Flash Payments Means Credit Risks Are Growing for Norway's Banks
(Bloomberg) -- The speed of the instant payment highway has regulators in Norway thinking about the guardrails.
The central bank is stepping up efforts to improve the country’s banking infrastructure as the spreading use of instant payments drives credit risk higher at banks. The problem lies in the fact that customers get their money before it’s actually transferred to their banks.
“Credit risk is influenced by transaction volumes, which are expected to rise,” said Knut Gulleik Sandal, director for financial infrastructure at Norges Bank.
Norwegians made one million instant payments last year, and the figure is expected to rise as use picks up of the Vipps payment system, according to central bank data. More than 100 Norwegian banks back the Vipps network, which now faces competition from Apple Pay.
Norges Bank is working with the industry group Finance Norway to develop a new system that would eliminate the growing credit risk. It’s scheduled to be operational by the end of next year.
The seven biggest Nordic banks, including Oslo-based DNB ASA, are also lobbying to create a region-wide system for real time currency transfers. They’ve pitched the idea to central banks in Norway, Sweden and Denmark, whose mandates include maintaining their countries’ payment systems, and also to officials in Finland.
The network would be the world’s first in multiple currencies, according to Finance Denmark, which is helping organize the campaign. It’s also part of a concerted effort by the industry to address a regulatory advantage that bankers say technology companies have.
“What we’re working on is to make sure that this is something where everybody gets on board with, not just the large banks,” Ulrik Nodgaard, CEO at Finance Denmark, said. Once an instant clearing system is in place that settles transactions both between individuals and companies,“the banks can then gradually expand to more products and services,” he said.
Jan Digranes, head of payments at Finance Norway, said upgrades are needed if banks are to compete with the likes of Apple Pay. Improvements would also allow larger amounts to be transferred and enable lenders to offer the service to business clients, particularly if a Nordic-wide system is developed, he said.
“If we have a solution like this, business payments to another business will be more or less seamless, rather than going through correspondent banks or exchange systems which takes time,” Digranes said.
Sandal said Norges Bank is taking a look at how the joint venture with the banking industry to improve the payment system might be affected by the proposal for a pan-Nordic network.
But a regional system raises “fundamental issues” about whether Norway should be a part of a foreign inter-bank system and locating “critical infrastructure” outside the country’s borders, Sandal said.
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