The Nordic region is perhaps the closest to becoming a cashless society. Cash usage as reported recentlyi: Sweden – 2.1%, Norway – 2.3%, and Denmark – 5.2%, clearly establishes this fact. Among the electronic channels depicted below from a latest Statistaii report, it is interesting to note that after cards and wallets (PayPal or similar), the popularity of Open Invoice payments is closest to that of wallets. As per a recent articleiii, of the four Nordic countries, cards are the most preferred way to pay in Norway and Denmark, while Finland prefers Bank Transfers and Sweden favours Open Invoices.
What is Open Invoice?
In this age of online commerce where payments are sourced from cards, bank accounts and wallets, merchants want to reduce their risk of non-collection of payments due to fraudulent payment credentials. On the other hand, consumers want to defer their payments till they have received their goods or services in order to mitigate their risk of not receiving what they have paid for. In case of the account-to-account (A2A) channel, unlike the card channel, the consumer does not have the privilege of chargeback. Open Invoice solves both these issues.
Open Invoice involves a third party services provider to cover the risk of both merchants and consumers for a fee by underwriting the risk for both stakeholders. Merchants get paid quickly once goods or services are sold, and consumers do not need to pay till they have received the products they have purchased. These third party service providers overlay several value added services such as instalment payments for consumers, evaluate risk profile for SMB merchants by using transaction life history, extend loan products for these SMB merchants, create value added insights from the data that crosses their platform, and much more.
Today, third parties, such as Klarna and others who have rolled out such services need to integrate with (a) diverse merchants and with (b) an equally different number of bank interfaces across the region. The key barriers for rolling out Open Invoice service are these two types of interfaces that currently differ from one country to another in this region.
How to build a playing field for Open Invoice service option?
The short answer to this is to start by building a cross-border bill payment network. Such an infrastructure would help unify the merchant interfaces for presentment of bills and define the interfaces for the payments channels to integrate and use the platform to realise bill payments.
Banks in the Nordic region have created a consortium called P27 to ease the A2A payments across the region. The primary driver is to improve operational efficiency by unifying the rules and specifications of the settlement systems in the region as the demand for cross-border payments, collection and settlement continue to rise.
This increase is due to the fact that a very large number of people move from one country to another across the porous borders of the countries in the region for tourism, business, education, etc. on a daily basis. This is evident from published articlesiv that mention “18,000 Swedish workers commute to Denmark on a daily basis”.
P27 has a focus on payments, from initiation to collection, using bank accounts (A2A). P27 is also exploring building a cross border bill presentment and payment platform along with generally uniform rules and regulations. This would help the migrating population to receive, review and pay bills with options such as standing instructions, instalment based payments, etc. Bill payment network, unlike bill aggregators, could foster innovation and help Open Invoice related services to operate with lower cost, thus improving functional efficiency.
One of the ingredients needed for extending credit to consumers and merchants is to have access to credit profiles of consumers and merchant organisations. However, access to such profiles is not uniform across the countries in the region. Bill payment network services can help leverage the transactions on its platform and build a credit or reputation profile over time, and then enable the credit service. Banks across the Nordic region have taken a significant step by creating Federated e-IDsv to solve “the issue of ‘proving we are who we say we are’ by giving their citizens an online identity which is recognised by casual users and secure authorities”.
How can the credit or reputation profile of consumers and merchants be created by a bill payment network?
Bill presentment and bill (or invoice) payment is the concluding part of any commerce. The provider and consumer of services complete their commerce interaction through these events. The quality of both provider and consumer may be tracked by mining bill presentment and payment, and additionally by looking at the complaint and dispute data. In the Nordic region, an individual business or person has two payment handlesvi (Giro) – one for payment and the other for collection. This is part of the invoice for payment – direct payment, request-for-payment, as well as deferred and instalment based payments.
Hence, leveraging the unified payments infrastructure, Federated e-IDs, Giro IDs and the billing payment, the entire experience of payment, presentment, collection and related services like credit line, reputation assessment, etc. is potentially ready to take a leap forward.
Bill payment network: a digital transformative infrastructure
As mentioned earlier, bill presentment and payment forms the final events of commerce. As the bill payment network facilitates these events, it creates not only a unified operational interface, it also creates a data repository for mining and building a large set of use cases for commerce. The uniformity and ubiquity helps to instil financial inclusion, which further advances the possibility to leverage digital rails and create new use cases. The platform expands from its initial intended use and becomes a facility for innovation, research, product conceptualization and rollout.
This makes the bill payment network a transformative and forward looking digital infrastructure for a nation or a region.
In India, a “Committee headed by RBI Executive Director G. Padmanabhan was set up in 2013 to study the feasibility of implementation of Giro based Payment Systems”vii . This committee directed NPCI to build a pan-India bill payment network called Bharat Bill Payment System (BBPS). RS Software was engaged to develop and operationalise BBPS in 2016-17.
Today, BBPS implementation has scaled up 3 times (3x) the transaction volume projected by NPCI in year-3 post go-live; almost 1 billion actual transactions happen today in year-3 as against 332 million that was projected.
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