EXCLUSIVE: ‘Hungary for change’ – Gabor Bujaki, OTP Bank and Dean Wallace, ACI Worldwide in ‘The Paytech Magazine’
The race to real time is hotting up in markets across the world, and Hungary is a particularly interesting case study.
The country is unusual in that, since last Spring, it has mandated that domestic credit transfer services must be real-time (settled within five seconds, in fact) for all individual and bulk retail transactions and individual corporate transactions. The system, involving the clearing house, GIRO Zrt, and 35 payment service providers (PSPs), working in tandem with the country’s banks, is known as AFR. This is part of Hungary’s longer-term ambition to clean up the shadow economy – said to be worth 11.18 per cent of Hungary’s GDP – by moving away from the cash that has accounted for 80 per cent of retail payments.
Based on Europe’s SEPA Instant Credit Transfer Scheme (SEPA Inst), AFR is the brainchild of the Central Bank of Hungary (MNB) and, according to the scheme’s detailed rules, a transfer must now be made available to the beneficiary within five seconds; the amount credited must be irrevocable and immediately at the disposal of the account owner; and, if the transaction is rejected, a message must be automatically generated to the payer. The AFR promises a host of benefits for both merchants and their customers. For example, it will likely fuel the adoption of QR codes at cash desks, with the five-second execution time very efficient when it comes to queues.
It also allows consumers to make one-off transactions, including significant purchases such as buying a car, which, like the rest of us, most Hungarians make at the weekend, outside of a PSP’s normal working hours. Another forward looking feature is that secondary identifiers can be connected to the accounts – including email address, mobile number, business tax number and consumer tax ID number – besides the traditional IBAN (international bank account number). The scheme also supports request to pay (RTP).
In the first year of operation, more than 114 million transactions were executed through AFR, with a total value of HUF 17,400billion. Ninety-six per cent of them were processed within two seconds. The stability of the system is no mean feat, considering the changes banks were required to make in fairly short order to align with it. As András Linczmayer, of project management consultants Mindspire, which helped several through the transition, wrote in a recent blog: “The biggest challenge of the implementations was that most of the legacy financial back-end systems are not designed for 99.9 per cent availability; banks had to make large-scale developments and introduce new shadow systems to be able to fully comply with the regulations within the given deadline.”
Hungarian OTP Bank Group, one of the largest independent financial service providers in Central and Eastern Europe, which was named Hungary’s best digital bank this year, was well ahead of that curve. It’s enjoying the opportunities opened up by the AFR, and is working on the technology to support its long-term success and possible expansion.
“We’re innovating heavily in terms of payment methods,” says Gabor Bujaki, a senior consultant at OTP Bank who focusses on merchant acquisition. “Our team is collaborating with universities and those creating future technologies in order to find out which fits Hungary’s real-time banking strategy the best.
“Our aim is to meet all the electronic payments solutions that merchants are interested in – if they want to have QR code scanning solutions, for example. Ultimately, electronic and contactless payments need to see significant IT development. I think that cooperation between banks, acquirers, and other ecosystem players will be pivotal to restructuring the future payments landscape.”
ACI Worldwide, a well-known software and solutions provider, is a major feature of that landscape. In fact, 75 per cent of Hungary’s AFR solutions are processed through ACI’s Low Value Real-Time Payments solution. It supports banks and their intermediaries as they embark on the road to real-time and it has global experience of the challenges and opportunities presented by a wide range of domestic systems: in fact, it works with 18 of them around the world, including Malaysia’s Real-Time Retail Payments Platform (RPP), Singapore’s FAST and the Australian New Payments Platform (NPP).
ACI’s director of product management, Dean Wallace says the enforced move to real-time payments has helped accelerate the adoption of open banking.
“Banks had to open up access to accounts through APIs,” he says. “They had request-to-pay capabilities early on. So, the Hungarian market moved straight to real-time and digital modernised infrastructure rapidly, making the banks move along in tandem and develop new capabilities that will stand them in good stead.”
Having got to grips with a domestic real-time payments system, OTP is keen to see the capability extended across borders, too. With a foothold in much of Eastern Europe – including Serbia, Ukraine, Bulgaria, Albania, Montenegro and Slovenia, where it is now the country’s biggest bank – it’s easy to see why cross-border integration is important to it. In the Nordic region, banks are about to launch P27, an integrated multi-country real-time payments system, operable in four currencies; the European Payments Initiative, meanwhile, is another industry-led scheme that hopes to overcome cross-border settlement challenges – albeit in a common currency – between SEPA states next year.
OTP Bank’s progressive strategy for developing and promoting digital services, the growth in the number of customers using digital channels, the steps the bank has taken to develop attractive offers and its geographic footprint, operating both inside and alongside EU payment systems, positions it to drive similar cross-border harmonisation in Eastern Europe and the Balkan states. Already the largest bank in Hungary by some margin and the most digitally advanced, Bujaki says: “Our most important goal now is to secure a bigger market share on the international stage, through cross-border payments. We have a really big step in front of us in terms of developing a suitable cross-border structure, and then becoming recognised as an international cross-border bank with a Hungarian/Eastern European centre.”
Among Hungary’s non-EU neighbours, Ukraine in particular is keen to align itself closer to European economies as it distances itself from Russia. Building a successful real-time domestic scheme is one thing; taking it across regional borders quite another.
“Real-time payments schemes are typically set up domestically. Independently. It’s only now they’re starting to connect up, so as an industry we’re looking at another few years to really see true global interconnectivity,” says Wallace.
“On the periphery, it looks straightforward – ‘I’m going to set up a new system, and people are going to plug in.’ But it’s so much more than that; there are different transaction types, testing, certification. There’s a lot of risk.
“All of the global schemes I’ve talked to over the last few years know the challenge they’re biting into. But it will happen sooner in some markets, certainly where trade borders are already lower.”
Well-structured, rich data undoubtedly works in their favour – particularly that unleased by the widespread adoption of ISO 20022 payments messaging
“ISO 20022 enables the sharing of richer data, which can be used to understand your customers and your processes a lot better than you could previously,” says Wallace. “If that data is standardised, it also leads to a lower cost of processing transactions. And that’s where we’ll see more interoperability.”
The architects of the AFR aspire to it ultimately replacing the platforms of other retail clearing services in the future – and they built it with an eye to Hungary finally adopting the euro, too. The system would be able to manage euro transactions via a simple change of the currency code.
Ultimately, what drives AFR and what it is demonstrably already delivering, is better payment experience for customers, with the opportunity for banks and PSPs to build additional added-value services, such as request to pay – now offered by six banks in Hungary – on top. Good user experience is something OTP is focussed on and something Wallace believes is paramount, particularly in the online space.
As he says: “Experience trumps anything.”