Hungarian banks are preparing to introduce same-day transfers between institutions in 2012.
Have you ever wondered why a bank transfer takes a couple of days in the age of the digital revolution? The good news is that long-awaited same-day transfers are coming soon and both retail and corporate clients will be the main beneficiaries of the new system, as a result of which electronic payments will be processed in hours, not days.
While there have been vast developments in IT systems over the past 15 years, the last major national project in the field of payments was the introduction of the Giro system in 1994. No wonder that this, which was among the top five systems then, has become quite outdated now.
Same-day, or intraday, clearing now exists in almost 20 European countries, including some that are not necessarily more developed than Hungary, such as Albania, Romania and Slovakia, said Lajos Bartha, director of payments at central bank MNB, at a recent conference organized by the Finance Section of the Hungarian Economic Association. In the UK, for instance, the recently introduced fast payment system enables transfers within as little as a few minutes, although at very high prices.
Domestic market developments have also urged the launch of intraday transfers. Bartha pointed out that competition on the Hungarian payments market does not seem to be perfect. Although there are several market players, altogether 57 clearing members, the economies of scale are not reflected in prices. In addition, big firms still need to open accounts at several banks in order to efficiently manage their payments.
After long preparatory talks, the decision to launch the Intraday Clearing System, or the so-called InterGIRO2 (IG2) project, was made in June 2010. According to a recent MNB resolution, the project will be implemented as of July 2012.
Sitting on the cash
Banks have been accused of delaying the introduction of intraday clearing, since they make billions in profits from sitting on this money. There was a huge debate about the loss of the one-day float, Bartha said. According to the MNB’s estimation, this will cost the banks approximately HUF 5–6 billion per year, but this amount will decrease in line with falling interest rates. Investments needed by the banking sector are expected to reach HUF 5–10 billion, he noted.
When outlining the new regulations on intraday clearing, the MNB has taken into account the EU Directive on Payment Services, Bartha said. This states that the main goal is to make cross-border payments as easy, efficient and secure as domestic payments within a member state.
The four-hour rule
The MNB has implemented the so called “four-hour rule,” which means that the time between a deposit being made in the recipient’s account and the money being deducted from the sender’s account – also known as the “float” – has to be less than four hours. “We expect that the majority of transfers will be made within only one or two hours due to the planned five clearing cycles per day,” Bartha said. “We believe that the development will boost competition among banks.”
The MNB will closely monitor the pricing of intraday transfers. “We do not foresee a significant increase in transaction costs, as banks will not pass the costs on to their customers,” said Bartha.
GIRO Zrt, the automated clearing house of the Hungarian payment system, set up an interbank working group to establish the general functional requirements of the system. The working group concluded that same-day settlement should be compliant with the Single Euro Payments Area (SEPA), of which Hungary is a member. By using SEPA standards, the payment system will not have to be modified upon the eventual adoption of the euro. This will also strengthen the European integration of the country and the competitiveness of the Hungarian economy.
In the beginning, only electronic transfers will be made through the IG2 system. The remaining transactions will be gradually channeled from the current InterGIRO1 system to the new intraday system during the next four or five years.
Developments at the clearing members will start in March, project leader Sándor Sebők said. Although banks have ten months to complete the necessary developments, since testing will start in September, they should be ready by the end of August. Pricing, terms and conditions will be announced 60 days before the launch, in April.
Hungarian IT firm Simplexion, together with IBM, has developed a solution for the introduction of intraday clearing for banks. Simplexion claims that its new Payment Message Hub can be introduced within three to six months, with minimal adjustments to the core banking systems. IBM pointed out that this cooperation is a good example of how the IBM Innovation Center supports product development at Hungarian IT firms.
OTP and TakarékBank
Hungary’s biggest lender OTP started preparations for the IG2 project after the publication of the MNB resolution, the bank told the Budapest Business Journal. Planning at the bank is in line with the timing of the national project.
The implementation of the new resolution requires major IT and human resource investments, the bank said. However, profits from the float at OTP are not significant compared to the bank’s total income from payments.
According to current regulations, the fees of standard electronic transfers made in IG2 cannot be altered. However, transfers that are qualified as value-added services can be priced differently if these extra services are available to customers.
TakarékBank has announced that it plans to be the first to introduce intraday transfers between the 120 members in its network. According to Napi Gazdaság, the bank is rushing in order to get a head start, as it will have a difficult job.