The rise of instant payments
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Digitalisation is changing the face of trade, retail, commerce, business and social interactions all over the world. Instant payments offer consumers and businesses an easy, cost-effective approach to payments with the speed and certainty expected in the instantaneous, real-time world of the internet.
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The rise of instant payments
- 1. 1 ©CopyrightSopraBankingSoftware2015©CopyrightSopraBankingSoftware2015 The rise of instant payments David Andrieux September 2015
- 2. 2 ©CopyrightSopraBankingSoftware2015 2 ©CopyrightSopraBankingSoftware2015 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).
- 3. 4 ©CopyrightSopraBankingSoftware2015 4 ©CopyrightSopraBankingSoftware2015 Instant payments are unfolding around the world - Live systems - Seedlings of new platforms
- 4. 5 ©CopyrightSopraBankingSoftware2015 5 ©CopyrightSopraBankingSoftware2015 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.
- 5. 6 ©CopyrightSopraBankingSoftware2015 6 ©CopyrightSopraBankingSoftware2015 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
- 6. 7 ©CopyrightSopraBankingSoftware2015 1973 20151973 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
- 7. 8 ©CopyrightSopraBankingSoftware2015 8 ©CopyrightSopraBankingSoftware2015 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
- 8. 9 ©CopyrightSopraBankingSoftware2015 9 ©CopyrightSopraBankingSoftware2015 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
- 9. 10 ©CopyrightSopraBankingSoftware2015 10 ©CopyrightSopraBankingSoftware2015 As consumers and merchants are used to immediacy, they naturally expect digital payments to keep up at the same pace
- 10. 11 ©CopyrightSopraBankingSoftware2015 11 ©CopyrightSopraBankingSoftware2015 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
- 11. 12 ©CopyrightSopraBankingSoftware2015 12 ©CopyrightSopraBankingSoftware2015 Suitability for real-time by payment types Funds availability InstantDeffered Instant Paymentconfirmation P2P remittance B2B urgent invoice Bill, salaries, pensions P2P e-paymentse/m-commerce Physical POS Large value payments (B2B and P2B) B2B invoice
- 12. 13 ©CopyrightSopraBankingSoftware2015 13 ©CopyrightSopraBankingSoftware2015 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.
- 13. 14 ©CopyrightSopraBankingSoftware2015 14 ©CopyrightSopraBankingSoftware2015 UK Faster Payments: a strong, sustained growth 0 250 500 750 1000 2008 2009 2010 2011 2012 2013 2014 Value (£ billion)
- 14. 15 ©CopyrightSopraBankingSoftware2015 15 ©CopyrightSopraBankingSoftware2015 UK Faster Payments: a strong, sustained growth 0 250 500 750 1000 1250 2008 2009 2010 2011 2012 2013 2014 Thousands Volumes (millions)
- 15. 16 ©CopyrightSopraBankingSoftware2015 16 ©CopyrightSopraBankingSoftware2015 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
- 16. 17 ©CopyrightSopraBankingSoftware2015 17 ©CopyrightSopraBankingSoftware2015 17 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
- 17. 18 ©CopyrightSopraBankingSoftware2015 18 ©CopyrightSopraBankingSoftware2015 ““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
- 18. 19 ©CopyrightSopraBankingSoftware2015 19 ©CopyrightSopraBankingSoftware2015 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.
- 19. 20 ©CopyrightSopraBankingSoftware2015 20 ©CopyrightSopraBankingSoftware2015 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
- 20. 21 ©CopyrightSopraBankingSoftware2015 21 ©CopyrightSopraBankingSoftware2015 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.
- 21. 22 ©CopyrightSopraBankingSoftware2015 22 ©CopyrightSopraBankingSoftware2015 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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