14 October 2015
Report – Real-time Payments Modernisation
Payments modernisation was the theme for a breakfast briefing on Wednesday 14th October at Sibos 2015 where the ability of real-time payment infrastructures to let banks compete with FinTech newcomers was discussed – alongside corporate usage, ISO20022 harmonisation and planned new US and EU launches. An Asian perspective, and the impact upon settlement, was provided in the afternoon by a panel of central bankers from Japan, Australia and Singapore.
Real-time infrastructures are “all about bringing payments into the 21st century and digitalising it”, said Harry Newman, head of market initiatives, EMEA, SWIFT, at a CGI breakfast briefing on Day 3 of Sibos 2015 in Singapore’s Marina Bay Sands resort. In his opinion they can potentially allow banks to modernise and compete with the disruption being caused by alternative payment service providers (PSPs) and FinTech newcomers.
According to Stig Korsgaard, engagement director for NETS, the operator of Realtime 24/7 the Danish real-time platform which launched at the start of 2015, such platforms are “good for banks”.
Use cases emerge as you roll them out. “We’ve seen taxi drivers, florists and many others use NETS in Denmark,” he said, as he argued that P2P consumer demand led to merchant usage and, ultimately, corporate uptake.
ISO20022 harmonisation on real-time platforms would, however, help corporates get more out of such systems and aid cross-border interoperability. “Data-rich services would be a major attraction for corporate users,” added Newman.
It is intended that new fast payment services in the US, under the auspices of the Fed, and in the EU, under the auspices of the EBA, will run on ISO20022 as they are launched in future years.
“Ubiquitous access drives the uptake of consumers and businesses,” said George Evers, Immediate Payments Services Director at VocaLink, which provided the back-end infrastructure for the UK Faster Payment Service (FPS), which launched back in 2008 and was one of the early pioneers in this field. “ISO20022 was not a mature standard back then, but it is now.”
The avoidance of different ‘flavours’ of ISO20022 XML, as unfortunately happened in the case of the single euro payments area (SEPA) project, is a key objective of the real-time infrastructure harmonisation drive that is presently underway. It should ensure multinational corporations (MNCs) can use such platforms cross-border without encountering the problem they have with SEPA payment instruments.
Evers argued that real-time or instant payment implementations, “whatever you call them”, will be more successful if you move en masse as a financial community to ensure uptake. 95% of payments on the UK FPS were covered by the ten core participating banks that launched the service. Corporates and others have since joined the FPS and access for new so-called ‘challenger banks’ and FinTech firms, is a possibility, most likely via a vendor aggregation product.
A shared back-end means banks can compete with each other on the front end – and with new FinTech entrants – in an environment where what really matters is the service that a client receives. The service layer becomes the battleground for business and volume, but only if the infrastructure level is good enough to compete with the likes of PayPal and other tech-led payment methodologies. Real-time systems mean it is. “It allows banks to participate fully in the on-demand economy and compete on service,” said NETS’ Korsgaard.
The mobile channel is another important element in the drive for users as the subsequent launch of the Paym platform in the UK shows. “In Denmark NETS has led to an 871% rise in mobile payment usage,” added Korsgaard.
Real-time infrastructures have now been rolled out in the UK, Nigeria, Sweden and many other countries. Their adoption in Asia was addressed in the afternoon of Day3 at Sibos 2015 when a panel of central bankers from Japan, Singapore and Australia provided updates on their respective countries’ uptake of such systems and the impact upon settlement times.
Jeryl Poh of the Monetary Authority of Singapore (MAS) explained how the Fast And Secure Transfer (FAST) platform in Singapore went live on 17 March 2014. It is based upon VocaLink’s Immediate Payments solution. A series of slides showed the audience how it operates with the 14 participating banks at launch joined later by a second wave of five banks on 18 September 2015 and a rise in the transaction limit to $50,000 in May this year. “This was especially important for corporate users,” said Poh, as was 24x7 services, high availability and coverage across mobile phone, internet and ATM estates.
Tomohiro Usui, head of payment and settlement systems at the Bank of Japan (BoJ), presented next on his organisation’s plans for a new 24x7 retail payment platform. Called the ‘More Time System’ it is due to go live in 2018. It will be open at the weekends and outside normal working hours but won’t be ISO20022 capable as currently constituted.
The separate BoJNET wholesale platform will use the ISO20022 standard, however, and is intended to enable same day FX transactions and the like. “I’m very happy to announce this went fully live yesterday,” said Usui, with a ramp-up to 9pm operating hours from February 2016, “so that we can link with Europe and other markets worldwide.”
Additional plans are also underway to enable global access on a longer basis to Yen (JPY) and Japanese government bonds (JGBs) in order to improve convenience for wholesale financial market participants.
NPP Australian Project
David Brown, NPP Program Director, Payments Settlements, at the Reserve Bank of Australia (RBA) presented next on his country’s adoption, in cooperation with SWIFT, of a new payments platform (NPP). “This is due to go live by the second half of 2017 with the technology design by SWIFT signed off in July this year,” he said. “We’re now doing the build out with mid-2016 the first delivery date, with testing to follow. RBA is a participant, but will act as the ‘middleman’ between regulators and banks.”
Brown described the schematic system design and how the Fast Settlement Service (FSS) will sit alongside the central bank’s own Real Time Gross Settlement (RTGS) solution, called core RITS. RBA’s RTGS will have access to one pool of liquidity during its opening hours of 7am-10pm Monday-Friday and sit alongside the FSS, which will take over once it closes with the liquidity moving across. SWIFT will manage the interfaces to FSS; overlay service providers; payer and payee banks; links to a data warehouse and so forth.
“There are service level agreements (SLAs) in place,” said Brown, adding that transactions will time out in 15 seconds, for instance, as a precautionary measure and to ensure speed. “Banks will also have to speed up their fraud monitoring capabilities.”
As in the UK and Singapore, however, the essential elements of fraud monitoring in a real-time environment will not change drastically from present arrangements. The use of pattern spotting behavioural software, anti-money laundering (AML) checks and so forth will just have to get faster.