the rise of instant payments
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The rise of instant payments David Andrieux September 2015
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Instant payments
Electronic retail payment solutions available 24/7/365 and resulting in the immediate or
close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer (within seconds of
payment initiation).
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Instant payments are unfolding around the world
- Live systems - Seedlings of new platforms
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Different flavors of instant payments
In a true real-time system, posting, clearing and settlements are performed in real-time. However, many different hybrids exist in
the market.
UK and Singapore systems have deferred
net settlement
SIX in Switzerland has actual real-time
settlement.
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Different systems combine different features
Required features
Account to account
< 1min end-to-end
Irrevocable
Supports retail
Desirable features
Universal access
ISO standards
(20022)
24/7/365
Advanced features
Alternate identifier
Individual payments
Fast settlement
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1973 2015 1973 1979 1985 1991 1997 2003 2009
Japan 1973
Switzerland 1987
Korea 2001
Brazil 2002
Mexico 2004
Chile 2008
UK 2008
China 2010
Turkey 2012
Poland 2012
Sweden 2012
Singapore 2014
India 2010
Denmark 2014
South Africa
2006
Nigeria
2011
Real-time is not a recent innovation…
… but it is accelerating
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Adoption is driven by market and regulatory pressure
• In some countries, bankers have been pushed into action by regulators, who aim to increase the velocity of money through the economy
• A history of hyperinflation in countries like Brazil resulted in the need to develop payment systems with fast settlements
• In other countries the development has come in response to the threat from providers outside the traditional banking sphere
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As consumers and merchants are used to immediacy, they naturally expect digital payments to keep up at the same pace
• Over the last decade, the use of mobile technology for funds transfers has increased
• In addition, new end-user services are being created by both banks and non-bank payment service providers
However, the financial supply chain has not reached the
same speed
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As consumers and merchants are used to immediacy, they naturally expect digital payments to keep up at the same pace
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Different speeds for different payments
• Immediate confirmation is becoming a basic requirements for almost all type of payments
• Some, but not all, payment types benefit from immediate funds availability
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Suitability for real-time by payment types
Funds availability Instant Deffered
Instant
Paym
ent c
onfir
mat
ion
P2P remittance
B2B urgent invoice
Bill, salaries, pensions
P2P e-payments e/m-commerce
Physical POS Large value payments (B2B and P2B)
B2B invoice
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Focus: UK Faster Payments
The UK Faster Payments is operated by a non-profit association owned by banks. The system offers 24x7 access to all UK banks.
2.9 million payments a day, for a total amount of £ 2.3 billion
Posting time is 15 seconds, funds are available within 2 hours It now represents 15% of total payment transactions in the UK.
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UK Faster Payments: a strong, sustained growth
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250
500
750
1000
2008 2009 2010 2011 2012 2013 2014
Value (£ billion)
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UK Faster Payments: a strong, sustained growth
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750
1000
1250
2008 2009 2010 2011 2012 2013 2014
Thou
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Volumes (millions)
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UK Faster Payments: the basis for new mobile payment services
Pingit was developed by Barclays Bank enabling mobile payments
PayM enables users to link their current accounts to their mobile numbers and send and receive money
Zapp will offer online retail payments and will be embedded in a member bank’s mobile banking applications
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Is there a business case for banks?
BENEFITS
• Reduced cost of cash and cheque processing
• Reduction of settlement risk • For consumers, a better user experience and a
way to better financial account management
• Increased market liquidity for the economy as a whole, and allow consumers and businesses to leverage their cash balances more efficiently
COSTS
Even if payment costs go down, the return on
investments would be neutral or negative
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“ “Banks must remain flexible to upcoming changes regardless of how real time develops.
If they do not, they risk even stiffer competition from
outside the traditional banking sphere.”
- Isabelle Schmidt, Deutsche Bank
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Instant payments and new payments services
Instant payments as a service
Instant payments enable new overlay services
‘Overlay services’ can span the entire purchasing experience beyond the payment itself. These new services not only bring new revenue opportunities but keep the bank at the centre of the customer relationship.
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Impacts go beyond payments
Faster internal processes
Fraud detection and interdiction processes
Modernization of legacy systems
Stronger customer authentication
24/7 resources and processes
Integration with other systems and services
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High on the European agenda
The Euro Retail Payments Board has mandated the payments industry to design a pan-European scheme for instant payments in euro by November
2015. The scheme will be based on the SEPA credit transfer and will be available to all payment service providers in Europe.
Instant payments are key to support the Digital Single Market initiative, which intends to open up digital services to all European citizens and enable European
companies to better compete in the global digital economy.
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Summary and outlook The market is sending a clear message: consumers and businesses want fast, seamless payment services that are available all the time, everywhere, from any device.
Instant payments systems are going to be all about the contextualization of payments
Instant payments together with the PSD2 regulation will jointly drive innovation in the European payment space
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