In a speech at a conference in Italy, Yves Mersch, a member of the Executive Board of the ECB, said it was impossible to overstate "the strategic importance of instant payments".
"The ability to provide real-time services will be essential if banks want to retain and gain customers," Mersch said. "The move towards a real-time world with the provision of real-time services cannot happen without pan-European instant payments. They will provide a new framework for innovative and efficient retail payments in Europe."
Mersch said it is particularly important for banks to implement instant payments in light of the additional competition they are likely to face when the revised Payment Services Directive (PSD2) takes effect. PSD2 must be implemented into national laws across the EU by 13 January 2018.
Under PSD2, banks and other payment services providers (PSPs) who operate payments accounts will be obliged to enable certain third parties to access payment account information they hold when customers consent to them doing so. The reforms are expected to help fintechs, retailers, technology companies and others engage in the provision of payment initiation services or account information service providers.
Mersch said that competition introduced through the PSD2 reforms "can also provide an opportunity for incumbent banks but only if they act urgently to implement instant payments".
"It is crucial that banks invest to upgrade their legacy batch systems to enable real-time processing and offer end-user solutions for instant payments," he said. "These solutions can provide them with a strong tool to face the upcoming competition. The recent experience with contactless payments shows that banks, in cooperation with other stakeholders, are well capable to roll out payment innovations that can quickly take off and improve end-users’ payment experience."
"It is my view that future innovations in retail payments will be based on instants payments in combination with account access provided by the PSD2," he said.
Mersch called for the creation of a "single standard" for facilitating third party access to payment accounts under PSD2.
In the UK, plans to enable 'Open Banking' were recently updated to reflect the full scope of PSD2. A dedicated Open Banking Implementation Entity (OBIE) is leading the development of new standards that will support the use of open APIs in facilitating third party access to payment account information under the regime.
In his speech, Mersch also expressed doubt over whether virtual currencies will become a mainstream payment method in Europe.
"It remains to be seen whether these virtual currencies can be considered as a payment alternative for consumers - except in extreme case like in failed states- and to what extent they can compete with the solutions market players will be able to develop in the safer and more efficient European retail payments market," he said.