A trip around the world in immediate payments

Transcription

1 A trip around the world in immediate payments

2 flavours of fast A trip around the world in immediate payments Colophon Publication and Copyright: Clear2Pay nv/sa - June 2014 Editors: Conny Dorrestijn, Head of Corporate Marketing & Analyst Relations, Clear2Pay Susan Feinberg, Feinberg FS Consulting Contributions: Guy McIntosh, Senior Consultant, Clear2Pay APAC Elena Whisler, Product Manager, Clear2Pay Americas Marijke Koninckx, Product Marketing Manager, Clear2Pay Mark Hartley, Chief Innovation Officer, Clear2Pay Warren Gardiner, Chief Strategy Officer, Clear2Pay Design: Kris Vandewalle, Marketing Execution, Clear2Pay Images: Production:

3 Management Summary The global banking community is awash with national fast(er) payment initiatives. Some are well established having been around for many years, while other countries continue to ponder what they should do about it, if anything. However one thing is clear, the industry does not have a single definition of what a faster payment is; is it a real-time payment, an immediate payment or even a near real-time payment? This paper offers a definition of fast payments and reviews a number of global offerings that fit the bill. In its purest form, a fast payment system is a domestic, inter-bank, purely electronic payment infrastructure into which irrevocable funds are transferred from one bank account to another and where confirmation back to the originator and receiver of the payment is available in one minute or less. Fast Payment Innovation Index The end-to-end payment processing time is of course a critical decision factor in reviewing fast payment initiatives, but speed alone adds very little value to the end customer. For this reason, each of the global initiatives reviewed are also rated against a Fast Payments Innovation Index. Not only does this assess to what extent the scheme meets mandatory requirements as stated in the definition above, but also the level of support for highly desirable added value such as universal access, fast settlement, 24x7 availability or usage of ISO standards. Of equal importance is the ability of a domestic or regional fast payment scheme to promote and foster innovative solutions running on top of the scheme such as for example extended B2B remittance or alternate identifiers. 4 Modern Fast Payment systems such as UK Faster Payments or Swiss SIC have truly revolutionised the payment environments in their respective countries, while many others have been happily running for many years, including the Japanese Zengit System or the Brazilian SITRAF payments system. Each solution has had its own implementation drivers ranging from an appetite for leading-edge technology, to high inflation rates, or sometimes slow and unreliable domestic postal systems. A multitude of fast payment initiatives in different stages of development can be found in Latin America (Brazil, Chile, Mexico, etc.) and Asia (India, Republic of Korea, Japan, China, Singapore, Australia, etc.) and also across much of Europe (Switzerland, Denmark, Sweden United Kingdom and Poland), but it is notable that a financial powerhouse like the United States is still defining its recipe. Innovation is key for success For banks to fully leverage their competitive advantage using fast payment schemes, just responding to a government mandate is not sufficient. To maximise the return on investment, it is key to focus on bank-specific innovative services: making the initiation of non-automatic payments easier, facilitating the entire transaction value chain while enhancing and enriching payments information. Of course, we at Clear2Pay understand that rolling-out new payment systems is not a minor task, It has implications on design, development, implementation, maintenance and customer service. The payments platform must be able to conduct fraud and money-laundering checks in real-time, make sophisticated routing decisions, manage exception processes, be flexible enough to deal with the continuously changing regulatory climate and needs to be scalable as well as reliable to ensure 24x7 availability. The industry is proving that when all stakeholders co-operate in true partnership much can be achieved. Will fast payments empower innovation? 5

4 Contents Management Summary 5 Contents 7 Introduction 9 A Definition of Fast 12 Fast Payment Innovation Index 13 Vintage Flavours of Fast 14 Japan Brazil Republic of Korea Innovating Fast and Deep 18 4 Star Establishments 22 Switzerland United Kingdom UK Faster Payments: a platform for Innovation 25 Hidden gems 28 China Mexico Chile CCA Chile An early adopter moving fast 32 The Main Course 34 South Africa India Poland Sweden Nouvelle Flavours of Fast 39 Denmark Singapore Still Working on the Recipe 42 Australia NAB and NPP: an opportunity for innovation 44 United States Fast Payment Innovation Index - a global view 48 Payment Innovation in Practice: Where s the beef? 50 Sources 53 Acknowledgements

5 Introduction Speed seems to get all the attention in the emerging interbank payment systems, yet creating end customer value should matter most Warren Gardiner, Clear2Pay Many payment systems around the globe are undergoing fundamental changes to reflect the new realities of digital commerce, especially when it comes to the speed in which payment requests are processed. The electronic payment systems that were designed in previous decades can no longer meet all of the expectations of a society where devices with enormous computing power are literally in the hands of most adults and instantaneous response has become the norm, even when it isn t necessarily required for business reasons. Convenience, security, universal access, financial inclusion of previously unbanked populations, adoption of international standards, enhanced remittance capacity for B2B transactions and low cost are other important characteristics of emerging interbank payment systems but speed seems to be the one that gets all of the attention, says Warren Gardiner, Chief Strategy Officer, Clear2Pay. There are plenty of available sources to obtain the facts and figures and the nuts and bolts of how individual fast payment system work (we have provided a list of sources at the end of this paper). The purpose of this paper is to provide readers with a framework for understanding a wide range of payment system changes that are in production, planned or being considered; to examine the nuances of specific fast payment initiatives with a focus on innovation that adds value to the end customer. We aim to open up the dialogue on this very important topic and to inspire you with lessons learned through the interviews with some key players who are going faster as we speak. 8 9

6 So why flavours of fast? Other discussions on this topic interchangeably use terminology such as immediate, real-time, near real-time or faster payments. The lack of a universally accepted term for these systems is a reflection of the fact that accelerated processing of payments is not consistent from one country s payment system to another. What is called Faster Payments in the UK might seem slow to bankers in Japan and incredibly fast to bankers in most of the rest of the world. Back to the question then, why flavours of fast? The analogy of food fits very nicely into our continuum. Some dishes are described as spicy, others not so much. But just as fast is in the eye of the beholder, so is spicy. It is relative and based on local expectations. And, to take this analogy to another level, globalisation has affected what people perceive as spicy. Just like spicy foods from many countries have spread around the globe resulting in tastes changing over time, fast payments are doing the same but with modifications to fit the specific needs and expectations of the local population and the financial system. This is a result of many factors: The level of regulatory pressure being exerted to create a new, accelerated payment scheme for economic, societal and/or financial stability reasons The number of banks processing payments: a few, hundreds or thousands Whether the main impetus for accelerating payments is to protect the existing banking franchise from emerging competitors (including non-banks) in the grab for retail payments Or whether is it to provide a more robust and modern payments infrastructure to enhance the local economy, enabling it to compete on a global scale The need for financial inclusion in developing nations where a large percentage of the population is unbanked What the starting point looks like (i.e. how restrictive are the capabilities of current electronic payment systems) Flavours of Fast describes a continuum of payment initiatives that fall into the grey area between slow, traditional forms of payment and truly real-time gross settlement (RTGS) payment systems that are designed for corporate and institutional high value payments. Fast is not inherently innovative. The question is how banks can and should innovate by offering additional value with new payment and payment-information services to end customers. Without taking a customercentric approach, simply posting payments faster has limited value. And in some cases, providing faster information about payments with certainty of timing for future settlement has as much value as posting, clearing and settlement those payments on a fast basis. Fast is in the eye of the beholder. It is relative, both across time and based on the expectations of the participants in the payments value chain. What is called Faster Payments in the UK might seem slow to bankers in Japan and incredibly fast to bankers in most of the rest of the world. In trying to describe this continuum of fast, we could have easily chosen the analogy of transportation. Three hundred years ago, fast was riding a horse from one village to another, slow was walking the same distance. What was fast then is almost never considered fast now, but even that is coloured by local expectations. If you live in a remote jungle or mountainous area, horseback might be as fast as it gets. Another example would be high-speed rail: we all know that what is called high speed in North America is laughable to most Europeans and Asians. But it is important to remember that speed is not the only criteria used when choosing a transportation method. Sometimes, slower provides sufficient value to make it the right choice. Faster isn t always better, both in transportation and in payments

7 A Definition of Fast A few industry experts have made attempts at definitions of what they call real-time (which is not really real-time), immediate (which is not really immediate) or faster payments; but not surprisingly, these definitions are inconsistent. Our definition is: Domestic, inter-bank (i.e. not alternative payment schemes), purely electronic payment systems in which irrevocable funds are transferred from one bank account to another and where confirmation back to the originator and receiver of the payment is available in one minute or less. Ideally, a payment system would operate in an environment in which the vast majority of financial institutions in a specific country participate either directly or indirectly, 24 hours a day, 7 days a week, 365 days a year. Without such universal access, consumers are unable to predict which payments will be eligible for fast processing and therefore, be more likely to use a card-based or alternative payment scheme. The reality is that most new fast payment systems are being implemented in phases, with bank participation being optional for both initiation and receiving; and with some participants unable (or unwilling to bear the cost) to maintain connectivity to support always available fast payment services. In order to provide a framework for comparison and discussion, Clear2Pay has developed a Fast Payment Innovation (FPI) Index. This index measures the potential for innovation based on the current or proposed design of the fast payment system. The innovation doesn t come strictly from being able to process payments more quickly it comes from the service overlays that individual banks or groups of banks create to add value to end customers. The spicier the score, the higher the potential for innovation. Flavours of Fast excludes payments that flow through the card networks, traditional RTGS payments (high value between banks or between corporations and banks) and any payment that begins as a paper cheque or some other manual form. Flavours of Fast also excludes digital currency exchanges and closed loop payment schemes, although there may be optional value added services on a closed loop basis that become extensions of a fast payment system. At some point in the future, a logical progression would be the linkage of domestic systems to create one or more cross border fast payment systems. Based on this definition, the many flavours of fast payments as they are being implemented in various countries include Person-to-Person (P2P), Business-to-Business (B2B), Person-to-Business (P2B) and Business-to-Person (B2P) as well as government payments. They can be initiated online, on a mobile phone or tablet, by batch transmission of payment instructions to the originator s bank or clearing house or through some other form of electronic communication. The payments can be credits or direct debits. And, while posting and confirmation takes place in a fast environment, settlement may be just as fast as posting or be delayed. Indeed, some of the flavours of fast include fast batch processing and settlement. Because of local practices, priorities and privacy concerns, some fast payment systems include the ability to pay a receiver using an alternate identifier, in other words, something other than the bank account number. This is especially true in initiatives that are focused on facilitating account-to-account mobile payments. Fast Payment Innovation Index Extended B2B remittance Alternate Identifier Batch and Individual Payments Fast Settlement Universal Access ISO standards (20022 or 8583) 24x7x365 Interbank Account to Account <1 min End-to-end Irrevocable Legend: Optional features maximising customer value and innovation Highly desired features enhancing customer value and innovation Required features 12 Scoring: 5 Meets all features 4 Meets all highly desired and one or more optional 3 Meets most highly desired and optional 2 Meet some highly desired or optional 1 Meets required features only 13

8 Japan Zengin System Live 1973 Operated by: Japanese Banks Payment Clearing Network (Zengin-Net), association owned by banks Official website: Government Involvement: Central bank (BoJ) settlement Ave daily volumes/value: 6 million/ 11 trillion Speed of posting to accounts: Real-time Speed of settlement: End of day net settlement for non-rtgs payments (over maximum value) Maximum value: 100 million yen Individual or batch payments: Both (batch usually future dated) Vintage Flavours of Fast Operating hours: Payment applications: All non-card based electronic payments 3 peppers: 6th generation in 2011 Like fine wine or mature cheese, some fast payment systems have been around for a long time. Given Japan s well-deserved reputation for leading-edge technology and business efficiency, it is not surprising that the Japanese Zengin payment system was far ahead of its time when it was introduced in The Republic of Korea (South Korea) introduced a fast payment system in 2001, reflecting early demand for efficient, consumer online payments. The third mature fast payment system we will explore in this paper is Brazil s SITRAF (Funds Transfer System) which has been providing fast payment services since The idea that Brazil is further ahead than most of the developed world in electronic payment systems may surprise some readers but there are logical reasons for this development which we describe in the SITRAF profile below. You will note that the FPI scores for the original fast payment systems described here are not as high as some of the others profiled in this paper. Given the timeframe during which they were developed, that is understandable. As these systems evolve to include ISO standards and meet contemporary customer demands, their scores will undoubtedly rise. The original fast payment system is Japan s Zengin. The Zengin system allows consumers and businesses to initiate fast domestic payments and collections (direct debits) using a number of methods ranging from paper based instructions and ATM transactions (neither of which fits our definition) to online and mobile payment initiation. As the system has evolved over time, virtually all deposit-taking financial institutions in Japan now participate in the Zengin system, which processes payment requests in real-time during normal business hours. Zengin is notable not only for the early development of fast payments but also for its commitment to continued innovation since 1973, adapting the system to changing consumer and business behaviour as well as to the evolution of thinking on the topic of payment systems risk by global and national regulators. Zengin-Net s mission statement includes the following statement: We aim to realise a clearing system that responds flexibly to environmental changes and is able to continually undergo innovation. While the speed remains the same, Japan s flavour of fast has changed with the times. With the Sixth Generation Zengin System, implemented in late 2011, Japan now has a fast payment system that supports bulk and individual message payment requests, a dual scheme that supports both net settlement and real-time settlement based on value (RTGS for payments greater than 100 million yen) and optional use of XML-based formats including ISO20022 for certain message types

9 Brazil Funds Transfer System - SITRAF Live 2002 The SITRAF payment system, first introduced in 2002, is a hybrid, continuous net settlement system used for relatively high value transactions between 5,000 and 1 million reales (equivalent to approximately EUR 1,500 EUR 300,000). Most retail payments are settled through another (not fast) payment system operated by CIP called Siloc; payments of higher value are settled through the Brazilian RTGS system, called STR. Although SITRAF is not primarily a retail payment system, it does fit the Flavours of Fast definition of a non-rtgs, fast (<1 minute) payment system. It is expected that much of the future innovation in the Brazilian payments environment will take place in retail payment systems that are not fast or in non-bank alternative payment schemes. The question is whether the Brazilian banking system can apply its expertise and heritage in fast payments to a broader set of transactions. Operated by: Camara Interbancaria de Pagamentos (CIP), non-profit association owned by banks Official website: Government Involvement: Central Bank Net settlement Ave daily volumes/value: 930,000/16.1 billion reales Speed of posting to accounts: 97% released in < 1 minute Speed of settlement: Continuous net settlement Maximum value: 1 million reales Individual or batch payments: Individual Republic of Korea Electronic Banking - HOFINET Live April 2001 Operating hours: Payment applications: Credit transfers - TED (Transferência Eletrônica Disponível) 2 peppers: Not available 24x7x365 By any measure, Brazil is the largest economy in Latin America. Its payment systems have evolved in a unique fashion because of the country s particular geography, infrastructure, and economic history. Brazil is a huge country with an area larger than Europe (excluding Russia), resulting in a banking system that was traditionally dominated by regional banks. Transportation and postal systems were slow and unreliable and much of the population was unbanked, resulting in low adoption of cheques and other paper-based payments. These factors, combined with a history of hyperinflation in the late 20th century, resulted in an urgent need to develop efficient, electronic payment systems with fast (near immediate) settlement long before any other country in the Western hemisphere. At its worst, the inflation rate exceeded 4000% in It is hard to imagine that any consumer or business that was expecting a payment would wait for a cheque to arrive in the mail under these circumstances. So, it was logical that Brazil would be among the first countries to develop a real-time electronic payment system. Investing in automation of financial transactions for both efficiency and liquidity purposes has been of the highest national priority since the Brazilian financial crisis of the early 1990s. All of the electronic payment systems in Brazil share the same backbone and private network (RSFN) and messaging is XML-based. The intention to move to ISO20022 standards for payment messaging was announced in Operated by: Korea Financial Telecommunication & Clearings Institute Official website: Government Involvement: Central Bank oversight Ave daily volumes/value: 46 million/krw 33 trillion Speed of posting to accounts: Immediate Speed of settlement: Deferred Net (next day) Maximum value: KRW 1 billion (corporate), KRW 100,000 (retail) Individual or batch payments: Individual Operating hours: 24x7x365 Payment applications: All credit payments, mobile, online 2 peppers: Lack of ISO adoption Since the Korean banking industry first introduced the Electronic Banking Payment System (sometimes called HOFINET), the country has seen a very high mobile penetration among its population. This has led to the system rapidly becoming the vehicle for mobile payments, driving dramatic growth rates and eclipsing other electronic payment methods

10 Tino Kam EMEA Corporate Payment Solutions Royal Bank of Scotland Vanessa Manning Head of EMEA Payments & Cash Management Royal Bank of Scotland Innovating Fast and Deep Implementing faster payment schemes for the benefit of customers RBS is well-positioned to talk about flavours of fast or real-time payments, having helped its customers access Faster Payments (FP) in the UK, G3 in Singapore and, gearing up for a roll-out of the New Payments Platform (NPP) in Australia. As a UK-based bank with an international focus, RBS intermediates on 80% of the world s trade flows, directly supporting corporate and institutional clients across its extensive country network, In just five short years, Faster Payments has established itself in the UK as the easiest way to move money at any time simply, quickly and reliably. It has led to almost two in five people, who use internet or phone banking, make payments after 5pm during the week, while one in five move money during the weekend. One in nine people say they often make payments after midnight. Then, as recently as March 2014, we saw the introduction of another faster payments initiative, this time in Singapore with G3 FAST, which will also support bulk payments and e-mandates using the standard global messaging format (ISO XML). And we have already seen innovative e-commerce and m-payment solutions on the back of this. Speaking with Vanessa Manning, Head of EMEA Payments & Cash Management at RBS Global Transaction Services, and Tino Kam, in charge of innovative payment solutions for corporate clients in her team, it becomes clear that RBS has a unified approach and can provide three essential lessons for any bank involved in faster payments initiatives: Be prepared and participate Vanessa Manning says: Through our industry engagement and product management teams, we constantly monitor what happens in the industry by participating in industry and regulatory boards, centrally as well as locally through our people on the ground in the global markets. For example, as members of the UK Payments Council, we were uniquely positioned to provide insight into the development, timetable and roll-out of Faster Payments to the relevant teams within the bank at the time. Equally, we used our client insight events to review and validate our customers input and requirements from the FP initiative back to the Council for consideration. In the case of Faster Payments, we took the case for immediate payments from a UK and international perspective into a group-wide project, to ensure that we have the right capabilities, technology infrastructure and organisational framework in place, and are lined up with the necessary client focus. Leverage compliance as opportunity for change Regulation and compliance with industry-wide initiatives such as faster payments schemes lead to innovation among financial institutions. For example, says Tino Kam, regulatory changes such as SEPA implementation can drive innovation of new services for the benefit of our clients. So when we embarked on the SEPA project, we decided to work with a strategic technology partner who could standardise our global payment processing requirements. We have found that in Clear2Pay as well as other partners. With Clear2Pay, as a result of our collaboration for the Open Payment Framework (OPF) deployment in Europe for SEPA, we were then able to leverage our combined mutual technical and product expertise to accelerate our delivery and time to market of our G3 implementation in Singapore. 1. Prepare through participation: Engage actively and relentlessly in the regulatory, industry and standardisation forums and act as the voice for your customers. 2. Leverage: Any investment required for regulatory compliance is an opportunity for change both to review and improve internal efficiency as well as enhancing the client s proposition and experience. 3. Innovate: Regulation can be an impetus for innovation, use the organisational momentum to innovate with, and for, customers. The partnership with Clear2Pay has allowed us to meet our clients needs, and in a secure way, as other jurisdictions start to roll out 24/7 faster payment schemes. Vanessa Manning, RBS 18 19

11 Innovate for and with your clients The G3 project in Singapore has only been live for two months at the time of going to print, but already RBS has launched two sector specific innovative solutions on the back of this immediate payments capability, as outlined below. Consumer Group Client Suppliers of products to retail outlets across Singapore, varying from mum and pop shops to large supermarkets, were traditionally operating on a cash-on-delivery basis, with the ensuing problems of security of cash handling and the accounting issues when the cash was delivered back at the office safekeeping, accounting, cash flow, etc. With the new G3 solution, RBS clients in this segment can ask the shop keepers to implement a FAST credit transfer and provide instant notification to both the originator, sales person and any other relevant party in the company to confirm and secure delivery. Direct debit arrangements can be made as well through the same scheme, and complete payment details can be sent with the enhanced G3 formats for accounting and reconciliation purposes. For the customer, this means guaranteed funds up front, improved cash flow, improved STP and productivity. In short, all parties benefit from G3 as this is where speed, certainty and convenience meet. Travel Association & G3 This RBS client is an international trade association representing more than 200 travel agents in over 100 countries. Debtor management can be a widespread issue for this type of business where airline tickets are sold by agents and only issued to travellers upon receipt of payment, usually by cash or debit/credit card. For this particular client, credit monitoring had been a key challenge, since it was done manually and involved checking bankers guarantee validity or status of payments all time-consuming and open to human error. Under the new G3 scheme, RBS supplied this client with a solution whereby the travel agents simply initiate a FAST credit transfer or set up direct debit arrangements. The travel association can initiate real-time direct debits for each ticket issued. The solution generated instant benefit for the travel agents since they saved on banker guarantee fees. While the travel association received guaranteed funds upfront, the faster turnaround time of the ticket for the end-user improved customer satisfaction levels, making repeat bookings more likely. The client further benefitted directly from improved debtor management and ease of tracking and reconciliation. Clear2Pay already provides the operating payments engine for G3 itself and, similarly, for our Multi Bank Solution (MBS) in China, says Vanessa Manning. MBS enables RBS s clients to have a single entry point to reach more than 100,000 domestic branches across China. The partnership with Clear2Pay has allowed us to meet our clients needs, and in a secure way, as other jurisdictions start to roll out 24/7 faster payment schemes

12 Switzerland Swiss Interbank Clearing - SIC Live 1987 Operated by: SIX Group, owned by banks Official website: Government Involvement: Swiss National Bank settlement and oversight Average daily volumes/value: 1.7 million/122 billion Swiss Francs Speed of posting to accounts: Real-time 4 Star Establishments Of all of the flavours of fast that we have reviewed, we identified only two payment systems currently supporting 4-pepper levels of innovation according to the FPI scale. Payment organisations in these two very different countries have taken bold steps during the past decade to make fast payments a reality and to position their respective banking sectors to be key players in payment innovations. Much has been written about UK Faster Payments. It is probably the best known (and best marketed) of all of the flavours of fast. Fast payment developments in Switzerland are less celebrated but no less impressive. Long been known for its efficiency, precision and strong banking sector, Switzerland developed a fast payment system called SIC (Swiss Interbank Clearing System) which represents one of two RTGS systems profiled in this paper that support both traditional, high value payments and retail payments. Speed of settlement: Real-time Maximum value: NA Individual or batch payments: Individual Operating hours: 24x7 (until for current day settlement) Payment applications: P2P, B2B, Bill Pay, P2B, B2P Credit transfers 4 peppers: Major overhaul to SIC4 underway Switzerland s SIC RTGS payment system processes both retail and wholesale payments on a real-time basis. By leveraging the RTGS system for low value payments, the Swiss banking system has avoided creating a separate infrastructure for fast retail payments, is able to take advantage of economies of scale and can pool liquidity across both types of payments. SIC also operates a separate Euro payment clearing system called EuroSIC. SIX Group s mission statement is focused on efficiency and competitiveness: SIX sets global standards with first-class infrastructure services for the financial sector. Our technical knowledge, innovative drive, and service quality allows us to increase the efficiency and competitiveness of the financial centre, making us the preferred partner for our clients. 22 With the current SIC4 initiative to replace the 27-year old original SIC infrastructure underway, SIX is positioning the Swiss domestic payment system for greater innovation, flexibility and efficiency and to enable better integration with regional and global payment schemes. The first migration to the new architecture will be EuroSIC in 2015, followed by the SIC domestic system in Included in this initiative is the gradual migration to ISO20022 standards by

13 UK Faster Payments Live 2008 United Kingdom Simon Cox Independent Payments Expert UK Faster Payments: a platform for Innovation Operated by: Faster Payments Scheme Ltd, non profit association, owned by banks, runs on VocaLink real-time platform With the UK s Faster Payments having been live for some years, we interview Simon Cox, who was from 2005 to 2012 responsible for Innovation & Application Strategy at The Co-op Financial Services. During those years the bank implemented Immediate Payments services on the back of the UK FP scheme. Currently Simon Cox is consulting more broadly on banking system strategy and shaping transformational/ innovative initiatives from a technology perspective to meet desired business outcomes. Official website: Government Involvement: Central bank settlement and oversight Average daily volumes/value: 2.9 million/ 2.3 billion Speed of posting to accounts: 15 second confirmation, posting within 2 hours Speed of settlement: Deferred net settlement, 3 cycles per day Maximum value: 100,000 Have you seen any real innovation since the UK Faster Payments scheme went live in the banking community? In some way I think UK Faster Payments to date has been a quiet revolution. From a customer perspective there was a lot of confusion surrounding the three times a day clearing cycle and Faster Payments was really giving them something they possibly thought they already had. Having said that, as a scheme it is a success, the numbers speak and we see volumes continue to grow strongly by approximately 30% per annum. 24 Individual or batch payments: Both (Direct Corporate Access supported by some banks) Operating hours: 24x7, 365 days Payment applications: B2B, P2P, B2P, P2B, Bill Pay 4 peppers Faster Payments has revolutionised the payments environment in the United Kingdom by establishing a totally new, fast payment option for consumers and businesses, including some migration from traditional payment systems (e.g. BACS with funds taking up to 3 days to be available to beneficiaries). With now universal access through direct or indirect participation by virtually all UK banks and the convenience of access at any time of day or week, end users have embraced Faster Payments at rapidly growing volumes. The mission statement of Faster Payments includes a focus on innovation and development of additional services. This is more than just talk: the Faster Payments system has become the backbone for a number of innovative payment solutions including Paym, a mobile payment scheme to be offered by the majority of UK banks in 2014 which uses mobile phone numbers as alternative identifiers; Pingit, a family of proprietary solutions offered by Barclays to customers and noncustomers for P2P, mobile point of sale and mobile bill pay; and Zapp mobile and ecommerce solutions to be offered later this year through a variety of UK banks and operated by a wholly owned subsidiary of VocaLink. The true test of innovation with these new solutions is twofold: will they become the preferred method of payment for consumers and merchants over traditional cardbased payments and can they compete on a cost-basis with alternative payment schemes that seek to disintermediate the banks. To be frank since Faster Payments was launched I haven t seen a huge amount of banking innovation using the platform, but I think this is all about to change with the advent of Mobile Phone/ Bank Account Number hubs provided by Pingit, Zapp and Paypal. These hubs of course will utilise the Faster Payments platform and truly revolutionise how we pay for everything. At this point I don t think anyone can predict how things will precisely unfold. There are still so many questions to be answered. Will the mobile app be an e-wallet and who will provide this? Your bank? Your Mobile Network Operator? WEVE? Apple? Google? Paypal? My view is that banks really need to get on the front foot to avoid losing a lot of wallet share if I can use that expression, though I think it unlikely that any type of organisation will dominate for quite some time. Equally important, how will the payments business model evolve? Will the major banks lose their essential control over payment infrastructure in the UK? I think this will happen, though not that quickly. I just can t see the changes in Payment Council governance or the Market Investigation Reference powers of the Payment Systems Regulator biting very quickly. The cost of card/ ATM transactions are pretty much the biggest inhibitor to new banking service providers starting up as they need to pass on these costs to their customers in high monthly account charging. I think the commercial model for retail payments will change mostly as a result of Pingit/ Zapp etc. vying for market share. The new payment mechanisms such as Pingit and Zapp that you mention have as much to do with the smart use of payment data as with speed. How will they evolve? There is an explosion in customer purchasing/ payment data (including device/ location data) already today and it is not clear how this will be leveraged, managed and most importantly - regulated. Who will do this best? Will banks start to build buying pattern indicators for their customers to assist with marketing and fraud prevention/detection? Could Credit Reference Agencies expand to become Personal Reference Agencies? Clearly there must be strong controls around how this incredibly rich data can be leveraged. My own view is that this data will help significantly with fighting fraud, which is probably the biggest issue with Faster Payments. 25

14 For example a payment hub engine could manage a payment process as follows: depending on transaction value or recent transaction a decision could be made to pull in extra payment insight (from either internal bank or CRA systems) then depending on insight and definable rules the customer could be involved in confirming the payment using a mobile device. From a marketing perspective, the opportunities for banks or payment providers to build customer connectivity are almost limitless. All of the above is unbelievably invigorating and exciting and with so much up for grabs I think it begs the really big question for all the players in the mix on how to add value. Where on earth does today s Chief Information Officer start? As a technology strategist I think an uncertain future requires or mandates flexible system components. Whilst at the Co-op Bank I helped select and implement Clear2Pay s payment hub (OPF), but alas problems not relating to payment systems have blown the bank off course for now, hopefully only temporarily, but we will see... Since leaving the Co-op I have mainly focused on the Credit Union sector which I strongly believe needs a flexible payment infrastructure and one which would equip any small or start-up bank with essentially a Payment Hub in the Cloud. Sheer curiosity, why do you think that in particular Credit Unions can benefit from faster payment infrastructures? Governments see Credit Unions as an important sector for banking/payment services to the customer segments that are not well served by the universal banks today. This could be for a variety of reasons, whether these are customers that don t manage their finances well and incur significant charges or are even financially and economically excluded. The problem for most Credit Unions is that their core platforms only link into the payment systems via corporate internet banking systems (typically in a fairly manual way) not even via Agency Banking arrangements which still are very much batch based. A single Payment Hub Cloud could not only facilitate a proper faster payments capability for in the UK alone around Credit Unions but allow a lot of bulk purchasing scale to be achieved with the universal banks. Whilst I do think Credit Unions should move towards mobile wallets, the basic payment infrastructure urgently needs putting in place first and the ability to transact immediate payments is one element of that. Interestingly I think such an infrastructure would benefit all small and start-up banks my own view is that the current Faster Payments scheme for agency banks is scarcely fit for purpose. There is clearly much to do and I cannot wait. What are the prime lessons learned from having implemented a technology infrastructure for Immediate Payments? (clarifying part of the payment hub project) I think there were two important lessons. The first is to get the timing right for strategic implementations. At the Co-op the initial implementation for Faster Payments was based on legacy, we considered a strategic implementation to hit the regulatory deadlines for Faster Payments but in the end spent a lot of money on a tactical implementation just to hit the deadlines with acceptable risk. Clearly there are more unknowns in strategic implementations as you are working generally with different technologies but the benefits associated with a flexible payment hub are very significant both in terms of cost/ timescale for development/ change projects as well as benefits arising from new business opportunities. In any geography which doesn t have a low cost near real-time payment scheme I would recommend planning for this now rather than waiting for the regulation and possible missing out on the opportunity to implement a flexible payment hub due to timescales and risk. Secondly, in on-going system rejuvenation or transformation projects, simplifying sub-system interfaces has significant cost advantages. In package implementations integration costs are typically the largest and in most bank infrastructures I think legacy payments systems along with MI and finance systems drive the majority of integration costs. Simplifying payment systems at an early point helps with both being able to deliver and control the cost of system transformation. And to be fair, I think during a difficult time for the bank it is important to recognise that the payment hub was implemented in relatively quick timescales. This had a lot to do with the collaborative way in which Clear2Pay works as a company ultimately change is about people and organisations working together

15 China Internet Banking Payment System - IBPS Live 2010 Operated by: China National Clearing Centre Official website: Government Involvement: Regulated by People s Bank of China Annual volumes/value: 2013: 476 million/ 6.45 trillion Yuan Speed of posting to accounts: Within 20 seconds Speed of settlement: Deferred net settlement Maximum value: RMB 50,000 Yuan Individual or batch payments: Individual Operating hours: System operates 24x7, Availability varies by bank Hidden gems The three countries profiled in this section are often omitted from other fast payment analyses. Not surprisingly for each has chosen a very different path toward offering its citizens and businesses faster and more efficient payment alternatives based on the particular needs and characteristics of the population and banking system. China, with a highly fragmented traditional banking system has begun to invest in the infrastructure and technology changes required to establish national electronic payment systems under the umbrella of CNAPS. The roll-out of the Internet Banking Payment System in 2010 provides for payments to be received within twenty seconds. The Banco de Mexico developed SPEI, a new RTGS system in 2004, which was designed from the start to handle both wholesale and retail payments, allowing Mexican consumers and small businesses to take advantage of fast payments. Chile, the smallest of the three, with a highly centralised banking system developed an online transfer capability (TEF) in 2008 that continues to be leveraged as consumer payment demands evolve. Payment applications: P2P, some banks may offer additional services such as bill payment, direct debits, internal corporate transfers (sweeps) 2 peppers: Lack of universal access, planned ISO adoption China s interbank clearing platform, China National Advanced Payment System (CNAPS), supports multiple payment application systems, the newest of which is the Internet Banking Payment System (IBPS), providing real-time retail payments. 132 banks participate in IBPS, representing all commercial banks that offer online banking services. An upgrade to CNAPS II is underway, which includes the adoption of ISO20022 messaging standards. Between 2010 and 2013, IBPS experienced rapid growth in volume and value cleared, with the most recent annual statistics showing approximately 80% growth in both volume and value. Currently, IBPS remains a small component of the overall electronic payment environment in China. There is an expectation, however that banks and third party organisations will develop new products and overlays on the IBPS platform leading to higher market penetration

16 Mexico Sistema de pagos electronicos interbancarios - SPEI Live 2004 Chile Transferencias en Línea - TEF Live 2008 Operated by: Banco de Mexico (Banixo) Official website: sistemas-de-pago-de-alto-valor/interbanking-electronic-payme.html Government Involvement: Owned and operated by the Central Bank Average daily volumes/value: 700,000/640 billion pesos Speed of posting to accounts: Maximum of 1 minute, 5 seconds end-to-end Speed of settlement: Hybrid, clears and settles within seconds Maximum value: NA Individual or batch payments: Individual Operating hours: System operates 22+hours/7 days a week, (previous day) to 17.35; availability varies by bank but must be available from to Payment applications: P2P, B2B, P2B, B2P, high and low value, mobile payments 3 peppers Unlike most other flavours of fast we have analysed, Mexico s SPEI system is operated by its central bank, Banco de Mexico (Banixco). The system was designed from the start to clear and settle a large volume of payments in real-time in order to provide safety and convenience to customers and to efficiently manage the liquidity of the bank s participants. Banixco has taken a very firm stance in ensuring that the country s banks make SPEI real-time payments available to all types of customers and for a broad set of payment types on an affordable basis. The SPEI website includes daily connection statistics for every one of the participating banks so that consumers, businesses and banks can see whether a bank is connected during non-business hours or days. The screenshot below is an example of this industry transparency showing the connectivity on one particular business day for a small sample of banks. Operated by: Centro de Compensacion Automatizado (CCA) Official website: Government Involvement: Regulatory mandate to eliminate float in 2007, Central Bank settlement Average daily volumes/value: 430,000/$156 billion (the equivalent of 200 million) Speed of posting to accounts: Receiving bank must respond within 10 seconds Speed of settlement: Two times/day through RTGS Maximum value: Approximately US$10,000 Individual or batch payments: Both Operating hours: 24x7x365 Payment applications: B2B, P2P, B2P, P2B, Bill Pay, Mobile 3 peppers The Chilean fast payment system is an example of a private sector response to a regulatory mandate to eliminate float in the original online payment system that was introduced in TEF was developed by the CCA and implemented in 2008 after only three months of development, allowing Chilean consumers and businesses to initiate fast retail payments with response time required within 10 seconds. Innovation in terms of payment applications and services is strictly up to the bank membership of CCA and is expected to extend to mobile payments in the near term. The CCA also provides participants in the system with enhanced transparency by allowing them to search the CCA database for transactions submitted within the past 30 days. SPEI also provides a key component of the Directo a México service that facilitates efficient cross border payment movement between the US and Mexico. In the future there are plans to support mobile payments without requiring the sharing of account information by registering the consumer s mobile phone number with their bank. 30 The assertive stance of Banixco bodes well for future innovation in fast Mexican payments including initiatives to shorten response time, improve throughput to support higher peak volumes and to migrate more payment applications to SPEI including mobile and government payments. 31

17 Luis Feldman Head of Operations & Development Centro de Compensacion Automatizado - CCA CCA Chile An early adopter moving fast Oh, the beauty of being flexible, nimble and agile was our first thought when diving into immediate payments in Chile. This thought was only reinforced at the interview with Luis Feldman, Head of Operations at the Chilean payments processor CCA, who in 2008 launched Immediate Payments. After three months of internal development work - admittedly with some repairs to be done - Chilean bank customers could, from the first day in 2008, pay and receive in a 24x7 world. CCA has been a payments processor since 1996 and offered an efficient service to banks clients. However in 2001 both corporate and retail clients were complaining about the lack of speed, with some payments taking over 48 hours to be executed. On the behest of the regulators an industry project ensued and TEF was established on the drawing board: Transferencias En Linea (Immediate Payments), with the aim to settle in less than 15 seconds, the time people find acceptable to wait for a PC screen to refresh with new data. Today CCA processes around 430,000 payments a day with an average daily value of around 200 million euros. Receiving banks must respond in 10 seconds and settlement takes place twice daily through RTGS. Payment services include business, personal, bill and mobile payments. When asked about the move to mobile and omni-channel Feldman concurs: We have a new project around mobile as we see many non- and near-banks as well taking up deposit and savings accounts. There is a large demand from the under-banked community for banking services without checkbooks or credit, a pure debit and low value payments account. This can even mean paying for a taxi off a debit account by mobile. We are currently working on this and hope to announce a formal service later this year. Early adopter lessons learned As such an early adopter, the natural question is what have you learned from this and what would you do differently with the knowledge of today? More than anything I am curious to find out how other schemes have fared or are expecting to achieve high customer adoption. How do they deal with pricing and security? At CCA for example we have an all-inclusive approach to fraud detection, whereby we share common fraud cases across our member banks. Is this something other schemes do or do they leave fraud as an issue to the individual banks to deal with? We are very keen on security and in our system in Chile we can hold any suspicious transfers in a type of waiting account where we can do a double check on the identity of the account holder by use of the personal ID number. I would be keen to learn from other processors on how they approach the ever intensifying issue of security and identity fraud. Sharing common fraud cases across banks helps to fight fraud in our experience The fact that we delivered an immediate -industry widepayments service in 2008 within three months without experience or reference, sets us apart as a payments innovator at that time Numbers talk Feldman: The regulators had many complaints about the lack of speed in payments so as early as 2001 we started to look at possible solutions. At that time however there were no industry solutions from technology providers for immediate payments, we could not even find something that came close so we had to embark on a full R&D project to define and outline a solution. As there was no standard solution, we decided to truly tune and customise it for the Chilean banks and market, with its own risks and complexities. We looked into the full end-to-end chain of payments processing, e.g. what to do when a payment cannot be completed. We have ensured as an ACH that the bank gets a message within two seconds that the payment was turned down. It is then up to the bank and its service levels to for instance offer a retry or notify the customer. STP, repair, enrichment, were all on the original menu and we have built on our initial service over time. Fast forward to the future Fast forwarding, Feldman would like CCA to spread its wings and also manage payments originated in the mobile and credit card space and in different currencies such as Euros and US dollars. I can only say that if you view our success in Immediate Payments in the light of being such an early adopter, with no reference, no experience, no technology providers to support us, our steep learning curve qualifies us for the next stage of payment innovation in Chile. Humbly, yet proudly I would say that we clearly have a successful model: in the very first year we grew over 100% in transaction volumes and today, seven years on, we grow by 20% year on year. On top of that we saw that initially banks used it simply for account to account payments, but since then we have seen banks building new payment offerings on the back of our immediate payments service in the domain of fast track payroll, etc. Over 99,9% of the banks active in Chile are participating in TEF and today they all offer a 24x7 service, only some second tier banks with a very limited number of bank accounts in Chile do not. We also saw that banks which were initially hesitant soon realised the value of immediate payments because customers figured out that the costs for online payments were way lower than those for individual checks

18 South Africa Real-Time Clearing - RTC Live 2006 Operated by: BankservAfrica Official website: Government Involvement: Managed by Pasa, the Payment System Management Body designated by South Africa Reserve Bank to manage and regulate payment systems, Central Bank settlement Average daily volumes/value: 26,000/378MM ZAR as of Q Speed of posting to accounts: Within 60 seconds Speed of settlement: Deferred net settlement (hourly during the business day) Maximum value: ZAR 5 million until 16.00, ZAR 250,000 during non-business hours Individual or batch payments: Individual Operating hours: System operates 24x7x365 availability varies by bank The Main Course The fast payment initiatives in these four countries have been covered in other publications on this topic. Each is making strides in strengthening the local banking sector s ability to meet the emerging payment needs of its consumers and businesses. South Africa and India share a common challenge of meeting the needs of high rates of unbanked population and their fast payment systems have both been used to help meet that need. Unlike most other fast payment systems described in this paper, the Indian IMPS system started with a mobile application, providing the capability to generate fast person-to-person payments using a mobile phone. Poland and Sweden both introduced new fast payment solutions in 2012, with limited adoption in the initial phases of roll-out but plans for more extensive value added services going forward that should drive bank participation and consumer adoption. Payment applications: P2P, B2B, P2B, Bill pay, salary, online, mobile 3 peppers The RTC payment system was developed by a small group of commercial banks with co-operation and approval of the Reserve Bank to establish a fast payment service for credit transfers between account holders of the participating banks. Current participation includes 6 of the 22 banks offering payment services in South Africa; however, they represent the largest banks in the country. South Africa has made a commitment to move to the ISO20022 standard for payments processing, both for enhancing domestic payments as well as for the basis of the Southern Africa Development Community (SADC) Payment System Project, which has been established to promote regional interoperability for electronic payments among the 15 countries in the community. Although RTC only represented 1% of total retail payment volumes and values as of 2012, the system has shown consistent growth since its introduction. The availability of fast payments that can be initiated using mobile phones is a key aspect of the banking industry s efforts to reduce the very large unbanked population

19 India Immediate Payment Service - IMPS Live 2010 Poland Express ELIXIR Live June 2012 Operated by: National Payments Corporation of India (NPCI) Official website: Government Involvement: Central Bank settlement Average daily volumes/value: 84,000/Rs 547 million (more than doubled in 6 months) Speed of posting to accounts: Real-time Speed of settlement: End of day net settlement Maximum value: Banks set limits if end-to-end encryption used, Rs 5,000 if not using encryption Individual or batch payments: Individual Operating hours: 24x7x365 Payment applications: Mobile payments, P2P, Internet Banking, Merchant payments, Bill payment, ATM payments 2 peppers: Lack of ISO adoption Operated by: KIR National Clearing House Official website: Government Involvement: Central Bank settlement Average daily volumes/value: <1,000/3.1MM zł Speed of posting to accounts: Near real-time (seconds) Speed of settlement: Immediate Maximum value: 100,000 zł Individual or batch payments: Individual Operating hours: System operates 24x7x365, availability varies by bank (4 of 8 banks offer 24x7x365) Payment applications: Bill payment, P2P, B2B, Merchant payments, mobile 3 peppers The Indian Immediate Payment Service (IMPS) was originally launched as an instant mobile remittance solution in November 2010 with seven banks and has quickly evolved as a multichannel, multi-dimensional payments platform with 59 Indian banks participating. The wide variety of payment applications and channels available is line with the mission of NPCI to offer anywhere, anytime payment services and to integrate retail payment services so that they are: inclusive, customer friendly, simple and easy to use, universally accessible, affordable, safe and secure. IMPS also helps to meet the goal of the Reserve Bank of India (RBI) to electronify retail payments and to facilitate inter-operability of mobile payment systems based on the Reserve Bank of India Mobile Payment Guidelines Finally, IMPS is seen as the backbone on which the future of a full range of Indian mobile banking services will be established. IPMS was initially developed with a requirement that users establish a mobile money identifier (MMID) in order to eliminate the need for sharing bank account information (alternative identifiers), however, the system now supports both MMIDs and account-based transactions. Over 58 million MMID s have been issued for IMPS. The Polish national clearing house, Krajowa Izba Rozliczeniowa S.A. (KIR), introduced Express ELIXIR as the Polish version of Flavours of Fast in June Express ELIXIR supports only individual credit transfers, which are processed separately from the batch payment system also operated by the KIR. Uptake of Express ELIXIR has been disappointing both in terms of bank participation (only 8 of the 49 banks that participate in traditional retail clearing systems are offering fast payments) and in terms of volumes. Without a central bank mandate, the majority of Polish banks have not been able to make the business case to offer Express ELIXIR payment services. Future plans for layering additional services on the system include the use of alternative identifiers to allow for greater convenience of mobile payments, integration with a planned national P2P mobile service and the possible addition of direct debits. The Indian IMPS has shown a high level of innovation since its introduction, despite its low FPI score, which is a direct result of the absence of ISO standards. With as much as 40% of India s total population of 1.2 billion being unbanked, providing universal access to basic payment services is a critical function for the future health of the banking industry

20 Payments in Real Time Live November 2012 Sweden Operated by: Bankgirot (owned by 7 banks) Official website: aspx Government Involvement: System developed in co-operation with Central Bank Annual volumes/value: 500,000 active users/1 billion SEK in first year Speed of posting to accounts: Near real-time (within 15 seconds) Speed of settlement: Multiple deferred central bank settlements per day Maximum value: NA Individual or batch payments: Individual Operating hours: 24x7x365 Payment applications: P2P, mobile payments (Swish) 3 peppers Bankgirot, an association owned by 7 banks operating in Sweden, developed the BIR fast payment solution in The key drivers for the development of the Swedish flavour of fast included the perceived need to adopt ISO20022 as a standard for SEPA and non-sepa European payments, the competitive threat from non-bank payment providers and the demand from consumers for added value in payment services. The initial focus on BIR is as the backbone for clearing and settlement for the mobile P2P payment initiative of the Swedish banks, called Swish. Longer term, BIR is expected to support other payment applications including ecommerce, payments between consumers and companies, and inter-bank transactions Nouvelle Flavours of Fast In 2014, we have already seen the successful implementation of one new fast payment system, Singapore s FAST, which went into production on a limited basis in March. With a major focus on consumer education and a highly level of financial sophistication among the Singaporean population, adoption has already exceeded expectations. Geographically distant but with a similarly sophisticated population, Denmark is establishing a new fast payment system to be available to consumers by the end of Nets, the operator of many of the existing Nordic electronic payment schemes, is introducing a system called Nets Real-Time 24x7 that will offer similar benefits to the other systems profiled here

21 Denmark Nets Real-time 24x7 Live by year end 2014 Singapore Fast and Secure Transfers - FAST Live March 17, 2014 Operated by: NETS Official website: Not available Government Involvement: In response to government mandate. Central bank settlement and oversight Average daily volumes/value: NA Speed of posting to accounts: Near real-time (1-10 seconds) Speed of settlement: Net, intraday settlement Maximum value: kr. 500,000 Individual or batch payments: Individual Operating hours: 24x7 Payment applications: TBA No rating since the system is not in production On behalf of the Danish banking sector, NETS is working on the implementation of a fast payment system as the final part of an on-going modernisation of the Danish payments infrastructure, including more frequent intraday settlement between banks. The new system is based on ISO Operated by: Banking Computer Services (BCS) on behalf of The Singapore Clearing House Association (SCA) Official website: Government Involvement: Central bank operation and settlement Average daily volumes/value: Too soon to publish Speed of posting to accounts: Near real-time (seconds) Speed of settlement: Deferred settlement twice a day, with intention of increasing the number of cycles as the scheme matures Maximum value: S$10,000 Individual or batch payments: Individual Operating hours: 24x7x365 Payment applications: Bill payment, P2P, B2B, Merchant payments, mobile 2 peppers: Preliminary rating, currently limited access On March 19, 2014, the Association of Banks in Singapore (ABS) announced the launch of the Fast and Secure Transfers (FAST) payment system. This system (previously referred to as G3 Immediate Payments) is only one of the outcomes of the Singapore government s overall payments improvement initiative, which will eventually include replacement of the legacy batch payment system. Fourteen of the 145 members of the Association are participating in the initial rollout of FAST but these banks represent the majority of existing electronic payments volume in Singapore. ABS is heavily promoting the new system to the financially savvy Singaporean population with a video that emphasises speed and always available nature of the system showing use cases of payments being initiated using different devices and for different purposes. Unlike many other flavours of fast, the Singapore version allows consumers and businesses to move funds not only between demand accounts (checking and savings) but also to credit and debit card accounts where allowed by the specific bank. 40 Given that it is very early days for Singapore s fast payments system, it is difficult to make an assessment of the potential impact on the banking system and on consumer and business payment practices. Nevertheless, the system shows great promise assuming that it does become universally available with more bank participation. Even with its first two days of processing announced in the media release on March 19, the FAST system cleared more daily transactions than the Polish Express ELIXIR system, which has been available since

22 Australia New Payments Platform The project to implement fast payments in Australia was spawned by the activities and priorities of the Reserve Bank of Australia (Central Bank), which published its strategic review of the need for innovation in the Australian payments environment in In response, the banking industry, through the Australian Payments Clearing Association (APCA), submitted a proposal to the RBA in February 2013, which led to the initiative now called the New Payments Platform (NPP). The mission of the NPP is to provide Australian businesses and consumers with a fast, versatile, data-rich payments system. The industry s approach consists of the development of a resilient, efficient infrastructure that enables innovation at the edge and provides a low-risk method to provisioning the service with the ability for functionality to grow, as business needs dictate. This approach is layered, beginning with the establishment of a basic infrastructure to connect all of the participating banks; to establish a link to the RBA for settlement; to create a new, flexible and fast payments messaging system (based on ISO20022) and to support innovation through the development of multiple overlay services that can be tailored to specific payment needs over time. Participation in payment overlay services will be optional by bank, leaving decisions about specific payment offerings to be driven by the market. The first overlay service will be the Initial Convenience Service to be focused on consumer payments, especially using the mobile channel. In addition, an alternate identification service has been proposed that would allow payments to be initiated without the receiver being required to share bank account information with the originator. 42 Still Working on the Recipe Several countries are in the process of evaluating substantial changes to their domestic payment systems that would result in the availability of fast payments, among other enhancements. These countries are at different stages with Australia being the further along, having already made the commitment to implement a new payments infrastructure that will enable fast payments by The United States, led by the Federal Reserve System, is studying the possible requirements, benefits and costs of implementing a fast payment system over the next decade. As detailed later in this paper, the US is far from a consensus point of view on this topic. Canada, whose Task Force for the Payment System Review recommended major changes to the payments environment in 2012, continues to examine a number of aspects of the payment system, including governance, oversight and system attributes, such as remittance data and speed of payments. The Canadian Payments Association has made a commitment to incorporate ISO20022 standards and is beginning to consider the redevelopment of its clearing and settlement framework (including rules, standards and technology) to meet the needs of payment system users in the future. The NPP work programme includes participation of 17 Australian and international banks and PayPal. KPMG has been appointed as the Programme Manager and has already begun the sourcing, planning and mobilisation activities for the basic infrastructure layer and the initial convenience service. KPMG is also co-ordinating with the RBA to link into its development of a new, fast settlement service, which is being designed to support fast settlement of individual payments in central bank funds. Development of the NPP is rapidly progressing with the vendor selection process for both the basic infrastructure and the initial convenience overlay components being kicked off in the first quarter of Based on the APCA s goals and planned design of the NPP, Australia s flavours of fast would rate very highly in the FPI index, almost certainly receiving 5 peppers once the various service overlays are established. There are a number of implications of the approach being taken that have applicability not only to the participants directly affected in Australia but to their counterparts in other countries that may look to Australia as a model for establishing a new infrastructure for fast payments. Questions that bankers should be considering include: How will banks manage the complexity of offering new services built on the NPP infrastructure at the same time that they are managing existing legacy payment services? How do participants (both banks and infrastructure providers) protect existing revenue streams? Will banks continue to offer extended, value added services that help to supplement the limitations of legacy payment systems? For example, existing bank systems typically offer limited remittance information due to restrictions in legacy clearing systems. Extending this information to support supply chain details will require enhancements within the bank and in its interfaces with corporate customers. Does the opportunity to develop new overlay payment services make the Australian payment environment more attractive to players that had previously not been interested such as small local players and large international institutions? What does this mean for the large incumbent banks that have a lion s share of the payments market today? The business rules regarding settlement to receiver accounts are being left to individual banks rather than being mandated. Until now, the least capable participant has stifled industry payment initiatives. However under NPP, is the industry is more likely to be led by the most capable player? 43

23 44 John Murphy John Murphy, Executive General Manager, Everyday Banking & Payments National Australia Bank NAB and NPP: an opportunity for innovation With the winding down of the Mambo project in Australia the appetite for innovation certainly did not dissipate and now three years later the Australian banking industry is reuniting around the New Payments Platform (NPP). Almost immediately the Reserve Bank kicked off a public innovation review and in January 2013 the Payments System Board approved the NPP proposal which had been developed by members of the banking industry in response to the Innovation Review findings. A collaborative effort would wean the Australian payments industry off legacy systems with a restricted payments capability and create an environment for innovative immediate payments products into 2016 and beyond, opening up the market for more competition in the process. The more competition NPP engenders, the better it will be The industry response was clear, states John Murphy, we want to have an immediate payments utility that all participants can offer new commercial services through. For businesses and consumers this can only be good news as we are likely to see a lot more innovation, from both traditional and non-traditional players. Consumers and business customers are ready to embrace this as in every walk of their digital lives they have become used to instant, insight and experience. The NPP, Murphy explains should really be viewed as a utility like the telecoms network that we all use. On top of that, services need to be developed. The Reserve Bank of Australia has a fixed go live date of 2016 at which point there will be one immediate payments overlay service launched as part of the industry project. At the moment the industry is deciding what this service should entail exactly through the NPP Steering Committee, who are reviewing the current bidders for the initial overlay service, which in reality will be an immediate P2P type of service. The success will depend on early adoption and critical mass so appropriate payments will be pushed through the system and there is a strong commitment in the industry and most definitively at NAB to make this a success from day one. Fast, faster, immediate Fast is relative, when is fast necessary and is fast always immediate or instantaneous and who determines how fast NPP payments should be? In Australia the industry, voiced through the Payment Systems Board, felt it was not ideal that the regulator should mandate at what speed an account should be credited. Market forces should decide, receiving banks should determine this. Message posting should be real-time but the account posting/crediting of money should be left to competitive forces. My personal view is that I am yet to be convinced of the demand for instant crediting of accounts for consumers at all times. Business customers need certainty of payment, which is different to the actual crediting of the bank account. Clearly next day or 48 hours is no longer appropriate, but intraday might often be sufficient for consumers. If there is sufficient demand for instantaneous payments for consumers we will look at this but we also need to protect our customers and moving to real-time payments in digital seconds will come at significant additional cost to enable the likes of fraud checking. Having said that, at particular incidents of hardship, like the floods we had in Queensland, there are moments in time when people need money instantaneously but for the whole industry to move to instantaneous, comes at a price. Australia s view is very balanced in that this is initially left to the competitive market forces and market demand will tell the tale. Industry collaboration at the core At NAB we see NPP more than anything as an opportunity to innovate, there is an element of compliance, but I would never refer to it that way, continues Murphy as we enquire after the innovation plans at NAB. As one of founding members of the industry group that designed the NPP concept, we see it more as industry collaboration and we all acknowledge that the industry has an obligation and an opportunity to co-operate to build the next generation of payments services. We are looking at real-time payments initiatives across the group to benefit from this initiative. We are a bank with a market leading presence in the business banking market, and we feel that in particular the business customers from small to corporate will benefit significantly from innovation. Think of the insight and ease of use we can offer them through data enrichment around payments, the efficiency we can offer through simplification. The SME segment will most likely benefit at first from meaningful remittance data and enhanced payment flows which will offer better cash flow. Looking at the larger corporates the benefits become even more evident for they often have large numbers of people in the back office employed in reconciling payments. Greater use of data and richer data with more relevant information around payments and their flows will make a step change in straight through processing. I expect business customers will benefit significantly over time, even more so than consumers, on whom so much public and innovation focus lies. NAB NextGen In NAB s far-reaching NextGen program, the bank is also revolutionising the way it serves its customers as well as its processes. Ultimately, NextGen is enabling simplification in response to growth in digital banking and the demand for integrated customer experiences. To date it has delivered securitisation, a new general ledger, funds transfer pricing and our core banking foundation, Murphy says. In March this year we installed the Direct Banking Release, a major milestone in our progress towards bringing NextGen into the core NAB franchise for origination and the servicing of personal banking products. I think over time business customers will be the big winners Looking at other initiatives in the world Murphy realises that Australia is not a front runner; Chile, the UK and some others lead the way. I would really like to learn from them how they generated the customer traction, and where the real benefit has demonstrated itself for consumers and business customers. What percentage of customer of the overall base moved to Immediate, where is the real innovation? What other countries could learn from Australia might have to do with the process. From a central bank led review, the NPP quickly evolved as industry led initiative: a clear foundation and blue print and then ample space for the market players. We eagerly embraced this approach; we wanted it to be industry led, not regulator led. The public policy published by the Reserve Bank was widely accepted based on the argument that the underlying principle is building a joint noncompetitive utility that should be accessible for all, low in cost of build and running, thin in terms of technology with a limited scope to receive and acknowledge messages. All the competitive elements should be left to industry participants. We feel that this stands a better chance than a centrally led approach; as an industry I feel that we are very committed, with the commercial elements very appropriately being at the discretion of the individual participants. The more competition this engenders the better. I hope that ultimately we will see something emerge in terms of innovation that we have not even thought of today. The game changing element, that is what I am hoping and looking for. 45

24 United States Public Consultation According to the feedback summary, three quarters of the respondents agreed that universal access (ubiquity); confirmation of good funds and speedy payment settlement and delivery of information would be important attributes. Beyond those three items, there is much difference of opinion. Simultaneously, the Fed conducted consumer and business surveys to better understand the preferences of end users of payment services. Of interest here were the results on the topic of fast payments: The existing retail payment systems in the US support next day posting and settlement at the earliest. Efforts to establish a universal same day ACH capability (still not fast according to our definition) have stalled due to opposition by enough banks to block progress, although a new proposal to support a gradual implementation of same day ACH was announced by the National Automated Clearing House Association (NACHA) in March of If NACHA s proposal is adopted, one possible, eventual outcome could be the evolution of a fast batch payment system in which payments are processed and acknowledged with real-time messaging with delayed settlement. There are many hurdles (and years) before such a development would occur and this may still not meet Clear2Pay s definition of a fast payment system. In September of 2013, the Federal Reserve Bank System issued a consultation paper identifying gaps and opportunities in the current US payments environment, outlining a set of desired outcomes to close those gaps over a ten-year period and requesting stakeholder input. The analysis identified a far-reaching set of 8 gaps and opportunities. One of these eight is the absence of a fast payment system, like the ones described in this paper. Others include reducing the continued reliance on cheques, mobility, security, cross-border payment inefficiencies and the challenges of automation and STP for corporate payments. What seems to be missing from the Fed s paper is recognition that establishing a fast payment system provides an opportunity to solve many if not all of the other seven gaps. The paper resulted in almost 200 responses from banks, merchants and businesses, trade associations, technology providers, consultants, academics and others, including Clear2Pay. According to the Fed s own Industry Feedback Summary, approximately three quarters of the respondents agreed with the gaps, opportunities and desired outcomes in the paper. Nevertheless, there were significant areas of disagreement on the future role of the Fed in payment system improvements, the timeline for improving the payment system and many other specific recommendations. In regards to fast payments, the Fed s desired outcome is as follows: A ubiquitous electronic solution(s) for making retail payments exists that does not require the sender to know the bank account number of the recipient. Confirmation of good funds will be made at the initiation of the payment. The sender and receiver will receive timely notification that the payment has been made. Funds will be debited from the payer and made available in near real-time to the payee. Payment Speed When presented with a choice between payment speeds of either: instant - one hour - 12 hours hours business days Consumer Payers 69% Business Payers 75% 69% of consumer payers and 75% of business payees prefer instant or one-hour payment speed Source: Research Results Summary on End-User Demand for Select Payment Attributes, March 2014, Federal Reserve Financial Services Clear2Pay s view was expressed in its response to the consultation paper and reflects our experience with supporting the development and implementation of flavours of fast in many different countries. Clear2Pay s published guidance to the Fed: Innovate versus optimise existing practices Market forces for fast payments are inevitable In most of the world, fast funds availability is more important than data privacy Building a new payment system is highly preferable to enhancing existing ones Disintermediation by alternative providers more likely without a fast payment system The next steps in the US include a follow up paper to be delivered by the Fed later in 2014 that will outline the priorities for payment system improvements based on the industry feedback. It is difficult to predict how quickly the Fed will move and whether it will take the lead in mandating a solution or allow the highly fragmented banking industry to develop a solution on its own. One thing is certain: the US banking sector cannot afford to wait ten years to implement a fast payment solution

25 Fast Payment Innovation Index - a global view Payments in Real Time Sweden Nets Real-time 24x7 Denmark UK Faster Payments United Kingdom Express ELIXIR Poland Public Consultation United States Swiss Interbank Clearing SIC Switzerland Electronic Banking HOFINET Republic of Korea Zengin System Japan Interbank Banking Payment System IBPS China Sistema de pagos electronicos interbancarios SPEI Mexico Immediate Payment Service IMPS India Funds Transfer System SITRAF Brazil Fast and Secure Transfers FAST Singapore Transferencias en Línea TEF Chile Real-Time Clearing RTC South Africa New Payments Platform NPP Australia 48 Scoring: 5 Meets all features 4 Meets all highly desired and one or more optional 3 Meets most highly desired and optional 2 Meet some highly desired or optional 1 Meets required features only 49

26 Mark Hartley, Chief Innovation Officer at Clear2Pay comments, It is also important to acknowledge that we are rapidly moving to an environment in which these commercial transactions can be settled with more than just the currency residing in a bank account: consumers and even small businesses use other forms of digital value (loyalty points, coupons, maybe even digital currencies). In general, banks have allowed others to take the lead in the rapidly evolving digital commerce arena. As such, banks that are or will be offering fast payment services need to offer overlay services focused on at least three problems: making the initiation and receipt of non-automated payments easier and less expensive facilitation of the entire transaction value chain helping the end customer to make purchasing, delivery and financing decisions enhancing payment information flows to make it easier for customers to efficiently reconcile their financial accounts, easily retrieve historical activity and conduct trend analysis to better inform budgeting and forecasting. Payment Innovation in Practice: Where s the beef? In order to retain the payments franchise, it isn t enough to just take legacy payment processes and make them faster. Simply responding to a government mandate to move payments faster than they moved before isn t sufficient. In order to compete effectively against new market entrants and maximise the return on the investment to support the introduction of new domestic payment systems, banks must offer customers (both consumers and businesses) innovative payment services. Innovation isn t limited to supporting new devices or channels for payments that are already initiated electronically: in fact, with proper design, this should be the easiest aspect of payment innovation. How do we meet the current and future payment needs of prospective customers? The unbanked? Gen Y? Gen X? Mark Hartley, Clear2Pay The individuals responsible for payments strategy at every bank in every country where fast payment services are or will be available need to ask themselves: What are the challenges that our existing customers have in making and receiving payments and in managing payments information? How can we leverage our fast payment system in order to solve those problems? How will fraudsters attempt to take advantage of the specific characteristics of the fast payment system? What kind of dispute management capabilities do we need in order to handle transactions that are either erroneous or fraudulent, in spite of the irrevocable nature of fast payments? But the questions don t stop there. Perhaps even more important, is this one: How do we meet the current and future payment needs of prospective customers? The unbanked? Gen Y? Gen X? It bears reminding that every payment is a small component of a larger (usually, but not always commercial) transaction. Customers view the payments they initiate as belonging to them, not to the banks on which they depend to deliver funds to the intended receiver. They view the payment as a small but critical link in a much larger chain of activities that neither begins nor ends with a bank. With an eye toward innovation, banks have tremendous opportunities to facilitate more links in the chain rather than be relegated to the final one or be disintermediated altogether

27 We don t have all of the answers. As a leading provider of payment software globally, we understand that implementing a new payment system is no minor task. Entering into the brave new world of fast payments has a substantial and sometimes unanticipated impact on banks. In Clear2Pay s experience, there are three major areas that banks connecting to a fast payment system for the first time tend to underestimate: The challenge of internal integration with legacy systems, that tend to be batch oriented and not designed to handle a continuous flow of messages and responses, 24x7x365. The needs for changes to the bank s infrastructure to support payment processing within seconds on a reliable basis, including staffing, hardware and services designed to ensure high availability. An entirely new paradigm of multi-channel customer experience that is required to manage the end-to-end initiation and confirmation of payments within seconds, including the potential for payment rejection when the bank on the receiving end is unable to validate and confirm. These items require a whole new mind set for the bank payment staff that are responsible for designing, developing, implementing, maintaining and providing customer service. The specific local requirements may differ, but in general you will need a payments platform that can do the following: Conduct fraud and anti-money laundering checks in real-time Make sophisticated routing decisions Automate the exception management process Ensure scalability and reliability in a world where 24x7 connectivity is required Manage new models for interbank liquidity and settlement Adapt to a constantly changing landscape of regulatory changes and market demands Added to the challenge is the fact that fast payments do not exist in a vacuum. Banks, payment system operators, and regulators must manage fast payment operations and technology while simultaneously maintaining most if not all of their legacy payment systems, slow and real-time. Changes to the legacy payment systems will continue to take place as regulations and market forces demand. Most organisations have found that implementing fast payments on a legacy payment platform is cost-prohibitive, if not impossible. It is imperative, then, that banks look at implementing a flexible, open payment platform that supports all of the mandatory requirements for fast payment but also a system that will enable the overlay services that will make the difference between competitive success and failure. Sources In addition to the websites referenced in each country profile, the following sources were used in the development of this paper: GENERAL/MULTIPLE COUNTRIES How Fast do Payments Need to Be, April 2013, NACHA Payments Conference, presented by Clear2Pay and VocaLink From Same Day Payments to Same Hour Payments the Need for Speed, Undated, In Conversation with Gareth Lodge, Celent and Neil Burton, Earthport Faster Payments: Models & Retail Payments Innovation, April 2013, NACHA Payments Conference, presented by Glenbrook Partners, BCG, KIR, VocaLink, Banco de Mexico Faster than a Speeding Payment: How Real-Time is Changing the Game, April 2013, NACHA Payments Conference, presented by Lipis & Lipis What will the role of bank accounts be as Payments evolve, October 2013, Global Payments Forum Whitepaper developed with Lipis & Lipis Payments Transformation Real Time Payments, 2012, Accenture/Vocalink The Emergence of Real Time Payments: A Global Comparison, August 2013, Bobsguide blog by Imran Ali, Citi Innovations in Real Time Payments: Report of the Working Group on Innovations in Retail Payments, May 2012, Bank for International Settlements The Emergence of Immediate Funds Transfer as a general-purpose means of payment, 3rd Quarter 2011 Economic Perspectives, Volume 35, Federal Reserve Bank of Chicago Payment, Clearing and Settlement Systems in CPSS Countries, Volumes 1 and 2, 2011, Bank for International Settlements BRAZIL Brazilian Payment System, May 2010, Presentation at ISO TC-68 by Camara Interbancaria de Pagamentos Report on the Brazilian Retail Payment System, May 2005, Banco Central do Brasil, Payment, Clearing and Settlement Systems in Brazil (Red Book), 2011, Bank for International Settlements CHINA China Payment System Development Report 2012, Payment and Settlement Department of People s Republic of China DENMARK Faster Payments in Denmark, Monetary Review 3rd Quarter 2012 Part 1, Dansmark Nationalbank Report on New Payment Solutions, March 2014, Danish Payments Council INDIA Immediate Payments Service (IMPS) presented at Mobile Payments & NFC Asia 2011, National Payments Corporation of India JAPAN Zengin System: The Zengin Data Telecommunication System, March 2012, Japanese Banks Payment Clearing Network Payment and Settlement Systems Report , November 2013, Bank of Japan KOREA Payment and Settlement Systems Report 2012, March 2013, The Bank of Korea MEXICO SPEI: The Real Time Funds Transfer System in Mexico, September 2011, presented at Symposium on Immediate Funds Transfer for General-Purpose Payments, Federal Reserve Bank of Chicago, SINGAPORE Fast and Secure Transfers (FAST) FAQ, March 2014, The Association of Banks in Singapore Fast and Secure Transfers (FAST) Fact Sheet, 20 March 2014, The Association of Banks in Singapore SOUTH AFRICA Payments Association of South Africa (PASA) Annual Report 2012 SWEDEN Bankgirot 2012 Annual Report, Bankgirot SWITZERLAND Swiss Interbank Clearing (SIC) Monthly Statistical Bulletin, February 2014 The Swiss Interbank Clearing (SIC) Payment System, February 2009, Swiss National Bank 52 UNITED STATES Payment System Improvement Public Consultation Paper, September 2013, The Federal Reserve Banks Research Results Summary on End-User Demand for Select Payment Attributes, March 2014, Federal Reserve Financial Services Payment System Improvement Public Consultation Paper: Industry Feedback Summary, March 2014, Federal Reserve Financial Services Payment System Improvements Initiative, April 2014, NACHA Payments Conference, presented by Federal Reserve Banks 53

28 About Clear2Pay Clear2Pay is a payments modernisation company that actively supports many global financial institutions to meet their payments unification goals through its pure SOA Open Payment Framework (OPF). Headquartered in Brussels, Belgium, the company facilitates banks and financial organisations in their provision of payments services, whether they be Card, ACH, Branch, Bulk, High Care or International payment transactions. Clear2Pay s innovative technology helps to reduce transactions processing costs, and to deliver new, compelling payment services in a competitive way. Functions embrace payments origination, reporting, linkage with back-office processing systems, clearing, netting and settlement. In addition the company offers a range of value added payment technology solutions and services such as e-banking, Open Test Solutions, ChargeBack, Strategic Consultancy and Payments Training through a dedicated Academy. Clients include global and major regional financial institutions such as ING, Banco Santander, Crédit Agricole, BNP Paribas, The Federal Reserve, RBS, Commerzbank, The People s Bank of China (PBOC), Bank of East Asia, Rabobank, Bank of New York Mellon and Commonwealth Bank. Clear2Pay operates out of Belgium (HQ) and another 23 offices in 15 countries. The company currently employs over 1200 staff. The company was awarded the XCelent Customer Base 2010 award for its undisputed largest payment hub customer base, both live and under implementation and ranks 75th in the Global FinTech list. For more information, please visit : Clear2Pay NV and/or its affiliates. All Rights Reserved. Restricted Rights Legend. This document is protected by intellectual property rights (including copyright). No part of this document may be copied, modified, disclosed, distributed or reproduced in any form by any means without prior written authorisation of the relevant Clear2Pay group entity. All product names, company names, trade names and trademarks mentioned in this document remain the exclusive property of their respective owners. Contact: [email protected] Disclaimer 54 Acknowledgements The development of this paper benefited significantly from the input and support provided by our clients, industry analysts and payments industry experts including: John Murphy, National Australia Bank Simon Cox, Independent payments expert Luis Feldman, Centro de Compensacion Automatizado (CCA) Tino Kam, Royal Bank of Scotland Vanessa Manning, Royal Bank of Scotland Gareth Lodge, Celent This document is provided for informational purposes only. The information contained herein is general in nature and is not intended, and should not be construed, as professional advice provided to the recipient. The views and opinions expressed in this document are solely those of the contributing authors, in their individual capacities. They do not necessarily reflect any third party s views, they do not imply any endorsements, and should not be taken to constitute an official statement or position by Clear2Pay NV or its affiliates. This document does not purport to be, and should not be construed as presenting, a complete statement of all relevant approaches or steps necessary for a business to accomplish any particular business goal, which approaches and steps may vary depending on individual factors and circumstances. This document is not a recommendation of any particular approach and should not be relied upon to address or solve any particular matter. This document does not claim to be comprehensive or fit for purpose. In all cases, the recipient should conduct its own assessment and analysis of the information set forth in this document, and any other information it deems relevant. Clear2Pay NV, its affiliates, and the authors and contributors to this document do not make, and expressly disclaim, any representation or warranty, including representations and warranties as to the accuracy or completeness of this document, fitness for a particular purpose, or non-infringement. This document is provided as is, and Clear2Pay NV, its affiliates, and the authors and contributors to this document shall have no liability in respect of the content of this document, for any warranty or representations (express or implied) contained herein, for any omissions from this document, or otherwise. This document may contain technical inaccuracies or typographical errors. The English version of this document is the original text. In the event translations into languages other than English are made available by or on behalf of Clear2Pay NV (or its affiliates), these are provided for convenience only, and the English text shall prevail in case of any conflict or discrepancy. Clear2Pay NV and its affiliates disclaim all responsibility and liability for any translation inaccuracies, and the IPR notice, disclaimer and reservations specified above shall equally apply to any such translations.

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