Instant Payments allow for payments to be processed in real-time, typically within 10 seconds. While they provide benefits like convenience and the ability to pay without cards, their disruptive potential is uncertain as existing payment instruments also work well. Adoption depends on triggers for users and use cases with enough volume and value. Banks face challenges implementing Instant Payments due to costs of upgrading systems while non-banks have opportunities. For Instant Payments to succeed, the focus needs to be on the customer experience and specific high-value use cases, with cooperation across the industry to improve efficiency of infrastructure.

1. 1
Instant Payments:
Where’s the Instant Value?
FinTech Belgium Summer Event
Brussels, 29 June 2017

2. 2
What does an Instant Payment look like? In real time…
Outgoing Instant Payment… in 10 seconds
Payment
Engine
Account
management
CSMCSM
exchange
Originator
+
-
-
Initiation
Validity checks
Authorisation
and reservation
SCT Inst
Message
Confirmation
Message
Receive
confirmation
Position
update
Messaging
max10s
Routing det.
Risk &
Compliance
AML, sanctions,
counter terrorism
…and instant Payents is about more than <10sec: it’s about 24/7/365

3. 3
Why is Instant Payments interesting?
People say:
“Everything is instant
nowadays – payments are
next”
“We can use alternatives to
the card schemes”
“Customers expect it”
But is Instant Payments disruptive? No.
What will adoption look like in a
voluntary scheme?
How many users / use cases
really need instant payments?
Will users use Instant Payments when
existing instruments work just fine?Will people pay for it?
But doubts remain:
…today primarily only FinTechs and the big Tech companies are addressing these needs

4. 4
Why would one use Instant Payments?
What triggers the need?
Instant Payment
Triggers
Availability
/ Adoption
Irrevocable
Beyond
cards
Beyond
limits
(No)
Alternative
Customer
niche use
cases
Time
critical
• Cash replacement is a primary
opportunity for Instant Payments
• In some contexts card transactions may
also be ripe for replacement
• Cheques have largely gone out of use –
there are some situations where there is
no reliable replacement to cheques
• Many use cases exist for Instant
Payments, but most use cases are limited
in value and volume
• Scale is of paramount importance: only if
customers can be persuaded, or pushed,
to use it will it become economically viable
on its own

5. 5
Instant payments : perspectives from different participants
Users and New entrants have reason to like the prospect of Instant payments…
Likes Uncertainties / challenges
• Make payments in immediately 24/7/365
• Better liquidity management/ cash control
• Immediate receiver account credit may accelerate
delivery of goods purchased
• Optimisation of fees paid for payments
• Increased payment possibility
• Interoperability of systems: many apps resulting
in service fragmentation
• Potential additional fees for IP
• Value limits for single transactions
• Lean payment process integrated into user
experience
• Easy cost management / low transaction cost
• No card acceptance required
• Mobile payments integration
• Aligned with younger generation expectations
• Interoperability (National vs. EU)
• Real time fraud detection required
• Still dependent on banks?
User
New Entrant

6. 6
Instant payments : perspectives from different participants
Likes Uncertainties / challenges
• Harmonisation of the clearing standard (cost
optimization)
• Interoperability of systems
• Increasing the service breadth through new
participants
• Richer data through ISO 200022
• Possible additional revenues
• Sufficient new revenues?
• Mandatory changes in IT systems
• High costs for implementation and maintenance
• Requirement to maintain additional liquidity
• Value limits for a single transaction
• Threat of immediate funds fraud
• Lack of homogenous IP processing standard,
leading to fragmentation (domestic initiatives)
• Lack of interoperability of systems – limiting the
range of service
• Competition for payment cards: potential to
reduce bank’s revenues
• Opens door to more competitors
System
Participant
…though established system participants ,i.e. banks, will see fewer benefits and more challenges

7. 7
Interesting use cases exist…
…though adoption depends on many factors, including cost, availability and customer experience
1
2
5
4
3
P2P
• Share bill with a friend
• Buy a 2nd hand car or other item
P2B or B2P
• B2P for return / refund payments
• P2B as alternative payment option for online /
mobile commerce
• P2B urgent payments e.g. credit card, utility bill
• B2P for insurance claim / advances
• P2B less favourable at physical POS where
payment cards have convenience advantage
B2B
• Pay temp staff at EoD based on actual hours
worked
• Just-in-time invoice payments for better control
of cash flow
• High-value transactions e.g. farmer paid upon
sale of goods, fuel shipment)
B2G • Duties and Tax payments
P2G or G2P
• Tax payments
• Disaster aid payments
# PARTIES USE CASES FROM EXISTING IMPLEMENTATIONS
1
2
3
4
5
* In the UK, PSPs have been able to charge premium fees for faster payments (IP) and business have accepted this depending on the importance of the instant nature of the payment to their business
PotentialforfeeserviceFreeorverysmallfee

8. 8
For potential Instant Payments use cases, volumes are rather low
From a Belgian perspective: around 75M annual transactions in the typical consumer use cases
Use Case Urgency Alternatives Avg annual volumes
On the spot: Professionals
P2P: Friends, Shared Bills
Babysitter
Artisans / Fresh food from farms
‘Risky’ Online payments / 2nd Hand
On the move: Transport, Fines
MED
LOW
MED / HIGH
HIGH
HIGH
HIGH
SCT 12M
24M
6M
10M
25M
150k
LowValue
SCT
SCT
1
2
3
4
5
6
B2C Retail MED 500MSDD PISP7
Estimations
Trade + Trade Finance
B2B Invoices: just-in-time
Duties
HIGH
MED / LOW
HIGH
Letter of Credit
SCT
<25M
<10M
<10M
HighValue
SCT
Used cars HIGH SCT 0,5M8
9
10
11
…the true potential comes from Physical and Online Retailers and high-value use cases OR
… the lack of a real ‘need’ becomes a customer expectation to be met

9. 9
What infrastructure is required to implement Instant Payments?
The Instant Payments eco-system
Fintech
space
• The product offered to the end-user
• This is the competitive space where differentiation and value
can be created
• The higher the value, the higher the revenue one can generate
• For Europe this will be SCT Instant with ISO20022
as interbank standard, with enhanced data
Banking
Scheme
End-
user
SettlementClearing
• For real IP, it’s a single process, 24/7/365 and high availability
• The layer can be split but differentiated between high value or
low value transitions
• Interbank infrastructures built on domestic level or EU level
(e.g. STET, EBA STEP2, TIPS)
Executing an Instant Payment in a traditional banking environment requires all layers to be
addressed simultaneously – while FinTechs are attacking or avoiding this structure
Model courtesy of UL: The Cashless Cash

10. 10
Fintech Perspective: How to avoid a slow, rigid banking system?
Virtual Accounts
AISP & PISP Functionality
Customer
Fintech
Bank
Virtual Accounts Virtual Accounts Virtual Accounts
Fintech account Fintech account Fintech account Fintech account
PLATFORM
Virtual Accounts
Fintech account…

11. 11
What options exist for banks to support Instant Payments?
BasicFull
Added Value
Do not
offer
Do not invest until there is no
option than to participate.
Focus on other compliance
initiatives , e.g. AML, PSD2,
etc…
Wait
Late follower: Let others
prepare the ground and solve
the chicken & egg issue
Support as
Beneficiary
Only
Support only
Basic
Products
Your customers
can receive funds
in IP mode
Start with minimum
IP compliant
services
Full IP support from
the start with value
adding services
focussing on specific
market segments
Enter the consumer
market as a value
integrator and offer the
IP value chain to other
banks or Finechs. (See
Starling Bank)
Support
Segment
Added Value
Become an
Instant
Payments
hub
Numerous opportunities exist in the IP space, but there is little use without a clearing and
settlement layer
There is no clear, uniform answer on which scenario is best to follow

12. 12
Bank Perspective: What are necessary investments?
How will any bank recover these costs? Can you still cross-subsidise with B2B transactions?
UK Example Tier 1 Build Tier 1 Buy Tier 2 Buy
Direct Investment +/- €70M €10M €3M €1M
Indirect Investment €6M €2M
Annual Maintenance / Run Cost €1M €600K €200K
Total 5-year cost €15M €12M €4M
Current yearly SCT (total) 250M 250M 25M
Instant Payments volume (Y5)** 25M 25M 2,5M
Instant Payments volume
(Cumulative)
65M 65M 6,5M
Total cost per IP (Y5) €0,23 €0,18 €0,62
Estimates
** Assumes 10% of SCTs are Instant by 2022. ECB forecast suggests 20% Instant Payment

13. 13
Disaggregation of operating models will demand further efficiency
As competition accelerates, core operations and infrastructure become ripe for cooperation
Segments
Channels
Products &
services
People
Rules &
Governance
Processes
Technology
Infrastructure
Traditional
Bank
Source: Sopra Consulting analysis
Fintech 2
Fintech 1
Mobile OS
Infrastructure
player
eMoney
provider
Bank-as-a-
Service
FinTech /
Platform
Cards
networks
Fintech n… Aggregators
Branded
reseller
Data /
Information
Competitive Space
Cooperative Space
Payments
utility
New Brand
• Continuous
improvement in
FinTechs and new
entrants accelerate
the innovation
potential and the need
to integrate them in
the distribution of
financial services
• Complementary
regulations: GDPR, eIDAS
• Emerging standards:
tokenisation, ISO20022
• New and emerging
technology: biometrics,
blockchain, IoT
• Instant Payments
systems, consolidation
pf payments processors
Industry Trends

14. 14
Where is the added value in Instant Payments?
Specific
use cases
Payment
guarantee
Additional
information
Improved
Reconciliation
To a large degree, Instant Payments mimic the value proposition of card payments
Instant Payments are a commodity with the potential for added value
Customer
Expectations

15. 15
Key takeaways
Instant Payments are a commodity with the potential for added value
If you invest, aim for
efficiency
Frame investments
in terms of legacy
modernisation
Why Build your Own? Utilities
are the most effective option
for commodities.
Question Standalone / local
initiatives
The big picture is essential, as
eventually most batch
processes will shift to to real-
time, and from centralised to
distributed models
Alternatives exist to
the Bank-owned
solutions
Banks are no longer the only, or
default, option
Steer towards
Instant Payments
Customer
experience and
context matter
Incorporate pricing
offering
Scale is everything: encourage
IP use cases; or shut down
non-Inst offer over time
Seamless payment
experience, aligned with
current behaviours and
preferences
Add to package or price per
transaction
1.
2.
3.
4.
5.
6.
Instant payments will inevitably become the norm, so doing nothing is also a risk!

16. QUESTIONS ?