Singapore, Sweden and Australia are planning to roll out immediate payment schemes in 2013, with India and the US not far behind. With the demand for real-time payments growing in the retail space, how much traction do they have with corporates?
The immediate payments snowball is gaining momentum. First rolled out in South Africa and Mexico in 2006, followed by UK in 2008 and then Poland and Nigeria last year, countries are queuing up to be next. Singapore, Sweden and Australia plan to implement real-time payments this year. And despite the US shelving a real-time initiative this year, a consortium of Bank of America (BofA), Wells Fargo and potentially J.P. Morgan Chase has launched ClearXchange, which will jointly allow millions of their customers to transact person-to-person (P2P) payments without having to exchange account numbers.
At financial technology company Fundtech’s user event, held in London on 26th February, payments experts looked at the state of play of real-time payment systems, developments in the pipeline and speculated on which country would be next, as part of a session entitled “24/7 payment operations – the new reality”.
South Africa and Mexico were the first off the blocks, launching immediate payment schemes two years before the next cluster. Although the South African scheme has been relatively unsuccessful, Mexico’s Sistema de Pagos Electrónicos Interbancarios (SPEI) is very popular, according to Gene Neyer, Senior Vice President of Product Strategy at Fundtech. Banco de México and commercial banks developed SPEI.
The scheme operates 23/7, from 7pm the day before to 6pm on the day. Each payment takes just 30 seconds, and the scheme is simple and cost-effective to use. To date its capacity is 800,000 transactions in 40 minutes. The scheme currently has 88 participants: 47 banks and 41 non-banks.
According to Neyer, the path to SPEI’s success included:
UK Faster Payments
Almost five years on from the launch of the Faster Payments service (FPS), Paul Pridmore, Director, Barclays Corporate Technology Office, relived the first payment of £1 made at midnight on 27th May 2008 by the CEO of APACS (now UK Payments) from his Barclays account to a charity – what Pridmore described as a career-making (or breaking) moment.
The scheme has come a long way in five years. It started out with a £10,000 limit on single immediate payments; this was increased to £100,000 on 6th September 2010. From the beginning of 2012 all payments had to reach the recipients account by the next working day after the customer initiated the transaction. In January 2013, FPS processed 750 million transactions worth £61 billion, according to Pridmore.
He outlined the many challenges the UK banking industry faced in implementing FPS, such as:
24/7 connectivity, which means no maintenance windows and peak day processing bottlenecks.
System capacity planning must be five years ahead – so the scheme is reviewing its infrastructure for future development.
The huge potential for fraud – two-factor authentication is a must and many are now looking at fraud profiling.
But immediate payments also opens up opportunities, including facilitating regulatory change, such as the Payments Services Directive (D+1), and a new, free-to-use current account switching service, which will be launched in September 2013. In addition, FPS and VocaLink will be the payment delivery mechanism for mobile payments (m-payments). FPS will also administer the central database of mobile phone numbers linked to bank account details, which is predicted to launch in 2014.
The next development on the agenda is the increase in the number of settlement cycles from the current three per day, according to Pridmore. On the horizon is the possibility of FPS processing both real-time gross settlement (RTGS) and multi-lateral net settlement transactions. There are also plans to standardise the message format to ISO 20022 XML.
Launching: Singapore G3
Later this year Singapore will complete the roll out of its G3 scheme, which includes single immediate payments – credit transfers (CTs) and direct debits (DDs). Batch payments – bulk CTs and DDs – are in progress and will replace the Giro instrument. Also electronic mandates (eDDAs), bank statement reports and other notification and administration messages are being developed.
Similar to the UK FPS and the Australian immediate payments initiative, VocaLink is supplying the underlying infrastructure and using ISO 20022 formats in order to provide extra information. The scheme will be operational 24/7 but banks must be open in order to receive the payments. All banks and their channels much support real-time payments. The turnaround time is 15 seconds bank-to-bank, and just five minutes to send a confirmation to the customer. There are two daily settlement cycles for single payments and one for batch payments.
The scheme currently has transaction limits of SGD10,000 for single real-time payments, SGD25m for bulk DDs and no limit for bulk CTs. David Brown, Senior Vice President, Australian Country Manager and Asia Pacific Product Executive, Fundtech, says that future phases will include foreign currency clearing between banks in Singapore and cross-border clearing with neighbouring counties.
Impact on corporates
Imran Ali, Product Manager, EMEA Payments, Citi Transaction Services (CTS), rounded up the discussion by highlighting the impact real-time payments is having on corporates. He said that in the UK the consumer-to-business (C2B) flows migrated to FPS mainly as a result of consumer online banking – at the beginning of 2012 UK retail banks en masse defaulted to FPS. However, business-to-business (B2B) payments are not migrating as fast, as the traditional methods of payment (ACH/BACS) seem to be sufficient.
For corporates, benefits can be found in a number of ways, including:
Price differential: FPS is much cheaper that wire transfers.
Online wallet providers are benefiting from faster loading/unloading.
Merchants are being paid quicker.
What about standards?
Ali raised an important point around the need for standardisation: as real-time payments experience rapid growth in many geographies, each scheme is similar but also different. In EMEA, for example, Citi is participating in immediate payment schemes in UK, Poland and Nigeria. Each one has its own characteristics unlike other countries – for example, Poland allows limited service hours, Nigeria supports DDs and UK supports bulk entry.
“There is a need for standardisation,” said Ali. “A fragmented infrastructure will be a problem for both banks and corporates.”