The Central Bank will close down its interbank retail payment system in January next year
At the end of January 2014, Eesti Pank will close ESTA, the settlement system for domestic retail payments. This will probably mean payments moving more slowly between the banks and it will mean that for a payment to reach the receiving bank on the same day, bank clients will need to initiate the payment earlier than 17.00, the current cut-off time.
"The commercial banks have decided to use a cheaper solution for interbank retail payments from next year than that offered by the central bank. The good thing about this choice is that the cost savings on the payment service will allow the bigger banks to offer their clients a cheaper service fee for that service" said Madis Müller, Deputy Governor of Eesti Pank.
Müller explained that the commercial banks will now need to choose a SEPA-compliant clearing and settlement mechanism to use from next February, as the ability of clients to make payments that meet the SEPA requirements has to be ensured.
"The commercial banks could also look for a solution for restoring the speed of retail payments for companies and people in Estonia. If there is demand from clients for faster payments then we could expect the commercial banks to respond. International service providers may soon be coming to the market with faster solutions", he added.
ESTA cannot continue to operate in its current form because from February next year the Single European Payment Area (SEPA) technical and business requirements will apply, and ESTA doesn't meet those requirements. The single payment terms will let private clients and companies use one bank account and one payment card to make payments in euros across the whole of Europe.
At the start of this year the central bank proposed a new SEPA-compliant payment system to the commercial banks that would have maintained the current speed of settlements at ten times a day. The central bank withdrew the proposal at the end of May due to a lack of interest from the biggest banks.
At the end of April the commercial banks sent a joint letter to the central bank asking it to analyse whether minimal changes could be made to bring ESTA into line with the SEPA requirements so that the speed of settlement could be maintained. During the consultations of the last month with the commercial banks it became clear that the banks had widely underestimated the technical changes needed and that the amount of work required would have been about as much as was needed for developing the new payment system for credit transfers that the commercial banks had already rejected. About half of the banks considered that completing that amount of work in time was unrealistic, so they were not prepared to contribute to the upgrading of ESTA. The central bank also considered that the timetable for the development work that the banks wanted done to ESTA was very tight. Starting the development work for ESTA and maintaining it in operation temporarily as planned would only have made sense if all the banks were prepared to make a joint, determined and intensive effort. In consequence the central bank saw no option but to close ESTA down.
Eesti Pank will continue as overseer for the payment systems operating in Estonia and will operate the express transfer system TARGET2.
For people and companies in Estonia, the closure of ESTA will mean that the speed of settlement and other requirements will meet the European minimum standards in future. The individual conditions will depend on the agreement that each bank makes with its service provider. Like the current minimum requirements, the SEPA rules require payments to reach the other bank by the next working day at the latest.
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 within the country and only 6% are cross-border payments.
The single payment area terms (SEPA) 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. The SEPA directive obliges banks to change over to SEPA payments and to make it possible for clients to make payments to any bank in Europe.
Last September Eesti Pank made an international announcement of a procurement in negotiated form for updating of the interbank retail payments system. The bid by the French consortium STET (Systèmes technologiques d’échange et de traitement) won the procurement.
The solution proposed by STET would have brought the cost for payments for commercial banks down to two cents per payment if all the banks had joined. The banks currently pay three cents per payment in ESTA. Interbank payments in Estonia would have been made ten times a day in the system developed jointly by the central bank and STET, as they are today.
For more about SEPA see the Eesti Pank website.