Exec Summary

Most jurisdictions share a common interest in pursuing the public policy objectives of safety, efficiency and meeting the needs of users for national payment clearing and settlement systems.

However, the weight each jurisdiction applies to each public policy objective may differ, according to the jurisdiction’s priorities or payment system agenda. In addition, every jurisdiction has its own legacy systems and processes, which may serve to either magnify or blunt the force of drivers of payment system change.

As a result, few jurisdictions have taken the exact same approach in renewing their core payment systems.

As Canada continues to engage in a dialogue to develop the approach to modernize its core payment systems, we set out to better understand the options and approaches taken in other jurisdictions. Our primary objective is to provide stakeholders, who are familiar with payment clearing and settlement processes, with a common understanding of key core payment system design considerations.

To that end, payment systems were analyzed in 27 jurisdictions, where we find the following:

• Most have added (or are in the process of adding) a new real-time retail system.
• All jurisdictions have a batch retail payment system, and most use centralized architecture. Automated clearing house (ACH) systems are the most common. Jurisdictions that maintain a batch retail payment system without centralized architecture have built additional core retail systems to provide for faster processing and enhanced functionality (e.g., real-time retail payment systems or separate systems for bill payments).
• The vast majority of jurisdictions have made major upgrades to their large-value payment systems (LVPS) in the past 10 years, keeping LVPS at the centre of core payment systems. Most LVPS have been redesigned to include liquidity-savings mechanisms (LSM), with technology to facilitate advanced liquidity management and faster retail payment system settlement.

Looking across the different payment system attributes of access, functionality, interoperability, timeliness of payments and risk management, the most prominent trends observed are the following:

1. Access: Jurisdictions are opening up their core payment systems to greater numbers of direct participants. The increasing numbers of direct participants have coincided with jurisdictions upgrading core payment system technology to enable risk-reduction processes and controls.
2. Functionality: Payment operators are leveraging centralized architecture to implement advanced system capabilities to provide monitoring and efficiency-boosting tools (e.g., liquidity management tools) for participants and value-added services for end-users.
3. Interoperability: Payment systems are expanding their degree of interoperability (automation), mostly between core infrastructure and other domestic payment systems and, in some cases, cross-border systems.
4. Timeliness: Most jurisdictions have introduced (or are developing) separate retail payment systems for direct credit transactions that provide funds access in real or near real time.4 Depending on the features of the batch retail system, real-time systems can gain wider usage by being designed to serve either business or consumer payments.
5. Risk management: Most jurisdictions are making payment system changes to reduce credit risk exposures, such as through more frequent retail payment system settlement and expanding LVPS processing capabilities.

The vast majority of jurisdictions have upgraded more than one core payment system. In the jurisdictions that have made technological advancements to more than one core payment system (e.g., a real-time system and batch retail system, or to a retail system and a wholesale system) the result has been highly interoperable, yet distinct, core systems that are complementary in meeting public policy objectives. Here we observe four distinct core payment system configurations emerging:

• Enhanced large-value payment systems (LVPS) that can process large volumes of retail payments. LVPS are operated alongside batch retail systems with centralized architecture (e.g., an ACH). In this configuration, the LVPS provides safety and speed, and the batch system provides enhanced functionality and services for end-users.
• ACH systems supplemented with new real-time (or near real-time) retail payment systems. The ACH provides liquidity cost efficiencies and offers rich services for participants and end-users, but with a delay in the availability of funds for payees. The real-time retail payment system provides end-users with an option for faster funds availability where needed.
• Settlement before exchange (SBE) batch retail systems supplemented by new real-time retail payment systems. The SBE systems use an integrated retail and settlement system process that minimizes credit risk, while offering the potential to also improve batch item timeliness and functionality. The real-time systems provide participants and end-users more timely payment options.
• Decentralized batch retail payment systems supplemented by additional core payment systems with centralized architecture to offer more feature-rich and timely payment options.

Conclusion

In sum, most jurisdictions surveyed have made changes to improve (or are in the process of improving) their core payments systems. As the trends provided above suggest, there are multiple approaches to consider in core payment system modernization.

As each jurisdiction considers their course, they need to determine their specific modernization objectives, based upon how they weigh their public policy objectives, their drivers and needs, and the gaps resulting from their legacy systems.

A solid understanding of the modernization objectives, articulated from a country’s unique set of circumstances can form the foundation for a holistic, multi-system plan to modernize core payment systems.

The post Clearing and settlement systems from around the world: A qualitative analysis appeared first on Accourt Payments Specialists.

Expansion in the use of mobile payments over time has corresponded with an increase in smartphone ownership. In 2011, 44% of mobile phones were smartphones. By 2015, the share had increased to 76%.

This chartbook presents findings from a nationally representative telephone survey, undertaken by The Pew Charitable Trusts, that examined consumers’ opinions, experiences, and expectations of mobile payments. The survey followed focus groups that Pew previously convened as a first step in understanding consumers’ views on the potential benefits and risks of mobile payments. Specifically, this chartbook reports statistics on consumers’ awareness and perceptions of mobile payments technology, their usage and motives for use, and any barriers to usage. The key findings are:

• Mobile payments users – consumers who have made an online or POS purchase, paid a bill, or sent or received money using a Web browser, text message, or app on a smartphone – are more likely than nonusers to be millennials or Generation Xers, live in metropolitan areas, and have bank accounts and college or postgraduate degrees. Of these demographic categories, age is the most predictive of mobile payments use, particularly as it relates to smartphone ownership. (See the appendix for the demographics of mobile payments users and nonusers.)
• Making a purchase through a smartphone Web browser or downloaded app is the most common mobile payments activity.
• Consumers see a number of benefits to using mobile payments, particularly receiving alerts, electronic receipts, rewards, discounts, and help with budgeting.
• Consumers often don’t know how mobile payments compare with other payment methods in terms of convenience, cost, privacy, and security.
• Barriers to usage include concerns about the safety of mobile payments technology, which might result in identity theft or the loss of funds, and poor compatibility with cash-based transactions.
• Consumers want the data they generate by use of mobile payments to be secure and protected and access to it to be limited across entities, from phone carriers to app developers and advertisers.

The charts that follow delve into these findings and highlight the advantages that consumers associate with mobile payments usage and the barriers that may prevent people from adopting or safely using this technology.

Many consumers, including a large number who have never made a mobile payment, have heard of different mobile payment activities, such as using a smartphone to make online or point-of-sale purchases or pay bills.

Mobile payments users are consumers who have made an online or point-of-sale purchase, paid a bill, or sent or received money using a Web browser, text message, or app on a smartphone. Users are more likely than nonusers to be millennials or Generation Xers, live in metropolitan areas, and have bank accounts and college or postgraduate degrees. Of these demographic categories, age is the most predictive of mobile payments use, particularly as it relates to smartphone ownership.

Getting a smartphone is the most common catalyst cited for adoption of mobile payments technology, and millennials and Gen Xers are far more likely than those from older generations to own smartphones. The majority of basic phone owners (77%) say they are unlikely to buy a smartphone in the next year, meaning the age gap in smartphone ownership will probably persist. Smartphone ownership also varies dramatically by annual household income. Only 53% of consumers earning less than $25,000 annually own a smartphone compared with 81% of those earning $50,000 or more annually.

Mobile payments use varies by type of activity and with age, with more millennials having used their smartphones to make a purchase through a smartphone Web browser or downloaded app than to send or receive funds. Overall, few consumers make payments or donations by sending text messages. PayPal’s smartphone app is the most commonly used, ahead of Google Wallet, Apple Pay, and the Starbucks and Dunkin’ Donuts apps, and millennial and Gen X smartphone owners are more likely than those from the baby-boom or silent generations to have used these apps, except for Dunkin’ Donuts.

Millennials and Gen Xers in particular are motivated to use mobile payments in part because they like receiving rewards, discounts, alerts, and electronic receipts. Consumers are also interested in avoiding fees, such as overdraft or check cashing fees, and using their smartphones to help them budget. In fact, research shows that consumers are using smartphones to help with budgeting more than in previous years.

Consumers cite a variety of barriers to mobile payments use; the most common is concern about safety, specifically the risk of identity theft or loss of funds. Some obstacles vary by generation, with older consumers being less informed about the benefits of mobile payments and millennials being especially concerned about running out of data on their phone plans. The use of cash to make payments is cited across generations as a barrier, because cash cannot be easily loaded onto a smartphone. Cash is still a very common payment method, and consumers average about 8.5 retail cash purchases a month.

Nearly half of respondents say they don’t know whether mobile payments are faster, easier, or more private than other transaction types, and even more do not know if mobile payments are more common, cheaper, or safer. Reducing this uncertainty, especially about the safety of the technology, could increase use.

Mobile payments use is related to more favourable perceptions of the technology in terms of convenience, cost, privacy, and security. Users agree more often than nonusers that mobile payments are faster, easier, more common, cheaper, more private, and safer than other payment methods.

Consumers often assume that financial institutions, retailers, and others are collecting information about them, including tracking their locations when they execute financial transactions. In the focus groups, a number of consumers expressed moderate discomfort with the sharing of their personal information. About 8 in 10 survey respondents, with general consistency across political parties, say that steps should be taken to regulate how data are collected, stored, and used.

In focus groups, participants were generally unaware of which personal data are collected when they conduct mobile transactions or how those data are used. They also did not know whether or to what extent their privacy is compromised. When asked specifically who they think should have access to these data, only about half of respondents say that the payment sender should have access, and far fewer (5%) agree that advertisers should have access.

Conclusion

Age explains some but not all attitudes about mobile payments. About 90% of millennials and 83% of Gen Xers own smartphones, and individuals in these generations constitute the majority (72%) of mobile payments users. They are especially compelled by the option to receive rewards, discounts, alerts, electronic receipts, and help with budgeting and to avoid fees and are the most likely age groups to say mobile payments are faster and easier than other payment methods.

Across generations, concern about the safety of mobile payments technology is the biggest obstacle to use. Specifically, consumers are concerned about the potential for identity theft or loss of funds. Consumers of all ages cite the use of cash as a payment method as a barrier, because cash cannot be easily loaded onto a smartphone. And customers often don’t know how mobile payments compare with other payment methods in terms of convenience, cost, privacy, and security.

The growing mobile payments market has the potential to provide a convenient, affordable way for Americans to transact and manage their money. Yet concerns and uncertainty about the safety of mobile transactions and the lack of systems for depositing cash directly onto mobile websites and smartphone apps may be holding back this technology. Addressing these deficiencies could increase adoption, allowing consumers to take full advantage of the potential of mobile financial products to deliver safe and secure transactions.

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Consumers can send and receive e-mail across the globe almost instantly. They can stream digital content live, or summon a cab or a meal within minutes. What are the implications of this need for speed for the payments industry? And to what extent are real-time payments the rails on which future innovation will run?

Life in the digital age is resetting our notions of speed and time. The average attention span in 2015 was 8.25 seconds, down from 12 seconds in 2000, according to Statistic Brain. This is now less than the nine-second attention span of a goldfish. In a world that seems to be on permanent fast-forward, waiting five-to-six days for a cheque to clear, or three days for a bank transfer to reach the beneficiary’s account, is like being stuck in reverse. It seems like banking from a bygone era.

The payments industry is at the confluence of many trends, some behavioural, some technological and others regulatory. Momentum behind real-time payments is building globally. We examine the drivers, the implications for end-users and those who serve them, and what the future may hold for payments in real-time.

The real deal 

Real-time payments systems are not new. The first domestic real-time payments system was launched in Japan in April 1973, and there are currently 18 real-time systems live worldwide. But what are real-time payments exactly?

Definitions vary and not all systems worldwide currently conform to the one that follows. Generally real-time payments are where funds transferred are available on the beneficiary’s account instantaneously, immediately or in real-time. A real-time payment system must be able to send and receive payments 24x7x365. Once they are processed, payments cannot be recalled. There is a finality to payment, but also a certainty as payments sent to a beneficiary’s account are either confirmedto both the payer and payee or rejected.

“In most countries, you tend to have a couple of payment systems: automated clearing house (ACH) and real-time gross settlement (RTGS),” explains Barry Kislingbury, director, solution consulting, immediate payments, ACI Worldwide.

“ACH tends to be for low-value, high-volume payments, such as paying the gas bill. It takes about three days to settle. With RTGS, the payment is settled on the same day. This system was intended for high-value, low-volume payments, such as buying a house or for corporate or interbank payments.”

“Real-time payments sit in the middle. They are an ACH-type payment over an RTGS-infrastructure, so they are performed in real-time but at the sort of price an ACH would charge for a payment — so much lower than RTGS.”

The drivers for real-time payments 

The speed, certainty, coverage and cost of real-time payments is driving increasing interest in the mechanism. Consumers do not necessarily understand bank back-office clearing and settlement processes, and nor should they. When they can browse, buy and download digital goods in real-time, any time of the day or night, they cannot understand why the digital movement of money is not instantaneous. They expect to be able to make and receive payments faster.

Advancements in technology are also making real-time payments possible. There were around 4.7 billion unique mobile subscribers worldwide in 2015 (a 63 percent penetration rate), according to the GSMA, a body that represents the interests of mobile operators worldwide. When the smartphone is the device of choice for accessing the internet — and is the only means a consumer has of getting online in some countries — this cannot but change the way consumers, businesses and governments interact and transact. Mobile phone ownership and access to high-speed broadband are also pre-requisites for mobile-initiated push and pull payments.

Enterprise technology has also advanced significantly since the first real-time payments systems were launched 40 years ago. “The banking community has ambitions to improve and modernise the payments infrastructure,” says George Evers, immediate payments services director, VocaLink. “This allows innovation and defends against FinTech activity that is starting to bite into every element of a bank’s product portfolio.” The infrastructure investments made now will power the products and services of the future.

A combination of factors is driving the change [towards real-time payments] and these differ from country to country. George Evers, immediate payments services director, VocaLink 

Policy makers and regulators are clearly interested in making payments more efficient, interoperable and cost-effective, with a view to driving economic growth, innovation and financial and social inclusion. The lower costs of real-time payments versus traditional card-based or RTGS payment is also an attractive feature for regulators, as well as other participants in the payments system.

This time the revolution is for real(-time) 

‘Revolutionary’ is a somewhat over-used and de-valued term in the age of PR and hype. However to what extent is the term justified in the context of real-time payments?

“Real-time payment is revolutionary because it’s game-changing,” says Kislingbury. “If you take any bank payment process, what would happen if that could be done in real time?”

Businesses and corporates have huge scope to use real-time payments to improve their cashflow, supply chain management, stock control and reconciliation. This could lead to productivity and efficiency gains but also to direct bottom-line benefits.

For example, a company with a global supply chain could offer to pay suppliers ten percent of the fee in real time when goods were loaded onto a ship. They would then pay the next ten percent when the ship arrived at its first port and so on until the ship arrived at the final destination whereupon the payer would settle the outstanding amount in full. In this way, real-time payments could enable businesses to offer improved invoicing terms to suppliers that could help increase working capital.

For retailers, real-time payments could enable just-in-time stock management with the associated operational and cost efficiencies. This obviates the need to carry an inventory, and could lead to fulfilment efficiencies. When a customer ordered an item, the retailer would in turn place an order with their supplier and pay in real time. The supplier would then dispatch the item either to the retailer or to the customer directly. The retailer would not have to pre-pay or store stock. They would also increase fulfilment options to the customer, and cut the costs of wastage due to unsold goods. Just-in-time stock management also has implications for the retail store of the future in terms of the purpose, design and number of stores.

For consumers, a number of possible propositions draw on the speed of real-time settlement. For example, emergency funding propositions where the transferred funds are available immediately to the beneficiary (e.g. social benefit claimant or child). With the rise of of part-time work, mini jobs and zero-hours contracts, employers could also pay workers quickly and easily via real-time payments. Gambling operators could accept wagers and pay winnings in real time, avoiding customer disgruntlement at the traditional two day wait for payment card credits to settle.

For banks, real-time payments will be no less significant. They will be the catalyst — and perhaps the imperative — for them to devise new business cases and revenue streams. “The banks actually have to change their business models. It’s no longer about making money from the payment. It’s about making the payment invisible and offering value-added services around it,” comments Kislingbury.

There is an obvious parallel with merchant acquiring, which is becoming an increasingly commoditised business at the transaction processing level. Acquirers are already revising their business models to secure their futures. They are exploring how they add more value to customers, and devising innovative, chargeable services for which merchants would be willing to pay. “It’s exactly the same argument across correspondent and retail banking. Moving money is what banks do, but there’s no real value in that these days because everyone can do it. It will be about what value you bring to your customer,” says Kislingbury.

The revised EU Directive on payment services (PSD2) is intensifying the pressure on European banks. Improving access to payment accounts and increasing transparency around payments and charges are two of the main themes running throughout the Directive. This is not a peculiarly European phenomenon. Banking executives worldwide are currently grappling with how they can create and maintain value. And how they can capitalise on the move to a more open banking environment.

Faster, richer data 

Value is increasingly bound up with data. Thanks to the ISO 20022 standard, real-time payments come with speed but also with richer data. Kislingbury explains the background and differences between ISO 8583 and ISO 20022.

“ISO 8583 is a small, lightweight message, designed to move the value of a payment quickly across systems built on the technology of 40 years ago. It’s quite a complicated, heavily modified standard because there is such a small amount of data. All the schemes use the standard differently to achieve what they need to. Although it’s a standard, it’s a type of non-standard as well.”

ISO 20022 is not actually a messaging standard. It is a standard to develop standards. Or a standard that helps define a business process. ISO 20022 comes with a large data dictionary, defining a wide range of business processes and the data required to support them. “It’s a much bigger message, but technology has moved on and can cope with that. You can describe the entire transaction: remittance information, purchase order numbers, invoice numbers. There’s a whole raft of things you can do, if you’ve got that data,” explains Kislingbury.

The banks actually have to change their business models. It’s no longer about making money from the payment. It’s about making the payment invisible and offering value-added services around it.

Barry Kislingbury, director, solution consulting, immediate payments, ACI Worldwide

There is huge potential for banks in terms of innovative, chargeable services they can overlay on a real-time payments infrastructure based on ISO 20022. Unsurprisingly, many countries with live real-time payments systems are actively looking to upgrade to ISO 20022. This includes China, South Africa and Switzerland. Meanwhile, countries such as Australia, the Eurozone countries and the US are building real-time payments systems on ISO 20022 from the outset.

However to enable cross-border payments regionally, if not globally, requires interoperability. This came a step closer in August 2015 with the publication of the first draft of ISO 20022 messages. The draft was the result of work by the ISO real-time payments group (RTPG), made up of over 50 international experts.

“There are a lot of countries designing and building real-time payments on ISO 20022. Historically those countries, which have already built systems on the standard have used it slightly differently. We wanted to put together a best practice guide to ensure interoperability,” explains Kislingbury, who participated in the ISO RTPG.

Keeping it real 

Besides interoperability to facilitate cross-border payments, what needs to be in place at a domestic level to implement a real-time payments system? According to George Evers at VocaLink, alignment across a broad community within the country is critical.

“Real-time payments delivers benefits to banks, consumers, government and businesses of all shapes and sizes,” he says. “To ensure ubiquitous adoption, it is best to engage widely to agree a common approach to solving problems and ensure the needs of these different communities are met through the solution.”

As with the implementation of many payment technologies — everything from EMV chip and PIN, to contactless, to mobile payments — critical mass on the consumer and merchant side together is key. Achieving this is partly a matter of ensuring that the system supports end-user requirements from a technical and operational point-of-view. However it is also a question of coverage (or reach) and access.

Faster Payments Scheme Limited (FPSL), the company behind various UK payments systems, is looking to open up the infrastructure to a broader base of banks and PSPs to provide easier and more cost-effective access. Consequently it is having to address challenges germane to real-time payment schemes generally, namely balancing access with security and the integrity of the system, particularly around 24×7 operation, payments delivered in seconds, high availability and certainty of funds.

FPSL is introducing aggregator models plus a new settlement model between participants to encourage direct access. “This creates a much easier environment for small banks, who are currently restricted to being secondary suppliers through a major bank, as they will have direct access,” explains Bob Mackman, director, Mackman Associates, a vendor participating in the Access to Payment Systems programme run by FPSL.

“At the moment, the smaller banks are dependent on the facilities of the major bank. This way, they’ll get much closer to 24×7 at a much more realistic price, so they’ll be able to offer these sorts of services,” says Mackman.

I believe that real-time payments will be the new normal for payment. And that real-time payment infrastructures will allow convergence of batch multi-day or same-day systems through to card clearing infrastructures. 

George Evers, immediate payments services director, VocaLink

Real-time payments is not the panacea to cure all payment ills. Real-time payments are fast, but how much speed does the end-user need, and when? Real-time payments based on ISO 20022 can pass richer data, but how much more data does the end-user need, and when?

The future is happening in real-time 

Unless there is a compelling reason to change, payers are not usually looking for a new way to pay. Thus, devising compelling use cases and propositions at the right price will be critical to the take-up of real-time payments. As will getting more participants to use the system, thereby generating more value for everyone who participates.

However, the momentum and excitement around real-time payment is justified. Real-time payment has the potential to be game-changing for all participants in the payments system. So far, the majority of real-time payments systems are based on push payments. But pull-based real-time payments in the retail and government sectors will have an even greater impact on incumbents’ business models and revenue streams. The risk of disintermediation, particularly for card schemes, of future innovation based on real-time rails is very real.

How long will it take for real-time payments to become a reality in more and more countries, and internationally? When will then be now? Soon. While there is no such thing as a simple payments system, the future is happening soon. However it may yet be happening sooner than soon. It may be happening in real-time.

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Advancements in digital technology continued to shape the payments industry in 2015 as mobile,

 Digital Payments Report 2016

online and other digital forms of payments moved into the mainstream.

From mass transit to gas stations and supermarkets, businesses of all sizes, across all the regions surveyed, now accept various types of digital payment, making paying for goods and services quicker, but above all, easier for the consumer.

While this seems very encouraging, what does the landscape look like beyond 2016?

The Digital Payments Report set out to survey and evaluate all the Payment industry stakeholders from the three major payments markets in the world: Americas, Europe and Asia Pacific. The industry survey respondents were largely senior executives from Card Issuers and Acquirers, Retail Banks, Financial Institutions, Payment Networks, Mobile Network Providers and FinTech suppliers.

The responses across the regions offer a unique insight into how the Payments industry is evolving in 2016 and beyond.

Download the REPORT HERE

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In an interview with RTL Nieuws broadcast on Monday, ECB executive board member Yves Mersch said the

ECB plans new system for bank transfers

system would let a consumer link, for instance, her telephone number to her International Bank Account Number, or IBAN.

Under the system, “to send payment over your telephone from one country to another, you go onto your contact list, you take the name of a person, and you would immediately also get his IBAN”, Mersch said.

The chief obstacles to the idea are legal, not technical, he added.

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They are projected to grow at a rate of 8.9% to reach a record high of 389.7 billion transactions,² up from 2013’s 7.6% growth rate. Driven by a combination of factors including robust growth of non-cash transactions volumes in Emerging Asia ³ and widespread adoption of mobile technology for payments in mature markets,⁴ the volume of non-cash payment transactions grew faster than GDP across all geographies in 2013.  For 2014, growth is expected to have been propelled by the continued economic recovery in mature markets, rapid expansion in China, adoption of mobile and contactless technology, and the global move towards Immediate Payment ⁵ schemes.

Number of non cash transaction by region

Emerging Asia continues to push growth upwards

Non-cash transactions in Emerging Asia are expected to have grown by 27% in 2014 from 22% in 2013 driven by increasing internet use and the adoption of mobile payments. In particular, non-cash payment volumes in China are expected to surpass those in Germany, the UK, France, and South Korea, moving it into fourth position globally, behind the US, Eurozone, and Brazil in first, second and third place respectively. China posted record non-cash payment growth of 37.7% in 2013 as regulators accelerated the opening of the domestic payments card market to overseas competition and point of sale terminals were rolled out across the country. Mobile payments also grew significantly in volume – by 170% – to reach 4.5 billion transactions, making it a core element of China’s payments ecosystem.

Top 10 non cash transaction markets

Hidden payments volumes are also increasing

Hidden payments, or payments processed through non-bank systems, are now estimated to be as big as around 10% (40.9 billion) of non-cash transactions in 2014 and are expected to grow in the coming years. The lack of coherent data on hidden payments, which include payments made through closed loop cards and mobile apps, digital wallets mobile money, and virtual currencies makes it challenging for banks and non-bank payment services providers in determining optimal operating and processing models in such markets.  As hidden payments are not subject to regulation, there are also concerns about the lack of consumer protection on data privacy, information security, dispute resolution as well as fighting fraud and money laundering and regulation is needed to minimize these risks.

Banks still in a strong position to offer customer-centric innovation

Despite the rise of other competitive payment providers along with new and alternative payment methods including digital wallets and mobile apps, banks are still in a strong position to develop innovations that improve the customer experience. Banks are better positioned than their alternative provider rivals to provide holistic solutions across all instruments and channels which make them more efficient as a single provider of payment services as opposed to having multiple providers for each payments scenario.  As banks continue to enhance their holistic solution offerings, Immediate Payment systems can act as an enabler for banks to develop new value-add propositions and drive business growth.  Immediate Payment systems allow money to be moved from one account to another within seconds, 24 hours a day, ensuring customers can use incoming funds just as quickly.

Regulation also has a role in driving innovation through the harmonization required for the cohesive global expansion of Immediate Payment schemes.  According to the WPR 2015, 86% of payment executives surveyed believe that regulators will need to evaluate and make changes to the existing regulation to make Immediate Payments a reality globally. In particular, the adoption of Immediate Payments is challenged by a lack of interoperability of systems built using different standards in Europe and around the globe.  Regulators can help resolve this by working to develop and guide standards and rules to support industry interoperability.

“Each year banks face new and greater challenges in innovating to meet consumer demands for more convenient, faster, more secure and more mobile payment methods,” comments Andrew Lees, Global Sales Officer, Capgemini Financial Services. “Facing this pressure and the need for new regulatory initiatives to support innovations like Immediate Payments, payment services providers must take a long-term approach for payments processing by building a holistic set of offerings that can deliver value on a global scale.”

Another development re-shaping the payments market is Blockchain technology.⁶  Three key features of Blockchain are transparency, decentralization and key signing permission ⁷. This mix has the potential to improve the efficiency of financial transactions and transform the global financial network.  This technology could accelerate the velocity of money and provide an alternative for legacy banking systems in the future.

“New technology is accelerating change in the payments industry, offering holistic solutions as customers move from physical to digital payments as evidenced by the adoption of contactless in the UK with 53m transactions in March 2015. As a trusted partner, we’re at the heart of client transactions, facilitating the transition to digital payments,” comments Marion King, Director of Payments, RBS.

“As the digital economy transforms innovation in technology, it in turn gives customers greater choice and convenience in how they pay and conduct business.”

[2] The World Payments Report 2015 is an annual report which examines the latest developments in the global payments landscape, including payments volume trends, payment instruments (such as cards and checks), key regulatory initiatives and their impact on strategic considerations and options for banks. The transactional data in the report is from 2013. It makes a projection for 2014. Data is not yet available for 2015.

[3] Emerging Asia includes India, China, and other Asian countries.

[4] Mature Markets are: Mature Asia-Pacific including Australia, Japan, Singapore, and South Korea; Europe, including the Eurozone; and North America (the U.S. and Canada).

[5] Immediate Payment schemes, also known as real-time payments, allow money to be moved from one account to another within seconds, 24 hours a day, ensuring customers can use the funds just as quickly.

[6] Blockchain is a new technology initially used to support Bitcoin and cryptocurrencies which is based on federating independent computing power to capture and record transactions.

[7] In key signing permissions, the security of transactions is based on multiple synchronous validations from network participants.

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The Trusted Execution Environment is a secure area of the main processor in a smart phone (or any connected device) which ensures that sensitive data is stored, processed and protected in an isolated, trusted environment.

An introduction to the Trusted Execution Environment for mobile services security

Industry interest in the Trusted Execution Environment is gaining momentum, as it addresses the needs of most applications by offering a higher level of security than a Rich OS, without the constraints associated with the secure element (SE).

The white paper introduces the Trusted Execution Environment and its general security characteristics, before progressing through the key security concerns and perspectives of various actors and markets.

The paper illustrates particular use cases, offering an understanding of how a TEE lays to rest major concerns within those use cases. In particular, the TEE’s role in the following implementation examples is examined: mobile payments, enterprise (bring-your-own-device), content protection and government eID solutions.

“As mobile and consumer markets for connected devices mature and expand, an increasing number of security concerns demand attention,” explains Kevin Gillick, Executive Director of GlobalPlatform.

“Yet while it’s in the interest of all actors in the mobile services value chain to protect applications on many levels, a balance has to be struck to ensure that security doesn’t compromise the end-user experience or the relative ‘openness’ of the device environment which offers commercial opportunities to so many stakeholders. This need to balance security and openness is a key challenge faced by the mobile services industry today.

“The TEE offers a solution which addresses many security concerns without imposing an undue burden on applications,” concludes Gillick. “This white paper will help audiences understand why this is the case and outlines its relevance for many use cases.”

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The paper, entitled ‘The Global Adoption of Real-Time Retail Payments Systems’ highlights two key interlinked themes; the variety of different adoption speeds and the relationship with core drivers which are leading to the adoption of such systems:

RT-RPS growth is strong, but countries are adopting a variety of approaches which affects the rate of progress

• Numerous countries have undergone rapid adoption, typically as a result of the lead role that regulators have played in encouraging the market to migrate, coupled with the use of relatively new technology and supplemented with attractive pricing or incentives;
• Other countries are on a slower adoption path, typically where the regulator did not play a prominent role and/or the banking community showed little appetite; and
• The remaining systems are on a ‘typical’ adoption path, between the two extremes, usually characterised by active regulatory participation but where the systems were launched more than a decade ago and use older technology.

Real time retail payments system market landscape (Source SWIFT)

Regulatory initiatives are proving to be the key driver behind the increased adoption of RT-RPS

• The results show that the primary driver (73%) for RT-RPS adoption is the impact of regulatory reform. This comprised a number of factors, such as consumer protection, reduced credit risk, transparency, financial inclusion, fostering of competition, and wider macroeconomic impacts.
• The secondary driver (27%) for RT-RPS adoption is the impact of the banks’ commercial needs – both in responding to customers’ expectations, and/or responding to competitive threats from new entrants.

Drivers of real time retail payments systems (Source SWIFT)

“The emergence of real-time payment services is having a transformational impact on underlying payment systems,” says Juliette Kennel, Head of Market Infrastructures at SWIFT.

“Real-time is a growing trend led by consumer expectations, supported by regulatory reform. Different countries have implemented real-time retail payment systems in different ways, ranging from simply adapting current legacy infrastructures to deal with real time, up to building brand new innovative systems, as we are seeing in Australia. Legacy and new models will need to co-exist both at a domestic and cross-border level, so, for banks, interoperability will be key. The industry is going to have to come up with ways to enable banks to offer real-time capabilities while keeping costs in check. Collaboration and innovation is going to be key.”

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The mobile financial services sector continued to expand in 2014, boosted by the creation of more enabling regulatory frameworks in several markets. With 255 mobile money services in operation across 89 countries, mobile money services are now available in over 60% of developing markets.  Today, mobile financial services are firmly established in the financial sectors of the majority of the developing world, serving new business areas and enabling a wider range of digital payments.

2014 in particular saw the achievement of key milestones for the industry:

A growing & maturing industry

The industry is getting smarter about what it takes to prompt mobile money adoption: active mobile money accounts stand at 103 million as of December 2014 (up from 73 million in 2013), and an increasing number of services are reaching scale. 21 services now have more than one million active accounts.

With effective improvements to the quality of agent networks, the mobile money industry is continuing to extend access to financial services beyond the reach of traditional financial institutions. At the end of 2014, there were 2.3 million mobile money outlets globally, 60% of which are active. While this figure masks variance across regions, there has been particularly strong progress in West Africa in 2014.

Interoperability & ecosystem development

As competition heats up in markets where mobile money is already available, we’re seeing a growing number of mobile network operators (MNOs) showing interest in interoperability. In 2014, MNOs in Pakistan, Sri Lanka and Tanzania interconnected their services to allow their customers to send money directly to mobile wallets on other networks, following in the footsteps of MNOs in Indonesia, where interoperability was implemented in 2013.

In terms of transaction volumes, the fastest growth in 2014 occurred in bulk disbursements, bill payments and merchant payments – reflecting an expanding ecosystem of institutional and business users of mobile money.  These transactions represented nearly a quarter (23.1%) of all the value processed through mobile money systems globally in December 2014, demonstrating the growing importance of mobile money as a payments channel for goods and services.

Cross-industry partnerships are helping to drive remittances too, both domestically and internationally. The introduction of a new model involving direct wallet-to-wallet cross-border transfers has led to a surge in international remittances via mobile money, and is helping to reduce costs for users. The median cost reported by respondents for sending USD 100 via mobile money is USD 4, less than half the average cost to send money globally via traditional money transfer channels.

Investment continues in mobile money

For investors, industry partners and stakeholders in the financial services industry, this is good news: Mobile money providers are continuing to invest in improving and expanding their services, showing important commitment to the long-horizon investment required by this industry.

In particular, mobile money providers are investing to strengthen their internal capabilities, with the objective of addressing an increasing number of users and transactions. By June 2014, half of all respondents to the survey had either already migrated their platform or planned to do so within the next 12 months. In addition to USSD, STK and IVR, over 60% of mobile money providers have now made their services available through smartphone apps, providing customers with better customer interfaces and meeting demand from a growing market of smartphone users in the developing world.

Fostering financial inclusion

Mobile money continues to transform the way people access financial services: in three-quarters of the markets where mobile money is available, agent outlets outnumber bank branches.  Providers are also making efforts to increase the number of users at the bottom of the pyramid and in 2014, the percentage of rural users and of female users increased.

As all of these changes take place within the industry, regulators are increasingly recognising the major role that non-bank providers of mobile money services can play in fostering financial inclusion, and are establishing more enabling regulatory frameworks for the provision of these services. Reforms have been passed in Colombia, India, Kenya and Liberia this year and today, in 47 out of 89 markets where mobile money is available, regulation allows both banks and non-banks to provide mobile money services in a sustainable way.

As the sections in this report reveal, mobile money providers are working hard to increase the quality, reach and sustainability of their services.  Through industry-led initiatives, including partnerships with banks and other third parties, providers are enhancing the customer experience and reaching scale to evolve the sector to a new phase of maturity.

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