the adoption of electronic payments with less than 1 in 10 retail payments now in cash.

„But now Europe’s most northerly cluster of countries is turning its attention to enhancing its bank account payment infrastructure and improving on how its people and businesses can pay each other, under the guise of the P27 project. Of course, this is the Nordics, so real-time payments have existed domestically between banks for some time, but what’s new and quite extraordinary is the soon to be built capability to send money across the multiple markets, and across the Nordic currencies efficiently both in real-time and batch payments. Nowhere else in the world does this exist.”, said Paul Stoddart, president of New Payment Platforms for Mastercard and executive chairman of Vocalink.

Today P27 Nordic Payments Platform (owned by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank) and Mastercard have announced a partnership to provide real-time and batch payments across the Nordic markets; „building the most advanced, innovative and efficient payments system in the world”, according to the press release.

By working together the partnership will connect people across the cluster of countries using multiple currencies. This bold ambition will transform how money moves for consumers, businesses, society, and the payments industry itself.

„This major investment programme is a world first in terms of a real-time and batch multi-currency platform and will replace the existing payment infrastructure, enabling instant and secure payments at lower costs and increased competitiveness. Participants will be able to send and receive funds immediately across the Nordic markets at a lower cost and with higher security.”, the company said.

Adding to the speed and convenience of bank account to account payments across the region this will not only offer people greater choice and opportunity, it will improve economic growth and employment by enabling new products, services and business models to develop.

The underlying infrastructure is the first step that this partnership is establishing. Thereafter, there will be efforts in developing further common products and services based on the platform.

Javier Perez, President Europe, Mastercard comments: “This exciting partnership will build a world first in terms of a cross region and multi-currency faster payments area. It is also evidence of Mastercard´s vision to drive real choice by being the trusted provider of new payment experiences and broadening our reach into fast bank account payment flows. The Nordic markets are global leaders in the development and usage of electronic payments and this new infrastructure will maintain their advantage over the rest of the world.”

Lars Sjögren, CEO P27 Nordic Payments Platform comments: “This is change for real. By joining forces across the Nordics we will be able to develop instant payment solutions in a way that each country never would accomplish by themselves. By sharing the costs between the Nordic countries, we will get a state of the art payment infrastructure in the Nordics with the highest standard when it comes to security and efficiency; further boosting innovation and growth in the Nordics.

The demand from consumers and businesses around the world for instant and account to account payments is growing and this new payment infrastructure will put the Nordic markets at the forefront with an ecosystem that connects all bank accounts. Not too far in the future, family and friends might be able to pay each other using mobile devices, regardless of what service they use or which country they live in.

Businesses can take advantage of access to a wider network of customers and suppliers, and the seamless movement of money when paying or getting paid. This one single interface will make it easier for banks to handle all payments – domestic, European and beyond.”

For banks, this introduction of a new platform will also provide a real-time view of the multiple schemes that are running, participant information, balances across schemes and the addition of a data-rich message set, empowering participants to explore new revenue opportunities.

The new payment platform is subject to regulatory approvals and final investment commitments.

More about the P27 payment platform project

P27 aims to establish a single pan-Nordic payment infrastructure for the 27 million inhabitants of Denmark, Sweden, Norway and Finland. Claus Richter, Head of Transaction Banking Solutions at Nordea, describes the collaborative approach of P27 and why the time is now right for developing a single payment area.

The P27 project aims to create the world’s first real time cross currency infrastructure. This would really be breaking new ground in terms of being able to do cross currency payments in real time. Payments would instantly transform into the other specific currency and we would execute the foreign exchange transaction and accompanying screening in real time. Today we use SWIFT financial messaging services to clear cross border payments in most cases and this volume would be placed into the P27 supra-national infrastructure as well.

Collaborative not competitive

Since the beginning of P27, we have been extremely sensitive regarding the anti-competition aspect of the project. We are very aware that when the seven biggest banks in the Nordics join together in a collaboration it cannot be seen as being something that is adding an anti-competitive element in the market. We have therefore created a three-layer model to present the different bounds of the project and what they mean for the competitive landscape.

Layer one in the model is related solely to the actual clearing platform which is a non-competitive aspect of payment processing and has been for years in the market. Here we are basically just creating efficiency for the whole market. It’s very important to state that the P27 initiative is not about creating an infrastructure just for the seven founder banks. It’s about creating an infrastructure for the entire market, that includes all of the other banks in the market on this infrastructure on an equal footing with transparent pricing and processes.

Layer two in the model adds the next level of services, which could for example be direct debits or proxy services which are needed to establish the relationship between an account number and a phone number. If you want to create a Nordic mobile payment scheme, then it is an important requirement to know the correlation between the account number and the mobile number. This correlation has been established on a domestic basis today but here we would potentially create this on a Nordic scale and is considered a layer two service. Layer two services are those where participants can opt in and out and the next phase of the initiative is to decide what those services will be.

Finally, layer three is related to all of the things that are clearly competitive between the parties, which for example could be the actual mobile service offering. This is where the banks differentiate themselves towards their customers, etc and is clearly out of scope for this project. It might be that we retain some very local services that are specific to one of the countries and therefore we choose not to make them on a Nordic scale.

Governance structure

Throughout the project the relevant authorities have been very heavily involved and there is of course interest in P27 from a central bank point of view. Central banks ultimately carry out the settlement of these payments and maintaining control of their sovereign currencies is naturally something that they are very keen to keep doing. We have continuing dialogues with the central banks on all levels right up to the national Governors.

Equally we have been involved with the FSAs (Financial Services Authority) of each country as well as the relevant anti-competitive authorities. Importantly, we have worked very closely with the Bankers Associations of each country as it is essential for us to underline that this is a market solution. As all of the other banks are represented by the Bankers Associations, it is critical to include them in this initiative. We want to have a good collaboration with the national the Bankers Associations and have subsequently been in a very heavy dialogue with them.

Obviously, our hope at the end of the day is that we can place the full payment volumes of the Nordics on this infrastructure and grow that volume through the simplifying of trade that it facilitates. In terms of the governance structure we are envisaging, we have two governing bodies very similar to those that can already be seen on a European scale. If we look at Europe in the SEPA (Single Euro Payment Area) area, this is governed by the EPC (the European Payment Council). The EPC governs the rule book and defines how payments are supposed to flow in the area.

We are looking to establish a very similar body for the Nordics called the NPC (Nordic Payment Council). This governing body will be controlled by the Banker’s Associations, not by the seven P27 banks, ensuring that all of the banks are equal participants and are able to influence the standards of the payments schemes equally across the board. We will also have an operations body which will run the actual infrastructure. This body would be equivalent to to the EBA clearing house or something similar to that. Both of these bodies will be separate legal entities that will be set up independently from the banks.

P27 aims to have the best practice and international standards so the scheme we are constructing is going to be very close to the European SEPA scheme. Having one foot in the Eurozone, there has been a lot of discussion around ensuring that there is interoperability between the Nordic and European schemes.

Long time coming

There has been a long discussion in the Nordic region about a developing a single payment area. A very similar idea was discussed a number of years ago called the Nordic Payment Area. On that occasion, the initiative failed because at that point in time we were unable to achieve buy-in from senior management. This time around we have the seven CEO’s of the seven banks as the direct sponsors of the project, ensuring that we have senior buy in from the top of each bank.

There are now also a number of aspects which make it a very opportune time to pursue the ambition of a Nordic payment area once again. There is the technology pressure; a great deal of technology is changing in the market which means there are a number of existing infrastructures that need upgrading anyway. In both Sweden and Norway local projects were already underway to update local clearing infrastructures. There was an ongoing realisation in the market that it was time to do something. Add to that the customer pressure of creating extra convenience and the regulatory pressure of each of the local entities needing to stand up to cyber security threats, etc.

There is obviously also the economic pressure. This is very much a scale business, if you look in the market, the unit price on payments is under pressure and therefore obviously all providers of payments need to look at the cost structure around this, so there is an economic pressure that everybody was realising as well. All those different factors together created a strong motivation for getting the seven parties around the table to realise that now is the right time to actually do this on a Nordic scale.

At present, in terms of cross border payments, all of the banks pay SWIFT a fee for executing a transaction. For a domestic payment, a clearing fee is also paid and depending on the countries involved, this fee can also be rather significant. With P27, from a Nordea perspective, we expect multi-million Euro savings on an annual basis. These would be fees that Nordea pays to payment infrastructure vendors in Norway, Denmark and Sweden and to the EBA in Finland. The general market dynamic is that the price we can charge to our customers is under pressure on an ongoing basis. Therefore, obviously the cost structure that we have to supply that service is something that is very important to us. We need to drive that cost down and that is part of the reasoning for initiating P27.