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.

The post IoT and the future of payments appeared first on Accourt Payments Specialists.

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.

The post Real-time payments: The need for speed appeared first on Accourt Payments Specialists.

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

The post Digital Payments Report 2016 appeared first on Accourt Payments Specialists.

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.

The post Real-time payments: The need for speed appeared first on Accourt Payments Specialists.

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.

The post ECB plans new system for bank transfers appeared first on Accourt Payments Specialists.

Emerging Asian countries are driving the growth in non-cash, particularly China which is expected to move into fourth place behind the US, Europe and Brazil in terms of non-cash payments. The rising penetration of mobile phones in smaller Chinese towns and cities is resulting in increased mobile payments — 4.5 billion in 2014, up 170%. Steps taken by the Chinese regulatory authorities to accelerate the deployment of point-of-sale equipment to merchants and to open the domestic card payments to competition have also increased non-cash payments.

Number of non-cash transactions (billion) by region, 2009-2013 Sources: World Payments Report 2015, Capgemini/Royal Bank of Scotland. Accenture.

Growth occurred in all non-cash payment methods globally, except cheques which declined 10.9 percent. The share of non-cash transactions made via cards grew to 62.8% in 2013, up from 60.9% in 2012. Although growth in debit card payments globally slowed in 2013, this payment method still remains the most used of all non-cash methods. Debit card usage in the US bucked the trend by increasing by 8.3% in 2013. A total of 61 billion debit card transactions were made in the US, dwarfing Europe, the second largest market, with 34 billion payments.

The growth rate of credit cards remained steady at 9.6%, despite a decline in growth in Latin America from 18.2% in 2012 to 10% in 2013. There were 69 billion credit card payments in 2013, and these are expected to grow in the US and Europe as their respective economies recover.

On an individual consumer basis, Finland again led the way in terms of the number of non-cash transactions per inhabitant. Each Finn made an average of 451 transactions in 2013. Following Finland was the US, where inhabitants made an average of 390 non-cash transactions.

Payments processed through non-bank systems, which the report refers to as ‘hidden payments’, were estimated to have reached 24-40 billion in 2014. This would make them around 10% of non-cash payments, at the upper end of this range. ‘Hidden payments’ include those made through closed loop cards, mobile apps, digital wallets, mobile money and virtual currencies. The growing level of ‘hidden payments’ is a disintermediation threat for banks and those within the financial services industry. There are also wider implications for regulators and consumers around some elements of these payment methods. This includes dispute resolution, consumer protection, information security, privacy, fraud and anti-money laundering provisions.

Despite the rise of challengers and new market entrants, the report feels that banks are perhaps better positioned than their rivals to offer holistic solutions. Banks are able to operate across various payment methods and channels to offer customer-centric innovations. This makes them a consolidated provider for consumers and businesses, as opposed to customers having separate relationships with multiple parties depending on the payment scenario. Banks are also strongly placed to develop innovative offerings based on existing infrastructure, such as immediate payments, to differentiate themselves from other PSPs.

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To accompany the report, 2000 consumers were also polled on their attitudes to current payment methods as well as what they would like to see in the future. The results have clearly demonstrated that, whilst we are a nation that is still getting to grips with a whole host of new ways to pay, the appetite for innovation is accelerating.

Empowering payers to make informed purchases in a way that suits them 

83% of consumers surveyed by VocaLink admitted they check their bank balance before making a significant purchase – highlighting that banks have a pivotal role to play in innovating ways for customers to maintain visibility and control of their money. It is likely that in ten years’ time, making informed decisions on expenditure will become even easier since portable communication devices (from smartphones, to watches, glasses, etc.) will help us budget more effectively, providing more options for ring-fencing funds within our bank accounts in seconds and even automatically helping consumers access better ‘deals.’ Over 50% of consumers would be interested in these sorts of apps.

However, flexibility in how we pay is already an acute need for many today. The employment market is changing with a growing number of workers reliant on multiple income flows, rather than having one steady and periodic source of income. One prediction regarding this issue is that by 2025 incomes could become even more erratic so should be met with technology that offers the necessary agility to accommodate these customers.

Similarly, another contributor to the Moving Money whitepaper believes that one of the most successful future innovations will be to make it easier to quickly ‘undo’ payments made in error to the wrong person or organisation.  This is a problem nearly 1 in 4 people in the UK, (rising to 1 in 3 for those under 45), have already experienced according to VocaLink’s consumer research. Of these, approximately three quarters eventually got their cash back whilst the rest simply did not see their money again, highlighting the need for a universal process to be devised and adopted in the event of erroneous payments.

Greater security demanded – but flexibility over identity authentication is expected

However we end up paying for things in 2025, security is the number one concern for consumers – 65% identified this as their number one priority when it comes to financial transactions. Contributing experts to the paper agreed, predicting that by 2025 there will be multiple ways of authenticating identity before payment can be made. In fact, as smartphone security increases, physical payment cards are expected to become obsolete since account details will be stored on the device itself. We’ve already seen a glimpse of the impact that biometrics-initiated mobile payments could have in the future and VocaLink’s research has found 1 in 4 UK consumers would consider using biometric technology to access banking or payment services². However, by 2025, some experts believe biometrics will be the principle method to authenticate our identities, with the usage of facial recognition in particular significantly reducing fraud and time/hassle constraints in making payments.

Real-time payments will offer certainty

Over the next ten years we will likely see an increase in adoption of immediate payments, via the Faster Payments system, as well as new innovations which build on this existing infrastructure. Larger transactions will become available on an immediate basis, particularly as the value limit on transactions rises past the current level of £100,000. This has obvious benefits for SMEs who will make and receive payment quicker, providing greater cashflow certainty and enhancing growth potential. Paying staff salaries will also be increasingly easy, as a payment can be made at the end of a week to reflect the exact hours worked with the employee receiving their salary immediately.

“The UK is in a fantastic position to make real time payments and all these other predictions a reality over the next decade. We have a world class digital payments infrastructure and this puts us at a distinct advantage – however if we are to stay ahead of the crowd, it is vital we start laying groundwork for the future now,” explains Chris Dunne, Director at VocaLink.

“The collective insight of this whitepaper has shown us what we could and should be able to achieve in the payments sphere. Disparate corners of the UK’s society and economy will benefit hugely if we can map their needs against the evolution of the UK’s payment system and the burgeoning technology that supports it. This collaborative effort is only the beginning; we are keen to catalyse discussion across all relevant parties about what comes next and set the wheels in motion to make future payment technology a reality.”

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With multiple countries implementing real-time payments initiatives around the globe, interoperability between

ISO 20022

systems is key. Therefore, the ISO Real Time Payments Group (RTPG), a collection of payments experts brought together by Payments UK, has published a first draft of ISO 20022 usage guidelines for cross-border real-time payments – according to an article in AFP.

Barry Kislingbury, senior principal solution consultant at ACI Worldwide, one of the companies that contributed to the first draft, identified some of the gaps in ISO 20022 and explained why this new “rule book” was needed. “Most countries, especially in the Western world, are looking at how they would implement real-time payments,” he said.

“ISO 20022 has become the standard for sending financial transactions—not just the value but the transactional data as well. But it wasn’t designed for real-time. It was designed to be sent and cleared tomorrow or the day after.”interoperability between systems is key. Therefore, the ISO Real Time Payments Group (RTPG), a collection of payments experts brought together by Payments UK, has published a first draft of ISO 20022 usage guidelines for cross-border real-time payments – according to an article in AFP.

Kislingbury explained that ISO 20022 currently lacks certain items that would allow for a real-time payments environment, such as confirmation messages that assure that payments have been made. “That’s something we’re going to have to design from scratch basically in this working group,” he said.

Additionally, there may be missing data that would be needed for real-time, such as e-invoicing. “You may well want to attach a document to a message that says, ‘Here is your invoice.’ Well, attaching a JPEG to a financial message isn’t necessarily the right thing to do because it makes the message massive. With instant payments, time and speed are very important. You want to be making these payments in seconds and not hours.”

Furthermore, with entities all over the world like the Clearing House and the European Payments Council wanting to use ISO 20022 as the messaging standard behind their real-time payments initiatives, the standard has to be uniform. “The problem is, if you’ve got another 40 countries implementing payments schemes and there are gaps in the standards, they’re all going to implement them slightly differently,” Kislingbury said.

This is one concern that Magnus Carlsson, AFP’s manager of treasury and payments, has had since ISO 20022 was first implemented. “We are already seeing some variances in the standard where it is implemented,” he said. “If these differences become more substantial, some of the information in the messages may be lost if the recipient doesn’t have the same version of the standard.”

Therefore, RTPG is seeking to ensure that ISO 20022 is cohesive for all parties involved. “In five to 10 years’ time, we will have interoperable real-time payments globally,” Kislingbury said. “But if everybody is still trying to make it their own way without talking to each other, that would make interoperability much harder. So that was what the working group got together to achieve—to take the current ISO 20022 standard and agree on what messages get used in which scenarios. That wasn’t always clear with ISO 20022, because some of the messages are very similar. We don’t want people using different types of messages for the same thing. So we agreed what the basic flows are for real-time payments, and what messages would be used in those flows.”

The draft is currently being reviewed across the payments industry, ahead of RTPG’s meeting at Sibos 2015 in Singapore this October.

Barriers to ISO 20022 adoption

Carlsson has some concerns about ISO 20022 adoption, primarily that in the U.S. at least, there is a lack of understanding around it. “Obviously, in the U.S., we have the issue of getting to even using ISO 20022, especially on a corporate level,” he said. “Quite frankly, most organizations are not even aware of it.”

Carlsson noted that the U.S. stakeholder group has been very active in reaching out to the corporate world and spreading the benefits of the standard. “The problem is, they haven’t found a pure financial business case for a corporate to adopt it,” he said. “It’s more of a strategic case for the U.S. as a nation to move to ISO 20022. The problem with that is, you’re never going to see a mandate to adopt it like you saw with [the Single Euro Payments Area (SEPA)] in Europe.”

As a former corporate project manager for SEPA implementation, Carlsson knows that it will be difficult to convince businesses to adopt ISO 20022 without a similar mandate. “Just seeing, form a corporate level, the resistance to make any kind of changes, the business case you have to present will have to be so substantial that corporates will see some real benefits to it, or it’s not going to happen,” he said. “We’re talking about a country where 50 percent of the B2B transactions are still done by paper checks.”

Carlsson applauded RTPG’s efforts and noted that U.S. corporates do show interest in using ISO 20022. “We hear corporates say, ‘This is very interesting.’ But then it stops there,” he said. “We need to find a way to show there are real efficiency benefits and cost saving opportunities with ISO 20022. Without a mandate, that’s how you can reach broader implementation.”

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At a meeting organised by the UK Payments Council a very mixed and wide group of 40-plus representatives of global organisations discussed the issues as they see them, agreeing to work together to identify areas where decisions made at this stage of design and implementation could make interoperability easier to achieve – according to an article first published in Banking Technology.

Real time retail payments system market landscape (Source SWIFT)

The conclusion of the initial meeting was that no new set of ISO messages needs to be developed, any collaborative activity would be a refinement of the existing messages

“Interoperability between jurisdictions will ultimately be the key to getting value,” said one North American participant, a point that was echoed by another: “Our focus may be domestic but we have an eye on international interoperability.”

Maurice Cleaves, interim chief executive of the Payments Council, said that the intention of the meeting was simply to explore collaboration options: “Collaboration is often the key to success in the development of payment systems, so we are delighted to be facilitating this international dialogue to coordinate around real-time payments. Many countries in the world are still at the early stage of development of a domestic real-time payment system but whilst this is in development it is critical that we have an eye to the future and develop a common standard to enable interoperability. Building this thinking into the requirements at an early stage will ease the adoption by users of systems in multiple countries immediately and smooth the process of interoperability as this becomes a reality.”

All agreed that the timing is pertinent: many jurisdictions are implementing, or actively thinking about real-time systems. There is a slim window of opportunity to work together “and that time is now”.

Many of those actively implementing are at different stages of development, but are keeping interoperability at the front of their considerations. International compatibility is particularly valuable to multinational banks that have to connect to multiple market infrastructures. The ISO 20022 messaging standard was identified by all as the most appropriate technical standard for real-time payments, and it is unlikely that another would supersede it but there remain issues with implementation, some of which may be due to genuine local requirements.

“Standardisation should seek to standardise what is common and be a platform for innovation and competition, said James Whittle, director of industry dynamics at the Payments Council. “ISO 20022 is not about getting everyone to do the same thing: where there is a need for a difference, we have to understand it and when there isn’t we need to work to harmonise. ISO is not a police force. No-one is going to knock on the door and say you are not implementing it properly. It’s more a question of is what you think is unique to your market really unique? If it is, what’s the fastest way for you to implement it?”

This leads to a follow-up question, as phrased by one delegate: “what is the threshold for uniqueness? Absent an understanding of that we might reach an endpoint that is no better than the status quo.”

One participant said that an 80/20 rule applied and implementers should embrace regional difference and accept that these need to continue for legitimate business reasons. There is a desire to develop a system that is flexible and consistent but will cater for regional differences.

Different jurisdictions have taken different approaches to the way they intend to implement RTP systems. In Australia, and other early movers such as Finland, the approach is based on an overlay concept that means creating a backbone on which different banks can build different products – separating the common parts from what is competitive.

Across jurisdictions the connection method for institutions also varies: in the UK there are 12 direct connections to the Faster Payments Service and smaller institutions have to connect through agency or sponsor arrangement with those organisations – a situation that the incoming Payment Systems Regulator is currently investigating, and operators are seeking to work with vendors to improve. Canada has a similar tiered approach, but the 10,000 US financial institutions are not tiered, making connectivity a considerable issue there.

In settlement there are a number of different approaches: the UK has three daily settlement windows, Finland is proposing two different settlement mechanisms – a real-time high-value and one for low value which would be batch overnight. The US is completely overhauling its National Settlement System which will become a 24/7 platform by the end of this year. Australia has opted for line-by-line real-time settlement.

Not all of the issues are technical: how failed payments or payments made in error are recovered differs across jurisdictions. Agreement will have to be struck on overcoming this: “a request for repayment message is the easy bit – how you use it will require a lot of legal work,” said one.

One area where there is likely to be a large degree of divergence is in the type and amount of data that is carried in a message: for most institutions and corporates the addition of remittance data along with payments data, may be desirable, but it opens a number of issues. One bank participant pointed out that adding both remittance and payment data in one message could add an unacceptable payload to the message, significantly affecting system performance. “We are very reluctant how much payload we can add to the message – we have a limited amount of time in which to processes the messages,” he said.

Adding additional information can place unnecessary strains on the backbone. There is also the question of the type of data: “When Tim Berners-Lee was developing the Internet. He probably wasn’t thinking about cat videos …” observed one participant.

More seriously for institutions, there will likely be anti-money laundering implications in carrying messages without knowing the contents of those messages.

One participant said that real-time payments are largely retail so it is important to look at what data, such as geo-tagging, is being used in that space. “Otherwise we are potentially missing a range of data that will have to be built back in five years’ time.”

All agreed that there was need for wider involvement in the discussions, including credit card schemes and corporate’s. “In ISO 20022 we don’t know what kind of data is required or the use cases, we need to work with the card schemes, and we need to understand the needs of the user community. We need to find out what the superset of data actually is,” said one.

The consensus was that this would be best achieved by focusing on harmonisation of the payment messages. It is proposed to “take an inventory of what being done domestically and then look at the commonality of that”, as one participant phrased it.

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