Benefits of Real-Time Electronic Payments

Transcription

1 Information Economy Real-Time Economy Seminar Oct 2007 Benefits of Real-Time Electronic Payments Harry Leinonen Bank of Finland The views expressed are those of the author and do not necessarily reflect the views of the Bank of Finland 1

2 What is a real-time economy? Real-time database access Real-time database updates Network connections wired and wireless Interconnected sensors and identifiers Process-to-process integration Open standards Open access Increased electronic data flow and complete integration of available information 2

3 Practically everything, everybody and every database are connected to a worldwide web of servers producing transaction driven services Also the payments 3

4 General RTE benefits Increased and improved data availability Improved decision making Improved control Improved coordination More efficient use of resources All facts are available only forecasts are uncertain 4

5 All payments are transports of funds (transfers from payer to payee account) Payer account Payee account Basic requirements and development needs transportation (processing) cost efficiency delivery speed security user interface efficiency user integration support A payment is a transaction event in a chain of interrelated business events 5

6 RTE Credit Transfers In RTE the current profusion of payment instruments will consolidate to a standardized form of credit transfer The efficient and secure process flow Payee initiates by sending e-invoice, e-order confirmation or other message with payment details Payer accepts payment and sends a payment instruction Payer s bank debits payer s account and sends a credit transfer Payee s bank checks the transfer and its settlement, after which the payee s account can be credited Payee s bank notifies payee of booked payment Always the same result: a fund transfer from payer to payee in real-time All other processing schemes would be less efficient and/or less secure in real-time networks 6

7 Clear and logical processing schemes Schematic credit transfer processing Payer Payer s Bank Payee s Bank Payee 1. Payment initiation 2. Payment instruction 3. Accept/reject instruction 4. Interbank transfer 5. Final delivery confirmation 6. Reception information 7. Accounting transfer 8. Accounting transfer Validation and debit Transfer incl. ib-settlement Validation and credit With transaction-based processing and XML messages the processing can be split into simple basic functions, for both normal and exceptional cases 7

8 Requirements for Real-Time Payments Real-time payment account systems Real-time customer interfaces Connecting on-line networks Real-time customer terminal Payment and real transaction integration General e-identification Secure and protected environment Real-time interbank settlement Immediate finality RTE payments require holistic re-engineering 8

9 Mobile phones include everything needed for paying Good colour screen Pin pad and acceptance keyboard Proper keyboard inside or separately Phone needs to be protected against viruses Mobile and internet distance communication Camera for scanning and photo recognition Secure data storage (SIM + extension) Security, card, transaction and ticket data Encryption modules RFID, infrared and Blue Tooth near communication solutions In RTE every customer needs a real-time terminal 9

10 Direct communication in a network-based infrastructure Bank 1 Payment TCP/IP- Internetnetwork Payment Payment Payment Bank 2 Bank 3 Bank n In a network infrastructure, payments are sent through automated routing directly to receiving bank Resembles ing between Internet mail servers and mailboxes. with bank account servers instead of mail servers and customer accounts instead of mailboxes 10

11 Mobile communications Gen. Year Speed Technology 2G kb/s GSM 2.5G kb/s GPRS 3G kb/s WCDMA 3.5G Mb/s HSPDA/HSVPA 3.7G Mb/s LTE 4G 201? over 20 Mb/s?? Mobile speed and computer power increase rapidly. The mobile becomes an Internet terminal. Line-based connections disappear in rural areas (and elsewhere?) 11

12 Near field communication Wireless and contactless device-to-device communication over short distances (centimeters to meters) Infrared, Blue Tooth, and RFID (Radio Frequency Identification) Mobile-to-mobile communication Card-to-EFTPOS terminal communication Identification of customers, products,spare parts, tickets etc Mobile Blue Tooth bear in Romania 12

13 e-invoicing to be part of all payment types Credit transfers payers just receive e-invoices via e-banking application/account and accept at a click Direct debits payers are notified by e-invoice via the e-banking application Card payments complete e-information of purchase is given on the bank s e-statement (no paper receipts) Synergies of combining payment with invoice data E-invoice data should become a regular part of all payments, ie a natural extension of payment content 13

14 Mobile Payments: Push & Go + eticket Select event via network or locally from info-tags (RFID) Pay for ticket via mobile Receive ticket via mobile Enter event by showing mobile to automatic gate Check seat from mobile Ordering everywhere secure e-tickets, automated entrance control, black market barrier and other electronic possibilities 14

15 Network of identification service providers The open internet Customer A good general e-identifier can replace all other identifiers Customer s secure identification provider The network of connected identification providers Service providers identification provider Service providers identification provider Registration office Social security office Identification service provision will require the same kind of trunk network as payments and mobile phones Bank Taxation authority Insurance company 15

16 Improved security is essential Internet and standard PCs are open environments Criminals can design virus-programs (eg Trojan Horses ), which can take control of keyboards, screens, lines Constant stream of new advanced attacks Continuous need to improve barriers PKI (Public Key Infrastructure) and DES (Data Encryption Standard) for message encryption Firewalls for barring intrusion Improved identification solutions: standardised IDs, hardware device, PIN/password and biological characteristics Hardware level tamper resistant protection for security information, screens and keyboards = electronic safe Restrictions on Internet/network openness Requires more customer know-how. Future e-criminals will be highly skilled professionals backed by large budgets The more money in the web, the more criminal interest 16

17 Bank 1 Interbank e-settlement requires a network-based distributed solution Payment + Digital CB cover Interbank Interbank network network Payments require both data and cover transfers Bank 2 4Central bank money is digitally attached to interbank payments 4Modern security technology is used to protect digital info 4Payments can be sent directly from bank to bank on the network 4Payment finality directly between end-banks 17

18 e-settlement needs to be an integrated distributed part of the bank payment network e-settlement is part of the payment system access platform: Sending bank Customer accounts Bank payment system Network acc. platf. E-settlement module Payment Payment network network Receiving bank Network Bank acc. platf. payment E-settlem. system module Customer accounts STP, network based, end-to-end, all through real-time process e-settlement is part of the payment message: IP-adress Payment envelope Payment details.. Central Bank e-settlement stamp End of payment e-settlement needs to be part of the process-to-process integration 18

19 Immediate finality Immediate customer debits, credits and notifications Immediate legally binding finality (as with cash) Possibility of paying before or later, but each transaction is final One time payment control, all other booking controls are automated (no more manual account statement controls) Archiving of transactions when processed (no need for batch account statements and batch error exceptions) The result will be a new form of e-cash the dominant payment convention in the age of the real-time economy 19

20 Will there be a technical synthesis? Will we get a new dominant e-payment mode? Everyone (banks, payers, payees) will at all times be connected to a real-time network Everyone will have a device (PC, mobile phone) which can function as a payment terminal In real-time, the payment (funds delivery) will be immediate All payments are interlinked with the underlying business deals In a network environment, an electronic remote customer ID device (eg chip card) will be needed Would it be more efficient to redesign almost from scratch a new multipurpose and flexible payment instrument/convention for the future real-time economy? 20

21 Benefits of RTE Payments Efficient use of payment balances, overnight and intraday investments No payments in transit (or cheques in the mail) Immediate finality and guaranteed payment Sufficient with one (manual) control point/occasion Deep integration with other event-driven business processes Real-time processing will become the norm in all industries 21

22 What is the most efficient path to - international common payment message standards - common standardised customer interfaces - a common payment real-time process-to-process dialogue - secure and standardised customer identification - a common global interbank real-time payment network - a common settlement convention for all currencies How many intermediary steps are needed to reach a common Worldpay solution? 22