Since a few years ago proxy identifiers are an integral part of the payments landscape in some countries and their use will soon become widespread in the European continent. Several European domestic payment schemes such as SEPA, SEPA Instant, or Hungarian Domestic Instant, have already published secondary identifiers rulebooks whose main features we describe in this post.
What is a secondary identifier or proxy?
Most European countries rely on the IBAN, (International Bank Account Number), as the unique identifier for payment instructions exchanged between banks. The IBAN is a customer’s unique primary account identifier and the contract governing the banking relationship between financial institutions and customers.
A proxy or secondary identifier allows customers to instruct payments by identifying beneficiaries with a range of non-IBAN identifiers, such as a telephone number, an e-mail address, a tax number identifier, a vehicle registration number, etc.
These secondary identifiers are linked to primary identifiers so that originators can address payments to beneficiaries by instructing proxy identifiers instead of IBANs.
Main drivers for the introduction and adoption of secondary identifiers
With secondary identifiers beneficiaries can receive payments without sharing bank account details with originators. By providing less sensitive information, beneficiaries’ privacy concerns get addressed while friction is removed from their payment experience. Entering a phone number for example, is less error-prone and more convenient than typing an IBAN in a payment instruction. This simplification of the customer experience in the exchange of money will be the key to ensure a rapid adoption of secondary identifiers.
The value derived from these new proxy services will of course depend on the number of registered participants and business cases are being built upon fee-based models for the schemes.
European schemes overview
For the purposes of illustrating design principles and main functionalities of proxy identifiers schemes, we will make reference to documents publicly available, EPC250–18 v1.0 of the SEPA proxy look-up scheme rulebook, the TARGET Instant Payments Settlement Mobile Proxy Look-up Service, and the Hungarian Proxy Identifiers Scheme Rulebook v2.1.
Hungarian Domestic Instant Proxy Scheme
The scheme relies on a central infrastructure hosted by the local Automated Clearing House GIRO Zrt. along with a third party services provider supporting proxy management services (See Fig.1). Proxy identifiers could be used as a service in conjunction with the mandatory domestic instant payments scheme to be rolled out on July 1st.
The scheme is open to both retail and corporate customers whereby, by means of secure TLS encrypted RESTful APIs, Payment Services Providers can get access to proxy services to meet the needs of their customers.
Proxy types of the Hungarian domestic scheme include:
Phone numbers, e-mail addresses, tax identifiers and tax numbers. A whole set of other identifiers have been mentioned in technical specifications though only the abovementioned could be instructed on July 1st.
Proxy services of the Hungarian domestic scheme include:
- Registration: allows associating an IBAN to one or several proxy identifiers
- Enquiry: returns all proxy identifiers linked to a particular IBAN
- Look-up: returns the matching IBAN for a given proxy identifier
- Delete: removes the link between an IBAN and a proxy identifier
It is worth mentioning as regards the look-up and enquiring functions, that one proxy can only be associated to one IBAN, which is retrieved by the look-up function, whereas an IBAN may be connected to several proxies, which can be queried through the enquiring function.
A Proxy Transaction Report is made API available to scheme users on a daily basis, and a Proxy Yearly Report on a yearly basis. Daily reports contain details of participants calls to the service. Yearly Reports are conceived to manage proxies’ expiry date by listing all proxy contracts about to expire in less than 40 days.
SEPA Proxy Look-up Scheme
The SEPA Proxy Look-Up scheme, SPL, will extend itself to the whole SEPA participating countries making the implementation of proxy identifiers an ambitious endeavor. Same as for the Hungarian domestic instant scheme, the SPL would be supported and maintained by a third party services provider (See Fig.2).
Although the scheme will initially restrict proxy types to mobile phone numbers only, the inclusion of additional types is envisaged as the scheme evolves. Also, same as for the Hungarian domestic scheme, access to the look-up service is enabled through secure RESTful APIs.
Scheme actors are represented in above figure by Initiating Registry Providers, IRPs, Responding Registry Providers, RRPs, and the Proxy Look-Up service provider, SPL.
- IRPs: these will call the look-up service for payment initiation purposes and will return an IBAN to be quoted within the interbank message sent out to beneficiaries.
- RRPs: these will verify incoming calls are authorized and will respond with a proxy linked beneficiary IBAN in real time. They will also hold responsibility for ensuring accuracy and maintaining an updated version of the registry.
- SPL: this service bears responsibility for authentication, routing to RRPs, and validation of RRPs responses. It also stores a trail of processed queries for audit purposes. The service searches for primary identifiers across all RRPs following a sequencing order, should these not be found in a local RRP in the first place.
From the perspective of the Payment Services Provider, authorization to join the scheme is granted upon meeting eligibility criteria set out in the rulebook. Participant rights and obligations are comprehensively detailed in this document with a special focus given to liabilities, compliance, and reporting to regulatory authorities.
Proxy services of the SEPA Look-Up scheme include:
The rulebook does not explicitly make reference to any functions further to the Look-Up. It is expected that more clarity on registration, enquiry, delete, etc. will get provided in revised versions of the rulebook.
SEPA Instant TIPS Look-Up scheme
The Mobile Proxy Look-Up service, MPL, also relies on a central repository. Similarly to the two other schemes described, it will be extended to other proxy types further to mobile phone numbers such as e-mail address, social security IDs, etc. A particular aspect of mobile proxies is that they have to be identified by its MSISDN. (Mobile Station International Subscriber Directory Number).
Scheme actors represented in above figure are:
- Originator and originator Payment Services Provider: the request originator may rely on an originator PSP in case the payment has been instructed with proxy identifiers on both debtor and creditor side. Originator PSP will enrich the instruction with IBAN on debtor side, while requesting MLP to supply an IBAN to the creditor side.
- MLP: the look-up service returns beneficiary / creditor side IBAN along with additional data upon calling the service such as the Bank Identifier Code.
Proxy services of the SEPA Instant TIPS scheme include:
- Registration and maintenance
- Enquiry — (this is referred in rulebook as reachability request)
- Access rights management
- Tools to manage contingency scenarii
Functions offered are similar to the ones featured by its peer scheme, the Hungarian Domestic. Standard RESTful web services are also enabled for the whole services whereas contingency creation, update, and deletion, are ensured via a dedicated GUI. Standard and contingency changes performed to the proxy data base are equally subject to archiving and audit trail.
Same as for the Hungarian Domestic scheme, the MPL service provides a daily report of calls run by participants to the service.
A few closing thoughts
After briefly reviewing these three schemes a conclusion has quickly emerged: they offer the same sort of functions minding a few specifics by scheme. Going forward they are meant to evolve towards the same extended offer with the inclusion of additional proxy types further to mobile phone numbers.
Although we have not talked through requirements and specifications in detail, the three schemes adhere to best business practices of the payment industry. TIPS’ scheme for example, follows the framework and implementation guidelines of the Berlin’s Group Joint Initiative pan-European Mobile P2P Interoperability.
Embedding proxy identifiers in ISO standards is also sought after. European bodies are working together to issue guidelines for instruction of proxies and conveying proxy related information in ISO messages across the payment value chain.
These schemes also observe strict data management, integrity, confidentiality, and protection requirements, as enforced by GDPR. (General Data Protection Regulation).
Technical requirements are aligned with a 24/7 continuous operation model and service availability ratios close to 99.9%. Architectures are designed to future-proof scalability and to handle increased transaction volumes. Exigent security requirements have also been factored in, seeking compliance with cyber resilience expectations of the market.
With proxy identifiers, the exchange of money is made as easy as the exchange of information, from a customer point of view. These identifiers have been issued in response to an increased customer demand for simplicity and immediacy, and the ever increasing number of digital payments. With the combined launching of proxy identifiers and instant payments schemes, the exchange of money will also be a matter of seconds while device based payments will certainly become ubiquitous across Europe.