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Instant Payments: moving money at (almost) light speed

September 19, 2022

Instant Payments: moving money at (almost) light speed


September 19, 2022

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  1. Instant Payments: The bare minimum Interbank fully electronic payment systems

    in which irrevocable funds are transferred irrevocably from one bank account to another, and where confirmation back to the originator and receiver of the payment is available in one minute or less. 4
  2. Instant Payments: The better version 5 ╸ Universal access ‧

    All players have direct access to the exchange ╸ ISO standard ‧ The modern ISO 20022 or 8583 in legacy systems ╸ 24/7 availability ‧ No cut-off times, no weekend freeze, just always-on systems
  3. Instant Payments: The best version ╸ Overlay services – API

    or QR code ‧ (Open) APIs to access, QR Codes for accessibility… ╸ Alternative identifier (aliases or proxies) ‧ Phone numbers, National IDs ╸ Push and pull payment capability ‧ Credit Transfer, Payment initiation, Request To Pay. 6
  4. Instant Payments: Why? ╸ Obviously Speed but equally important… ╸

    Precision ‧ Isolated execution ╸ Transparency ‧ When things go south what happened exactly? ╸ Certainty ‧ Confirmation to both payer and payee, final, instant settlements 7
  5. Credit Transfer: The Old Way ╸ Classic SCT transactions are

    processed in batches. ╸ All individual SCT transactions received during a specific period of time during a business working day are grouped into a single (batch) file. ╸ This file is then submitted for further clearing and settlement usually at the end of day. ‧ (Good luck if it’s a Friday!) 8
  6. Credit Transfer: The Instant Payment Way ╸ Clearing (and settlement)

    of SCT Inst take place on a transaction-by-transaction basis. ╸ Executed as soon as they reach a PSP system ╸ In real time end-to-end with specific confirmation to all parties 9

    instantly credited to online retailer account 4:18 pm Funds are credited to publisher account 4:17 pm Just in Time cash management engine initiates an instant payment to the publisher for sales proceeds 4:19 pm Publisher initiates a royalty payment to author via instant payment as per contractual terms PAYMENT PURCHASE 4:15 pm Customer purchase an online book and pays via instant payment method. Instant Payments: An example journey 4:20 pm Funds are credited to author account 4:21 pm Author remits funds to their family via P2P Instant Payment App 4:22 pm Funds are available to author’s family to be withdrawn
  8. Instant Payments: Benefits for business 11 ╸ Better communication between

    counterparties ╸ Improved liquidity management ╸ Real-time view of cash position ╸ Increased efficiency ╸ Access to transaction data ╸ Improved customer service ╸ Better relationships with suppliers
  9. Instant Payments: Big opportunities ╸ Gig Economy ‧ Globally, 85

    percent of gig economy workers would work more often if they could get paid faster. ╸ Silos of administrative complexity ‧ Up to $389 billion in total U.S. healthcare spending per year that could be eliminated by real-time infrastructures ‧ For large billers like electricity/phone companies with hundreds of thousands (if not millions) of bill payments, the assurance of receiving a payment bring a different level of liquidity management into play for them. 12
  10. 13 Zengi Japan SIC Switzerland HOFINET Korea SPEI Mexico Faster

    Payments UK 1970s - 2010s: Radio Silence Just a few initial players
  11. 14 2010s - now: The Cambrian explosion 60 schemes live

    NORTH AMERICA RTR Canada RTP USA LATAM SPEI Mexico EUROPE BIR Sweden Straksclearingen Denmark Straksbetalinger Norway Greidsluveitan Iceland UK Faster Payments United Kingdom SCT Inst Europe RTPE Czech Republic Express ELIXIR Poland Plăți Instant Romania Faster Payments Russia SIC Switzerland APAC HOFINET Republic of Korea IBPS China FPS Hong Kong CIFS Taiwan PromptPay Thailand RPP Malaysia Instapay Philippines PIX Brazil TransfiYa Colombia Transferencias en Línea (TEF) Chile MEA RPS Turkey Fawri+ Bahrain GIP Ghana NIBSS Nigeria PesaLink Kenya Real Time Clearing (RTC) South Africa Instapay Philippines FAST Singapore Zengin Japan IMPS India CEFTS Sri Lanka
  12. 70.2M India 7.8M UK 42.8M China 15 Global Leaders Some

    staggering numbers in daily volumen
  13. 16 ╸ Two operational, complementary real-time payment services ╸ RTP,

    launched in 2017, offers real-time payment capabilities to 57% of U.S. demand deposit accounts. Insurance and loan services using it for instant settlement, and same-day employee wages facilitate the growing gig economy. ╸ Zelle, enables individuals to P2P transfers to another registered user’s bank account. 3.3M tx/day, $840M in value. Instant Payment Globally: The US
  14. 17 ╸ The P27 Nordic Payments Platform will become one

    of the world’s first payment platforms that are ‧ Real-time ‧ Cross-border ‧ Multi-currency ╸ Sweden, Denmark and Finland joined now, Iceland and Norway coming in the middle term. Instant Payment Globally: P27 The Nordics
  15. 18 ╸ For any bank that transacts outside its home

    market, connecting to a pan-European system is a strategic priority. ╸ The two systems that compete in the instant payment market are EBA Clearing RT1 and the European Central Bank's TARGET INSTANT PAYMENTS (TIPS) system. Instant Payment Globally: Europe
  16. 19 60% of European PSPs have joined the scheme Spain

    91 PSPs Portugal 16 PSPs France 135 PSPs United Kingdom 28 PSPs Belgium 23 PSPs Netherlands 15 PSPs Germany 1170 PSPs Austria 401 PSPs Italy 266 PSPs Slovenia 14 PSPs Slovakia 4 PSPs Czech Republic 1 PSPs Poland 1 PSPs Romania 1 PSPs Bulgaria 1 PSPs Greece 12 PSPs Sweden 4 PSPs Finland 8 PSPs Estonia 7 PSPs Latvia 10 PSPs Lithuania 40 PSPs
  17. 20 The eurozone SCT Inst scheme processed 12% of all

    SEPA payments in Q1 2022, up from 1% in 2019. Instant Payment Globally: Europe
  18. 21 €1.000M moved instantly every day just through RT1, from

    just €230M two years ago. Instant Payment Globally: Europe
  19. 22 ╸ SCT Inst real-time payments are offered by Iberpay

    to 97% of Spanish banks, connecting to RT1 and TIPS ╸ Nearly half of the credit transfers have been instant in 2022 ╸ Average Daily Volume ‧ Iberpay: 526,000 Bizum: 573,000 ╸ Average Daily Value ‧ Iberpay: €150.2M Bizum: €27.9M Instant Payment Globally: Spain
  20. 23 ╸ The SEPA scheme for instant credit transfer. ‧

    Always denominated in euros ‧ 10 seconds execution limit ‧ 100.000€ max per transaction ‧ 24x7x365 ‧ ISO 20022 backed SCT Inst
  21. <?xml version="1.0" encoding="UTF-8"?> <Document xmlns="urn:iso:std:iso:20022:tech:xsd:pain.001.00 xmlns:xs="http://www.w3.org/2001/XMLSchema-instance" xs:schemaLocation="urn:iso:std:iso:20022:tech:xsd:pain.001. <CstmrCdtTrfInitn> <GrpHdr> <MsgId>1649186242</MsgId>

    <CreDtTm>2022-04-05T00:00:00</CreDtTm> <NbOfTxs>7</NbOfTxs> <CtrlSum>188552.18</CtrlSum> <InitgPty> <Nm>Gig Delivery SL</Nm> <Id> <OrgId> <Othr> <Id>B65874893000</Id> <SchmeNm> <Prtry>SEPA</Prtry> </SchmeNm> 24 ISO 20022 The standard provides a consistent messaging format for communications interoperability between financial institutions. Most countries using it as backbone as foundation stone.
  22. 25 ╸ The Group Header <GrpHdr> ‧ Metadata: message reference,

    date/time of creation, grouping type, number of transactions, sender identification ╸ The Payment Information <PmtInf> ‧ Requested execution date, originator name and account details, etc. ╸ The Credit Transfer Transaction Information <CdtTrfTxInf> ‧ Reference, amount, currency, beneficiary name, beneficiary account details, regulatory declaration, reasons for payment, etc. ISO 20022: Main segments
  23. SCT Inst flow: Step 1 Beneficiary PSP Originator PSP Originator

    SCT Inst Instruction 27 Beneficiary CSM The Originator PSP receives an SCT Inst Instruction from the Originator. Executes all processing conditions and funds availability checks. If successful, the Originator PSP instantly makes a reservation of the amount on the Originator’s Payment Account Instantly prepares an SCT Inst Transaction based on the SCT Inst Instruction and timestamps it.
  24. SCT Inst flow: Step 2 Beneficiary PSP Originator PSP Originator

    SCT Inst Transaction 28 Beneficiary CSM Originator PSP Instantly sends the SCT Inst Transaction message to the CSM of the Originator PSP. Via this message, the Originator PSP gives the authorization to the CSM of the Originator PSP to reserve funds on its account as cover for the SCT Inst Transaction. This provides upfront settlement certainty.
  25. SCT Inst flow: Step 3 Beneficiary PSP Originator PSP Originator

    SCT Inst Transaction 29 Beneficiary CSM The CSM of the Beneficiary PSP Instantly sends the SCT Inst Transaction message to the Beneficiary PSP. For the Beneficiary PSP, this message under step 3 implies that the Beneficiary PSP has settlement certainty for this SCT Inst Transaction in case the Beneficiary PSP accepts the transaction for further processing.
  26. SCT Inst flow: Step 4 Beneficiary PSP Originator PSP Originator

    Confirmation Message 30 Beneficiary CSM The Beneficiary PSP sends the confirmation message to the CSM of the Beneficiary PSP indicating that it: - has received the SCT Inst Transaction and, - is able to Instantly process the SCT Inst Transaction (positive confirmation) or not (negative confirmation with an immediate Reject)
  27. SCT Inst flow: Step 5 Beneficiary PSP Originator PSP Originator

    Funds Available 31 Beneficiary CSM Only when the Beneficiary PSP has sent a positive confirmation via step 4 and the Beneficiary PSP has the certainty that the message has been successfully delivered to the CSM of the Beneficiary PSP, it instantly Makes the Funds Available to the Beneficiary. The information about the new available funds is instantly accessible to the Beneficiary.
  28. SCT Inst flow: Step 6 Beneficiary PSP Originator PSP Originator

    Positive confirmation 32 Beneficiary CSM The CSM of the Originator PSP instantly reports to the Originator PSP the SCT Inst Transaction has been successful. The basis for this report is the contents of the confirmation message in step 4 which the CSM of the Originator PSP had received via the CSM of the Beneficiary PSP.
  29. SCT Inst flow: Step 7 Beneficiary PSP Originator PSP Originator

    Negative Confirmation 33 Beneficiary CSM In case the Originator PSP receives a negative confirmation about the SCT Inst Transaction which indicates that the funds had not been made available to the Beneficiary, the Originator PSP is obliged to immediately inform the Originator. The Originator PSP lifts the reservation of the amount made in Step 1.