MINDSPIRE Consulting’s involvement with the Hungarian Instant Payment System

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András Linczmayer

Head of Project Management and PMO Services

András has 14+ years of experience in the Financial Sector. He has been acting as a project manager in top priority projects, leading implementation teams of 30+ members and several external vendors, successfully implementing complex system architectures and green-field applications as well.

While leading MINDSPIRE’S Project Management and PMO service lines, he continues to manage and support large-scale projects, getting involved in the details professionally.

The launch date of the system was set to July 1 2019, but based on the state of the required developments, MNB changed the approach and only a pilot operation was started on the originally planned date. The system is in production since March 2 2020, from this date all the Hungarian banks are capable of sending and receiving Instant Payment transactions. Instant Payment system operates in many countries, but Hungary is a unique example, since the use of the system is not optional, but mandatory for all the banks.

After the go-live of the AFR system, transactions satisfying all of the following criteria must to be executed almost immediately, within 5 seconds:

• initiated via an electronic channel, bank side administrator is not involved,
• initiated form a HUF payment account, regardless of the beneficiary account’s currency,
• transferable amount is under 10 million Hungarian forints,
• no future date is set as value date.

The received amount must be credited (raising the available balance) to the payee’s account practically immediately, within 5 seconds (maximum 20, as a technical upper limit) after initiating the transaction.

Secondary account identifiers

Another novelty of the Hungarian Instant Payment System is that secondary identifiers can be connected to the accounts, providing the possibility of easier and even faster transaction initiation besides the traditional way of using an IBAN (International Bank Account Number).

Currently the following proxies can be used:

• e-mail address,
• mobile phone number,
• tax number (for businesses),
• tax identification number (for retail customers).

Certainly, a secondary identifier is also a unique feature, one proxy can be connected to only one account, however more secondary identifiers can be connected to an IBAN.

The link between the accounts and secondary identifiers are stored centrally, on the GIRO side.

The client must approve the registration in all cases, confirming the ownership of a tax number or ID number. In case of an e-mail address or a mobile phone number the possession of the relevant identifier has to be verified.

The secondary identifier – account number connection must be confirmed yearly, otherwise the link will be automatically deleted.

Timing and phases of the Hungarian Instant Payment System programme

In the first stage, from March 2 2020, all individual and bulk retail transactions and individual corporate transactions fulfilling the above-described criteria must be executed on the Instant Payment channel.

From September 1 2020, corporate bulk payments can also be executed optionally in the Instant Payment system, but the packages need to be extracted to individual payments, and can be sent to the beneficiary bank only with a maximum of 1 transaction per second (TPS) limit, as there is no central throttling solution implemented.

This affects adversely the large banks, as a situation can arise that during peak times too many bulk transactions are initiated, resulting in a long processing time. This may cause even longer transaction execution then the traditional IG2 channel.

As a long vision, Instant Payment can completely replace the previously used IG2 channel, serving as the ultimate payment solution.

Fraud detection for the Instant Payment System

Naturally, fast money transfer means a greater risk of fraud, to which the banks responded by further developing their anti-fraud systems and establishing a scalable real-time prevention. With this solution the scoring can be executed in a fraction of a second for credit transfers, providing the possibility of an accurate and real-time decision. Based on the result, the transaction can be blocked preventing a possibly fraudulent action.

Business benefits of Instant Payment

Instant Payment speeds up the pace of daily transfers between the parties, providing a real-time payment experience like cash and bankcards (e.g., in case of used car purchase). It is also an attractive option for merchants and service providers, as it is not necessary to have a POS terminal – with all its costs, even a mobile phone may be sufficient to make a payment. Moreover, the money received from customers will be immediately credited to the merchant’s account, no need to wait 2-3, or sometimes even 5 business days like in case of the card payments.

Also, banks in Hungary are not allowed to charge more for an Instant Payment transaction then for an IG2 transfer with the same amount.

The Instant Payment service can be combined with other value-added products, from which the first available one is the request to pay.

Request to Pay (RTP)

RTP is an optional, value-added service with numerous use-cases. If a client wishes to receive a payment with a specific amount (e.g., bill sharing in a restaurant), he or she has the possibility to initiate a request to pay transaction to the debtor account. The request will be received by the payer via electronic channel, showing the requested amount and the due date – the latter can be maximum 60 days in the future.

On the payer side, there is a possibility to:

• Accept the request and initiate an Instant Payment transaction with all the necessary data pre-filled – basically one tap, with SCA (Strong Customer Authentication).
• Reject the request.
• Accept the request, but initiate the payment transaction with a modified amount – if it was allowed by the beneficiary.

In case of no action on the payer side until the due date, the RTP becomes expired.

As a substitution of cash transactions, the request to pay simplifies the daily banking activity – paying utility bills, or for any services used, or even an online purchase can be much easier. Moreover, request to pay transactions can also be initiated using secondary identifiers.

The following banks have already implemented the service:

• Erste Bank – March 2020 only for intrabank usage, August 2020 for the full service.
• Raiffeisen Bank – April 2020.
• GRÁNIT Bank – April 2020.
• OTP Bank – October 2020 for intrabank usage.
• Budapest Bank – December 2020.
• Takarékbank – January 2021.

MINDSPIRE Consulting’s involvement

Instant Payment and Request To Pay implementation projects have played a key role for MINDSPIRE in the last 2-3 years, as we have helped our Clients’ implementations in many ways:

• Executing the complete end-to-end delivery of the Payment system (Payment HUB) and providing experts for the request to pay implementation for a TOP5 bank.
• Providing Project Management and PMO Services to ensure the delivery in time, on budget, from the planning phase till the go live for two TOP5 institutions. In case of one, both for Instant Payment and Request to Pay service.
• Delivering the complete technical solution (containerized application) for the GIRO communication for another bank.
• Providing IT experts to cover several activities such as requirement specification, planning, real-time balance handling, business analysis, etc. for another TOP5 financial institution.

The biggest challenge of the implementations was that most of the legacy financial back-end systems are not designed for 99,9% 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.

All of the projects had extremely complex scopes, as developments affected basically all of the core banking systems and new applications have been introduced as well.

The other complicating factor was the simultaneously running PSD2 compliancy implementation, that involved the same or at least very similar resources of the banks. This resulted in a lack of competent resources in the consultancy sector also, in fact even on the product vendor side, due to the given legal deadline.
With full regard for confidentiality, we set up an Instant Payment expert forum within MINDSPIRE Consulting to share the difficulties and proposed best practices – providing a key benefit for our Clients.

Statistics

After the first year of the Instant Payment live operation, it is obvious that the system is stable and reliable. Certainly, there were some initial difficulties that needed to be improved, and sometimes there are upgrades on banks’ side that require a planned downtime, but clients like and are happy to use the system. This is also confirmed by the statistics for the first year, where 114.283.205 transactions were executed, with a total value of 17.408 billion HUF.

The strongest days were October 12 2020, when 751.401 transactions were executed, and December 21 2020 – with a total transaction value of 116,4 billion HUF.

In terms of the entire lifecycle of transfers, almost 96% of transactions were processed within 2 seconds.

More than 100.000 secondary identifiers are stored, from which the most popular is the mobile phone number, followed by the e-mail address. On the other hand, only 0,05% of the transactions are initiated using a proxy.

Still 64% of the transactions are executed on the traditional IG1 and IG2 channels, while regarding the value the transactions, Instant Payment represents only less than 15%.

The future of Instant Payment

We believe that in the near future more and more banks will introduce the request to pay service, that can be a viable alternative of the yellow cheque, and the direct debit.

Instant Payment alone (e.g., using a QR code), or combined with the RTP can substitute the cash and even the bankcard transactions, but the time critical payments require a perfectly designed process, as the transaction itself cannot be longer than what the customers are used to.

Also, there is a chance that more corporate bulk payments will be channelled to the Instant Payment system, but this development is not on the top of the priority list for most of the banks.

Eventually on the long run, all the IG2 transactions could be channelled into the Instant Payment system.

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