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Instant Payments: moving money at (almost) light speed

_aitor
September 19, 2022

Instant Payments: moving money at (almost) light speed

_aitor

September 19, 2022
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  1. Instant Payments:
    moving money at
    (almost) light speed

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  2. 3
    Hi there!
    Aitor García Rey
    CTO at Devengo

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  3. 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

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  4. 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

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  5. 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

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  6. 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

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  7. 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

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  8. 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

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  9. FAMILY
    PAYMENT
    10
    ROYALTIES
    PAYMENT
    ENGINE
    4:16 pm
    Funds are 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

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  10. 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

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  11. 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

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  12. 13
    Zengi
    Japan
    SIC
    Switzerland
    HOFINET
    Korea
    SPEI
    Mexico
    Faster Payments
    UK
    1970s - 2010s: Radio Silence
    Just a few initial players

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  13. 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

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  14. 70.2M
    India
    7.8M
    UK
    42.8M
    China
    15
    Global Leaders
    Some staggering numbers
    in daily volumen

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  15. 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

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  16. 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

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  17. 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

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  18. 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

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  19. 20
    The eurozone SCT Inst
    scheme processed 12%
    of all SEPA payments in
    Q1 2022, up from 1% in
    2019.
    Instant Payment Globally: Europe

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  20. 21
    €1.000M moved
    instantly every day just
    through RT1, from just
    €230M two years ago.
    Instant Payment Globally: Europe

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  21. 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

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  22. 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

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  23. xs:schemaLocation="urn:iso:std:iso:20022:tech:xsd:pain.001.


    1649186242
    2022-04-05T00:00:00
    7
    188552.18

    Gig Delivery SL



    B65874893000

    SEPA
    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.

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  24. 25
    ╸ The Group Header
    ‧ Metadata: message reference, date/time of creation, grouping type,
    number of transactions, sender identification
    ╸ The Payment Information
    ‧ Requested execution date, originator name and account details, etc.
    ╸ The Credit Transfer Transaction Information
    ‧ Reference, amount, currency, beneficiary name, beneficiary account
    details, regulatory declaration, reasons for payment, etc.
    ISO 20022: Main segments

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  25. SCT Inst flow: The four corner model
    Beneficiary PSP
    Originator PSP
    Originator
    26
    Beneficiary
    CSM

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  26. 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.

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  27. 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.

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  28. 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.

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  29. 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)

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  30. 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.

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  31. 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.

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  32. 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.

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  33. Demo time
    Just a tiny example

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  34. That’s all!
    Thank you very much for your time!
    Reach me at [email protected]

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