The central bank has ended the procurement for an interbank retail payments system due to lack of interest from the banks

Photo: Peeter Langovits

Eesti Pank ended the procurement for an interbank retail payment system as the interest from commercial banks in joining the new system was too low. The central bank is now working with the commercial banks to find ways of maintaining the speed and quality of interbank retail payments.

"The central bank made a good offer to the banks that would have maintained the speed of payments in Estonia and made the price significantly cheaper for the banks. But the commercial banks are free to choose which system to use, and so many banks preferred the solutions that are chosen by their parent groups. This meant that the payment price would have been very high for the remaining banks and that we wouldn't have been able to guarantee the speed of payments for a large part of the Estonian market", explained Deputy Governor Madis Müller.

The Single European Payment Area (SEPA) technical and business requirements will apply in the European Union from February 2014 so that private clients and companies will be able to use one bank account and one payment card to make payments in euros across the whole of Europe. Eesti Pank's domestic interbank payment system ESTA does not meet the SEPA requirements at the moment. Eesti Pank's aim in offering the banks its own retail payments system was to ensure that the speed and quality of payments for bank clients comply with the SEPA requirements and, if possible, to offer the commercial banks a cheaper price for payments than before.

Eesti Pank developed the retail payment system together with the French company STET and the price offered to the commercial banks for payments would have fallen to 2 euro cents per payment from the 3 euro cents per payment currently charged by the ESTA payment system. This assumed that all the big banks would join up to the system, as the price for payments depends on the number of payments moving through the system. As there were only a few banks that wanted to join, the price per payment would have been 6 euro cents in the new system. Interbank payments in Estonia would have been made ten times a day in the system developed jointly with STET, as they are today.

The commercial banks could not come to a joint agreement on whether to choose the Eesti Pank system or to use some different system. The commercial banks mainly preferred the retail payment system run by EBA Clearing, as it is already used by many of the banks at group level. Using the EBA Clearing system will make payments even cheaper for the banks than they would have been with the Eesti Pank system, but slower.

However, the commercial banks stated in a letter to the central bank sent from the Estonian Banking Association that they also prefer to maintain the speed of payments that they have had until now. In order to maintain the speed of payments the commercial banks proposed that the central bank should continue to operate the existing ESTA system, making a few adjustments in it so that the commercial banks could continue to use it temporarily until they find a retail payments system they can all agree on.

“We are analysing the proposal of the banks to adjust ESTA, as it is currently one of the few options for maintaining the speed of payments in the Estonian market. Once the analysis is complete and before we start any development work, we will need confirmation from the commercial banks that they will continue to use our platform for settlements", said Müller.

If the commercial banks do not want to continue with the ESTA retail payment system, then interbank payments will continue to function, but probably more slowly.

Eesti Pank's ESTA payment system sees individuals and companies in Estonia make an average of 100,000 payments per day at a total value of around 125 million euros. Of the interbank payments made in Estonia in euros, 94% are domestic and only 6% are cross-border payments.