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Gene Neyer is a Senior Vice President of

Product Management for Fundtech

(www.fundtech.com), a leading provider of finan-

cial technology. Mr Neyer has more than 20

years experience in the industry with leadership

roles in Product, Business and IT Management

as well as in Management Consulting. He holds

an MS Degree in Mathematics from City College

of New York, and Executive Master in

Technology Management from Wharton/

University of Pennsylvania.

ABSTRACT

In the past seven years, a new type of the pay-

ment infrastructure (Immediate Payments) has

been introduced alongside Real-Time GrossSettlement (RTGS) and Automated Clearing

House (ACH) mechanisms. Historically, banks

have responded to this development by creating

ad hoc, single country solutions or by tactical

changes to their existing payment platforms.

This paper argues that a more strategic response

is possible and is in fact the optimal approach

for banks that operate in multiple countries. It

shows that the drivers of adoptions are similar

for RTGS and Immediate Payments, and it is

therefore possible to use the historical diffusion

patterns of RTGS to estimate the rate of adop-tion for this new infrastructure and that it is

going to be a regular and frequent occurrence on

the payment product roadmap of a global bank.

The case studies will demonstrate that, although

each country takes a unique approach, rooted in

its history and market practices, significant com-

monalities have emerged. Global banks can take

advantage of these commonalities to implement

a generic multi-country payments solution that

supports the common core, and then deal with asignificantly smaller undertaking to implement

country-specific variations when a particular

country creates its own Immediate Payments

infrastructure. Alternatively, single-country

banks can defer the investment until their coun-

try expresses the intention to create such an

infrastructure. Even purely domestic banks

should take note that the common characteristics

are well beyond the capabilities of their legacy

payments platforms and that, in order to create

new compelling value for their customer base,

architecture modernisation will be an importantcomponent of the overall initiative.

Keywords: Faster Payments, Immediate

Payments, near real time, 24/7/365,retail payments

Nothing has come along that can beat the

horse and buggy.

Chauncey Depew, lawyer, politician

and businessman, advising his nephew

not to invest in Henry Fords automobile.

INTRODUCTION

Today, the world is virtually and univer-

sally connected via the mobile communi-

cations network and able to interact across

the globe in real time. Business and com-

Page 129

Journal of Payments Strategy & Systems Volume 8 Number 2

Journal of Payments Strategy &

Systems

Vol. 8, No. 2, 2014, pp. 129146

Henry Stewart Publications,

17501806

Lessons learned from 24/7 payments

operations

Gene Neyer

Received (in revised form): 4th March, 2014

Product management, SVP, Fundtech, 30 Montgomery Street, Ste 501, Jersey City,NJ 07302, USATel: +1-201-936-6505; fax: +1-201-946-1313; e-mail: [email protected]

Gene Neyer

Neyer:JSC page.qxd 04/06/2014 12:30 Page 129


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bilateral trade flows, membership

and/or participation in common finan-

cial organisations/association such as

BIS or SWIFT.

In the 1980s and early 1990s, RTGS was

adopted by approximately one country a

year. That is closely approximated by the

Immediate Payments adoption rate. Then

the pace accelerated owing to, in part, sev-

eral unique events.

In 1993, the central banks within the

European Union agreed that each

member state should have an RTGS

system. As part of its general focus on payment

infrastructures, the IMF and World Bank

identified RTGS as one of the compon-

ents necessary for the establishment of

sound and efficient financial systems.

Their support and funding have modi-

fied the cost component and enabled

development in many African and newly

emergent countries of Europe.

In 2002, CLS debuted to minimise the

risk of FX settlement failures (Herstatt

risk). For the currency to be part of CLS,the country must enable settlements in

central bank money, which means, with

just a few exceptions, RTGS.

Such exogenous events have not yet

occurred for Immediate Payments, but

Immediate Payments infrastructures can be

created by actors other than central banks

and may serve only a limited segment of

the market. This would skew the adoptionequation towards faster adoption. In fact, it

is conceivable that multiple Immediate

Payments infrastructures may operate (and

interoperate) in a given country, and that is

one of the topics under discussion in the

US Fed consultative paper.

Immediate payments evolution

projection

Given the similarities in the business driv-

ers and market conditions for RTGS and

Immediate Payments initiatives, it stands toreason that the adoption pattern of

Immediate Payments will parallel that of

RTGS.

Interpolating from the first three phases

of the RTGS adoption, as described in

Table 1,1 results in the adoption projection

described in Table 2.

As Tables 2 and 3 show, Immediate

Payments have already reached the

Opinion Leader stage of the adoption life

cycle and could be adopted by more than

20 additional countries in the next tenyears, with over 50 more to follow in the

next (Early Majority) phase of adoption.

This projection assumes that the rate of

adoption is similar in the Opinion

Leaders stage and 40 per cent slower in

the Early Majority stage.

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Neyer

Table 1: Real Time Gross Settlement (RTGS) adoption

Innovators Opinion leaders Early majority

% 2.5% 13.5% 34%

Count 5 23 55

Period 19181987 19871997 19982004

Duration 6 yearsa 10 year 6 years

Rate 2.3/year 9.2/year

aAdjusted for an outlier.



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Table 4 lays out a much more conserva-

tive projection, which assumes that no

accelerating events will occur and the

adoption rate for Early Majority stage isassumed to be 68 per cent slower than that

of RTGS.

In that scenario, one would still expect

20 countries to adopt this type of clearing

in the next ten years with 30 more to

follow in the next decade.

CASE STUDIES

The earliest adopters of Immediate

Payments took different approaches to

achieving the common objectives ofspeed, ubiquity and 24/7 availability. While

each country was able to advance

Immediate Payments initiatives within its

borders, each did so within a unique set of

circumstances and enjoyed varying levels

of success.

Lessons from 24/7 payments operations

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Table 3: Immediate Payments adaptors

Innovators Opinion leaders

South Africa, Sweden, Singapore, Australia

Mexico, 20 more to the 1st inflection point

UK, (a) US: FIS PayNet (private network), ClearExchange (3 banks), US Fed is in consultation

Nigeria, with the industry

Poland (b) India: IMPS (mobile payments over the ATM network using NFS switch)

(c) Hong Kong: plans to initiate Immediate Payments initiative in 2015

(d) Malaysia, Thailand, Taiwan: started making enquir ies on Immediate Payments

(e) Nepal: indicated interest to look at Immediate Payments in 23 years time

Table 2: Immediate Payments projected adoption


% 2.5% 13.5% 34%

Count 5 23 55

Period 20062012 20132023 estimated (E) 20242034 (E)

Duration 6 years 10 years (E) 10 years (E)a

Rate 1/year 2.3/year 5.5/year

aThe paper assumes a somewhat more conservative adoption rate for Immediate Payments than for Real Time

Gross Settlement (RTGS) even in the best case.

Table 4: Immediate Payments projected adoption: conservative


% 2.5% 13.5% 34%

Count 5 23 55

Period 20062012 20132025 estimated (E) 20262044 (E)

Duration 6 years 12 years (E) 18 years (E)

Rate 1/year 2/year 3/year



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Mexico

Bank of Mexico (BoM) has operated a

traditional RTGS system (SIAC) since

1990, and in 2004 it introduced and

deployed the Sistema de Pagos

Electrnicos Interbancarios (SPEI). Since

SPEI is significantly more efficient, most

payments transactions migrated from

SIAC to SPEI. The SPEI is classified by

BIS as a hybrid system, with the followingcharacteristics:

SPEI runs frequent multilateral net set-

tlement cycles (300 payments or 20 sec-

onds, whichever is sooner), making it

significantly more liquidity-efficient

than a traditional RTGS system. This is

important, since there are no credit lines

to support overdrafts; all transactions

settle only if the participant has the

funds in the account.

SPEI accounts open and close the daywith zero balances. Participants can

transfer funds into their SPEI account at

any time, via an online connection.

At the end of the day, positive balances

in the SPEI are credited to the banks

current accounts in SIAC.

Since one of the main responsibilities of

BoM is to to seek the well functioning of

the payments systems of the country, in

2006, it decided to broaden the use of the

system to include other constituents and

stakeholders. The bank approached this

initiative strategically:

It used its policy and regulatory tools to

make the SPEI the most attractivemethod of clearing.

It encouraged government payments to

be switched to SPEI, which provided

early critical mass (see Figure 1).2

Since 2008, 100 per cent of government

payroll and provider payments have

been disbursed through the SPEI.

Since 2012, Social Security pension has

been disbursed through SPEI.

It heightened public awareness of the

new service via an advertising campaign

geared towards the general public andby providing a SPEI section on the cen-

tral bank website.

The results3 have been highly impressive:

small-value transaction volumes have

gone from about 25,000/month to

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Neyer

Figure 1 Number

of Sistema de

Pagos Electronicos

Interbancarios

(SPEI) payments

during the day

(February 2012,

daily averages, in

thousands).

Time of day

120

110

90

80

70

60

50

40

30

20

10

55

22

54

83

115

98

81

Continuous LinkedSettlement (CLS)Government

1920 2022 2224 02 24 46 68 810 1012 1214 1416 1618

0 00 0 1



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500,000/month in a little over seven

years, representing almost 90 per cent

average annual growth. Since large-value

transaction volumes continue to grow at

the speed of the overall economy, there

clearly has been a migration from cash

and other less efficient payment instru-

ments to SPEI.

Table 5 presents, at a glance, how SPEI

has implemented the key characteristics of

Immediate Payments processing as well assome of the value-added features that are

unique to it.

Further planned developments

Bank of Mexico has announced the fol-

lowing plans:

Reducing the processing time in the

originating and receiving bank from 30

seconds to 5 seconds.

Technical improvements to increase the

capacity by a factor of 10.

Inclusion of mobile payments.

Increase the participation of govern-

ment and social security agencies

especially at the municipal level.

In the longer term, the path to real-

time adoption will lead toimproved access for smaller institu-

tions;

direct access;

creation of new services and proposi-

tions with the overlay and API serv-

ices facilitating the adoption;


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Table 5: SPEI main features

Availability 23 hours per business day (7:00 p.m.6:00 p.m. Banks must allow customers

to submit SPEI transfers via e-Banking, from 6:00 a.m. to 5:30 p.m.

Settlement speed 30 seconds per stage: through originating bank to clearing, through SPEI to

receiving bank, receiving bank to credit the beneficiary account.

SPEI stage started with 30 minutes and has been progressively shortened

first to 10 minutes, then to 5 minutes, and now to 30 seconds.

Volume Up to 2 million/day

Payments mix All amounts; 90% is below US$8k (equivalent).

Participants 47 banks and 41 non-banks

Unique business characteristics Very simple to use: only requires the beneficiary account ID (Clave

Bancaria Estandarizada (CLABE)) account number or a debit card

number), name, and the name of their bank.

Central Bank website, which provides:

Tracking service: providing the status of the payment and exact time it

was processed in SPEI.

Official receipt: the receipt is issued (and digitally signed) by the

beneficiarys bank within 30 minutes of crediting the funds to the

beneficiary account.

Unique technical characteristics Short payments messages: a proprietary protocol encapsulating several

payments into a single, digitally signed transaction.

A new payments layout for mobile payments.



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migration of existing slow schemes

(eg direct debits) to real-time when

the critical mass of demand is

reached.

The UK

The roots of the UKs Faster Payments

Scheme (FPS) can be traced to 1998,

when the UK Treasury commissioned a

review (the Cruickshank Report) of

competition within the UK banking

sector. In 2005, the Payments Systems

Task Force announced an agreement to

reduce clearing times for phone, internet

and standing order payments to no more

than half a day the so-called ELLE

model resulting in payments beingreceived the same day if made sufficiently

early. With SEPA aiming to move to same

day settlement, however, and the UK

aiming to meet or exceed SEPA goals, the

Task Force accepted the Association for

Payment Clearing Services proposal for a

more ambitious initiative, which would

ensure access to funds within a couple of

hours of any payment being made and

allow payments to be sent 24 hours a day,

seven days a week. Although initially

planned for November 2007, FPS wentlive in May 2008 not an unreasonable

delay for an undertaking of this scope and

complexity and represented the first

new payments service to be introduced in

UK in more than 20 years.

The UK FPS is a deferred multilateral

net settlement system. To reduce the settle-

ment risk, the scheme runs multiple settle-

ment cycles (currently three), with the

actual settlement taking place on the

books at the Bank of England. It supports

the direct and indirect agency models andthe following payment instruments:

SIP: single immediate payment;

FDP: forward dated payment;

STO: standing order;

returns;

DCA: direct corporate access for bulk

payments;

support for third-party beneficiaries.

Because of the uncertainty about customer

adoption, as well as rigorous implementa-

tion and testing requirements, some banks

have delayed adoption, which has resulted

in further delays as banks decide when to

make the service available to customers and

what additional restrictions they would

need to apply. Nine months after the launch

date, the Faster Payments initiative was still

only operating at 69 per cent capacity.4

Fifteen months after launch, capacity had

reached 47 per cent of standing orders, and

73 per cent of all single payments.5

The initial delay, the lack of consistent

marketing and the generally low level of

awareness have resulted in a slower growth

rate than in Mexico. Still, given the strong

value proposition for Immediate Payments,

the scheme has taken hold. The schemes

initial growth was exponential, reaching a

peak of 1 million payments/day in the

third month, 4 million payments/day in

the sixth month, and 5 million

payments/day in the ninth month. In

2012, the scheme processed 800 milliononline and phone payments.

As reported by various sources,6 the ini-

tial FPS volume came from BACS, as

banks switched the transactions onto the

new rails transparent to the customer (and

hence without the need for extensive

publicity), which was then augmented by

additional organic growth.

Table 6 shows how the UK FPS has

implemented the key characteristics of

Immediate Payments processing as well as

some of the value-added features that areunique to the UK.

Recent and further planned

developments

The FPS has already created the following

value-added services:

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Scheme: increased the number of settle-ment cycles.

B2C: Direct Corporate Access was

deployed in 2009.

P2P: Barclays PingIT mobile service

debuted in 2012. This is being followed

by the industry effort to expand the use

of mobile by creating the proxy

database, planned for 2014. Eight

banks having already confirmed

participation.8

C2B: bill pay services and alternative e-

/m-commerce are planned for 2014.

Sweden

In the case of Swedens Immediate

Payments scheme, the initiative was driven

by the private sector rather than by the

regulatory mandates. As the only clearing

house for mass payments in Sweden,Bankgirot saw offering Immediate

Payments as a natural step forward for

them. They conducted significant market

research and consultation with participat-

ing banks, and then developed a business

case before moving ahead with the

scheme.

The development of the scheme was

influenced by a number of factors particu-

lar to Swedens financial industry, specifi-

cally: electronic payments already

dominate financial transactions; Swedishbanks are historically open to adopting

innovative solutions quickly; there is great

interest in e-/m-payments; and there is a

strong collaborative relationship between

Bankgirot and the Swedish central bank.

These characteristics helped Sweden to


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Table 6: UK Faster Payments Scheme (FPS): Main Features

Availability Continuous

Settlement speed Fifteen seconds from submission to the scheme to the receipt of the

acknowledgement (ACK) from the beneficiary bank. The funds are typically

available in less than two hours.

Volume 2.5 billion payments since 2008; 735.6 million/year.

Payments mix Single Immediate Payment (SIP) is limited to 100,000. But different

members may only offer lower ceilings for different categories of customers

and payments, based on their r isk management profile.7

All members allow standing orders (STOs) of up to 100,000.

In reality, the limits do not seem to represent a barrier for use, as an average

payment in 2008 was for 400 and has grown to 780 in 2013.

Participants Ten banks are direct members. All UK banks and building societies now send

and receive Faster Payments either directly or as correspondents.

Unique business characteristics Allows direct corporate access to the scheme, with the bank needing to have

the capability to authorise the withdrawal.

Unique technical characteristics Two main ISO protocols: ISO20022 to the gateway (on bank premises) and

ISO8583 from the bank gateway to scheme gateway.

Highly proprietary socket-based protocols between bank and scheme

gateways.



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implement an innovative solution that

would minimise costs, and reduce risks

and complexity without compromising

capabilities or service. Swedens schemeresulted in the development of a new cen-

tral infrastructure that leverages banks

existing connectivity options and does not

require banks to completely re-tool their

operations. This central infrastructure

uses ISO20022 and SWIFT standard

throughout without the expense and

complexity of supporting multiple ISO

standards;

offers round the clock operation with-

out banks taking on credit risks (even

when central bank books are closed),removing risks and the technical and

operational complexities inherent in the

deferred net settlement schemes;

was designed to facilitate m-payments

from inception not as a subsequent

add-on. That said, the system had to be

open and able to support all services

where short delay and high availability

are desirable, such as: account-to-

account transfers, benefit payments,

salary payments, mobile and web pay-

ments, and substitute for cheques andcash.

The new scheme was introduced to the

public in the context of the payment

product Swish a joint venture between

leading country banks (see Table 7).

Promotions throughout the year, both in

online banks and on a separate website,

ensured that information about the new

service was widely spread long before its

launch. This is a quick, simple and secure

way to pay via mobile phone. Through thiscooperation with other banks in Sweden,

we provide the opportunity for our cus-

tomers to transfer money seamlessly from

their own mobile phones to a bank

account, said Mats Torstendahl, head of

retail banking at SEB.

In March 2013, Bankgirot put out a

press release that began:

For the first time since 1959, Bankgirotis now launching a new payment system

in the shape of Payments in real-time.

Notable features of the real-time system

are the ability to process payments in

seconds and constant availability 24/7.

Last week, six Swedish banks launched

Swish, and a prerequisite for Swish is

our new payment system, Payments in

real-time.9

After experiencing a 64 per cent month-

on-month increase in January 2013,

growth has stabilised at 10 per cent permonth.

Table 7 shows how BiR (Betalningar i

realtid Payments in Real Time) have

implemented the key characteristics of the

Immediate Payments processing as well as

some of the value-added features that are

unique to it.

Further developments

The vision of Bankgirots Payments in real

time is to provide new customer offerings

and to optimise existing payment solutionssuch as interbank transactions, e-

commerce and internet banking.

Singapore

The current eGIRO platform was imple-

mented in 2001, replacing the previous

Interbank GIRO system that had served

Singapore for the preceding 17 years. This

13-year-old system is constraining cus-

tomers owing to the limited information

that can be passed through the scheme

because of field and size limitations. Inaddition, the paper mandate of Direct

Debit Authorisations (DDA) can take

weeks to set up, and making changes to it

can be very inefficient. To overcome these

issues, the Fast and Secure Transfers (FAST)

initiative was born. More than a real-time

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payments system, FAST is also a low-value

clearing system, processing real-time single

transactions and replacing eGIRO for bulk

file processing. By adopting ISO 20022

XML messaging standards, the general

platform was established so that it can

extend to multi-currency and cross-border

payments, as required, in the future.

The FAST scheme will support the fol-

lowing payment types and payment-

associated processing:

Real-Time Payments: credit transfers

and collections (direct debits). FAST

enables member banks to transfer

funds or collect payment from a desig-

nated account in another bank within

seconds. It will operate 24 hours a day,

7 days a week and support either real-

time debits or credits in a single mes-

sage transaction.

Bulk payments: credit transfers and col-

lections (direct debits). The bulk pay-

ment module is a replacement of

existing eGIRO System, and will

include new features such as:

new messaging standard to facilitate

settlement and reconciliation;

new standard fields that will allow for

additional remittance information, tobe passed with the payment;

currency codes to support future

non-SGD GIRO transactions;

removal of branch codes.

eDDA: electronic mandates. The DDAs

will be set up and exchanged electroni-


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Table 7: Betalningar I Realtid (BiR) main features


Settlement speed Separately configurable Service Level Agreement (SLA) for debtor agents and

creditor agents (in seconds). Rapid processing through the scheme (under two

seconds).

Payments mix Mobile payments are the 1st service offered.

Participants 1st wave consists of 7 banks: Danske Bank, Handelsbanken, Lnsfrskr ingar

Bank, Nordea, Skandinaviska Enstilda Banken (SEB), Sparbankerna and

Swedbank.

All Swedish banks and payment institutions that fulfil the participant

requirements have the r ight to participate in the system.

Both direct and indirect membership models are supported.

Unique business characteristics No credit risk concerns.

No limitation on amounts.

Support for direct scheme access for billers.

A platform that allows a range of different payment flows and thereby the

development of new payment products in different currencies.

Bank focused management tools: banks dashboard, bank level

configurations for settings and management information.

Unique technical characteristics Night and day cycles and mirror accounting to accommodate settlement in

central bank backed money even when the central bank is closed. Accounts

are funded prior to closing of Riksbanks RTGS System, to enable the

night, weekend and holiday availability.



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cally, leveraging the scheme infrastruc-

ture and capabilities to support theadoption of a bulk payment and will

benefit real-time debit transactions. It

will reduce the turnaround time

required to setup the DDA from the

existing 1215 working days to five

working days or less, depending on the

readiness of billing organisation banks

and billing organisations. Amendments

and termination features will be

included as part of the module.

Table 8 presents the key characteristics ofFAST as well as some of the value-added

features that are unique to it.

Further planned developments

Mobile payments via beneficiarys

mobile phone numbers.

Multi-currency payments between

banks in Singapore. Cross-border payments.

Australia

Australia has initiated the New Payment

Platform (NPP) to develop new, fast, flex-

ible and data-rich payments infrastructure

for Australia, in line with the timetable

mandated by the Reserve Bank of

Australia (RBA) in June 2012. The pro-

gramme is being overseen by the NPP

Steering Committee a group of up to

15 senior representatives from Australiaand New Zealand Banking Group,

Bendigo and Adelaide Bank, Citigroup,

Commonwealth Bank of Australia, Cuscal,

National Australia Bank, the RBA,

Westpac Banking and APCA. The Steering

Committee has appointed KPMG as pro-

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Neyer

Table 8: Fast and secure transfers (FAST) main features


Although each bank can decide the operating hours for originating FASTpayment instructions, it must support receiving FAST payment instructions

24/7. Moreover, all banks must support real-time payments from internet

banking.

Settlement speed Turnaround time for payments, from when bank A sends a payment to when

bank B is credited and bank A is notified of completion, is expected to be in

line with other similar schemes.

Payments mix Maximum of Singapore Dollar (SGD) 10,000 for real-time payments (to be

reassessed after launch).

Participants All members of Singapore Clear ing House Association (SCHA) are eligible.

But it is optional to join and so multiple implementation waves are planned.

Unique business characteristics Multiple settlement periods during the day (initially set at twice per

business day).

Support multi-currency.

Support Electronic Direct Debit Authorization (eDDA) electronic

mandates.

Unique technical characteristics Pure ISO messaging standards (pacs.008, camt.056).

Exception handling messages, such as resending payment if no response

received within seconds, automatic cancellations.



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gramme manager, with a brief to ensure a

well-resourced, highly collaborative indus-

try programme.10

The initial strategic objectives are:

capacity for businesses and consumers

to make payments in real-time, with

close to immediate funds availability to

the recipient, by the end of 2016;

ability to make and receive low-value

payments outside normal banking

hours by the end of 2016; this would

include availability of any real-time

system;

capacity to send more complete remit-

tance information with businesses and

consumers payments by the end of2016;

a system for more easily addressing retail

payments to any recipient should be

available; to the extent that this is pro-

vided by a new real-time system, it

should be available by the end of 2017;

this does not rule out earlier availability

via other solutions.

One of the key design principles of NPP is

separating infrastructure and services. There

is a strong consensus that any new paymentsystem developed through industry collab-

oration should maximise economies of

scale and beneficial network effects. These

come from nearly all payment users having

access to the same underlying infrastruc-

ture. It should, however, also establish a

market environment for diverse payment

schemes and services to evolve over time

and competitively address the changing

needs of many different end users.

In order to maximise the chance of

achieving these important but competingobjectives, the Committee proposes a lay-

ered solution consisting of:

Basic infrastructurecomposed of a clear-

ing utility and linked RBA real-time

settlement, which provides the capabil-

ity to meet the core criteria, including

connecting all approved deposit-taking

institutions, enabling fast, flexible pay-

ments messaging and allowing for thefuture development of tailored overlay

payment services using the infrastruc-

ture.

Overlay services that use the basic infra-

structure through standardised access

arrangements to offer payment schemes

and services tailored to particular con-

texts, and particular types of customers.

The Committee anticipates that mul-

tiple overlay services will develop over

time, and may be commercial and com-

petitive in nature. But to promote early

take-up and use of the basic infrastruc-ture, the Committee proposes the

development of an initial convenience

service as the first overlay service. This

will use the basic infrastructure to

enable authorised deposit-taking insti-

tutions to offer an attractive, fast con-

sumer payments service to their

customers. Other approved schemes,

hubs and services that wish to use the

basic infrastructure could do so on an

equivalent basis to the initial conven-

ience service, and it is expected thesewill evolve independently in the future.

Table 9 presents the currently known key

characteristics of NPP as well as some of

the value-added features that are unique

to it.

LESSONS LEARNED

Customer behaviour

In the countries that did implementImmediate Payments, customers respond

with alacrity. They take advantage of avail-

ability and timeliness of the new infra-

structure, to make payments at the time

that is convenient for them. For example:

according to Citis experience, in


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January 2013 30 per cent more tax pay-

ments were made on the 31st, the last

day of the self-assessment tax deadline

in the UK, than in 2012. Of these pay-

ments, 46 per cent were made outsideof the hours of 9am to 6pm, showing

that consumers are no longer restricted

to making payments during business

hours.11

Customers have rewarded these new infra-

structures with acceptance and double

digit growth rates, especially if, in addition

to availability and speed, the infrastructures

offer competitive pricing (eg Mexico and

the UK).

Banks and businesses have taken advan-tage of the availability and timeliness of

the new infrastructures to offer new prod-

ucts, mobile payments being a primary

example.

Availability 24/7

There are four aspects to consider: author-

isation, clearing, settlement and reporting.

Authorisation

To be able to validate that an account

exists, that it has enough funds to coverthe payment and that the transaction can

be released for clearing, banks must have

both the electronic and manual processing

capabilities continuously available in

channels, payments, core banking and

compliance.

To date, the banks have opted to sus-

pend manual processing: any transactions

that fail checks are rejected back to the

originator. This resolves the need to have

processing staff continuously available,although in the future one can expect the

24-hour coverage that some banks

already have on business days to be

extended to holidays and weekends as

some banks are already doing for branch

services.

On the electronic side, the banks

already have many systems capable of con-

tinuous processing. In fact, to support

ATM processing, many banks have already

implemented the type of stand-in (also

known as shadow) processing in theDDA that is also required for the valida-

tion of Immediate Payments.

But in order to offer true continuous

processing, even through application

upgrades and scheduled maintenance

intervals, banks must at minimum have

two independent data centres with the

ability to switch processing seamlessly

between them, as needed. For smaller

banks, which have been making do with

cold or warm backup capabilities, this will

require a significant upgrade of their ITcapabilities or risk exposing periods of

unavailability to their customers.

Clearing

Clearing follows the capabilities of the

underlying infrastructure.

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Neyer

Table 9: NPP main features


Settlement speed Expected to be comparable with the current practices.

Participants Expected to be comparable with the current practices: to be open to all banks

eligible to use the RTGS.

Unique business characteristics Settlement with Central Bank (RBA) at time transaction cleared (processed).

Unique technical characteristics Messaging standards are XML IS20022-based.



14/19

Where immediate payments were

added to the existing infrastructures, no

changes were made to the availability

profile. For example, in SPEI, processing

is available for 23 hours a day on busi-

ness days only.

In the new specially developed infra-

structures (eg the UK, Sweden,Singapore and Australia), 24/7/365

availability is designed in.

The approach taken by Singapore FAST is

fairly representative:

The central scheme operates at two

sites, at two different locations of the

Singapore Automated Clearing House

in the activeactive mode and with

redundancy and diversity in and

between the sites. Thus, the central infrastructure is con-

tinuously available, and any messages in

process when one site goes down will

time out and will be re-processed by

the originating bank through the sur-

viving site.

Monetary Authority of Singapore

(MAS) classifies FAST as a critical

system. Therefore, each FAST member

bank can have up to a maximum of four

hours downtime per month for their

FAST system. The MAS will impose

penalties (including financial penalties)

on banks that exceed four hours down-time per month.

Singapore banks will, therefore, have to

make necessary infrastructure and archi-

tecture investment to ensure that they

can meet the four-hour availability

requirement.

Various operational aspects are addressed

by scheme rules (and supporting system

features). For example, see the next section

on how settlement risk is handled when

the settlement mechanism (central bank) isoffline.

Settlement

Settlement is of course done via RTGS,

which is only available during business

days. There are two major techniques in


Page 142

Table 10: Approach to continuous settlement: select countries

Country Approach to continuous settlement

Mexico Not available. The system is only available dur ing RTGS hours.

UK Collateralised. All member banks are par ty to liquidity and loss-shar ing agreement, to ensure that

settlement can be completed in the event of a member defaulting. It is designed to cover the

largest single Net Sender Cap. Each member also pledges collateral (held in trust by the Bank of

England), with the total amount of collateral pledged equal to the largest Net Sender Cap. In

the event of a members default, that members collateral would be realised to repay liquidity

provided by surviving members in part or in full.12

Sweden Prefunded. BiR has an account in RIX (Swedish RTGS). Banks deposit central bank funds in

that account, and the mirror account structure on the BiR side is used outside central bank

hours. The operation of the separate structure has to comply with regulations agreed with the

Riksbank.

Poland Prefunded. Payment settlement in the system is based on deposit model, with the use of funds

collected in the Settlement Account (escrow account maintained at National Bank of Poland

(NBP) for KIR S.A. in the SORBNET system). Each incoming transfer to a particular bank

account increases the available participants internal account balance; each outgoing transfer

decreases the available participants internal account balance.



15/19

handling settlement considerations during

the RTGS unavailability window (see

Table 10):

Collateralisation: typically associated

with deferred net settlement processing

(eg the UK FPS). Pre-funding: where central bank funds

are used to guarantee settlement (eg

Swedens BiR).

The two main issues around settlement are

risk and efficient use of capital. At present,

the possible impact is modest, since:

Value moved over Immediate Payments

flows is not significant in comparison

with other mechanisms. For example,

for the UK, FPS volumes in Novemberwere less than 1 per cent of the CHAPS

volumes.13

The direct (settlement) members form

a trusted club (see Table 11).

Given the double digit growth rates, rise

in ceilings on maximum transaction value

and the fact that in some countries the

unavailability period can be significant

(ten days for Golden week in Japan, seven

for China), these concerns will increase in

importance. When they do, it is likely thatthe existing techniques will be applied, eg

Swedish BiR is already using limit man-

agement to handle the risk concerns over

the night and holiday periods.

Moreover, as more and more demands

are made for 24/7 availability, the central

banks will find ways to respond as they

did for CLS, when extended operating

hours were introduced to overlap process-

ing periods to ensure DvP.

Reporting

The customer channels (eg InternetPortals) are already continuously available,

so they are ready for the 24/7 world.

Closed-loop processing (where the

beneficiary bank confirms to the originat-

ing bank that the funds have been credited

to the beneficiary) is designed into the

new infrastructures, thus providing the

necessary information to the reporting

channels.

Near-real-time processing

Near-real-time processing concerns cutacross the same aspects as 24/7 availability,

and require their capabilities to be taken to

the next level.

Authorisation

It is certainly within the current state of

the art to validate account status and funds

availability in real time and that is all that

is required for domestic credit transfers.

For example, in Mexico, BoM rules dictate

that originating banks send customers

payment instructions to SPEI within 30seconds after accepting the instruction

(and planning to reduce this to five sec-

onds). In contrast, the UK started with the

aspiration of real-time validation, but the

industry decided to leave the validation

timing up to the banks. Going forward,

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Neyer

Table 11: Membership in immediate clearing select countries

Country Membership size

Mexico 47 banks, 41 non-banks

UK 10 direct members, out of 300+ banks

Poland 6 direct members, 21 agreements signed, out of 49 banks in the basic retail clearing

Sweden 7 direct members



16/19

one can expect that additional capabilities

(compliance, mandate validation) will

need to be made real-time capable, as

banks expand the scope of authorisation.

Clearing

Where immediate payments were

added to the existing infrastructures,

clearing was accelerated where possible.

For example, India IMPS offers near-

real-time processing on top of the ATM

clearing infrastructure.

In the newly developed infrastructures,

near-real-time closed loop processing is

designed in.

One of the side-effects of using the stand-in processing for core banking is that funds

are available with some delay typically

in under an hour. As more and more banks

adopt real-time (or quasi-real-time) cores,

one can expect that interval to shrink sig-

nificantly.

Settlement

Although there is no single accepted solu-

tion, immediate payments are retracing the

path of past developments in the industry:

Both DNS- and RTGS-like mech-

anisms are used.

As they evolve, DNSs move to faster

settlement by adding more settlement

cycles, whereas the RTGS-based

schemes are looking to optimise liquid-

ity use by moving towards the hybrid

schemes.

Reporting

Although the channels are generally avail-

able, the information is not necessarilyavailable in real time, especially if data

integration is done via the core banking

(on the back of postings) rather than off

the payment systems.

The BoM offers a reporting service that

makes this information available in real

time (with non-repudiation). A more

prevalent trend, however, is for the bank to

improve the integration to achieve near-

real-time processing end to end.

CONCLUSION

Using RTGS development as a guide, this

paper projects that, in the next ten years,

20 countries will implement Immediate

Payments infrastructures, with 3050 more

countries joining them in the ten years

after that.

Each country will take its own path to

Immediate Payments, consistent with the

history of the development of its financial

industry. But it is clear that, in order toreach ubiquitous participation, the central

bank or an equivalent agency will have to

take a strong facilitative role with the

intention of improving the infrastructure

(eg Singapore, Australia) rather than

following the for-profit model (eg

ClearExchange, FIS PayNet).

Purely domestic banks can afford to

take a reactive approach and wait until the

country begins the adoption process. Even

as fast followers, banks that try to adopt

Immediate Payments by using legacy pay-ment system architectures will probably

not be able to meet the speed and avail-

ability requirements of m- and e-payments

and will lose market share as a result.

Recognising that Immediate Payments

are more likely to be adopted in the

larger/richer countries (which are also

likely to be the key target markets), global

banks whose business model is to be active

in multiple retail markets should consider

taking a more proactive approach.

This would be analogous to the devel-opments that many of these banks have

already undertaken to create multi-

country payment hubs (regional or global)

for RTGS clearing. Capitalising on the

fact that different RTGS share many

common features and need to integrate to


Page 144



17/19

the banks support systems in essentially

the same way, the multi-country hub

approach reduces the costs and risks. This

type of payment hub was typically asecond generation initiative, replacing

many in-country systems with a single

common one.

With Immediate Payments, global

banks have an opportunity to achieve the

same benefits in the first generation. Just as

with RTGS, although many of the details

differ, the commonalities are compelling:

ISO 20022 as the message format;

information delivery via a closed loop

process;

real-time clearing; 24/7/365 availability;

fixed (small) number of settlement risk

management options.

And just as with RTGS, each new

Immediate Payments clearing will need to

be integrated into the core banking, cus-

tomer channels, risk and fraud systems in a

substantially identical way.

Therefore, a payments hub serving

Immediate Payments clearing will allow

the bank to make the strategic investmentonce and be able significantly to reduce

the scope and effort involved in the subse-

quent country rollouts. Since all the inte-

gration work will have been done, future

implementations will only need to deliver

country-specific extensions resulting in

smaller, lower-risk, higher-return projects

and in more attractive business cases.

For that reason, the banks that approach

Immediate Payments on a tactical one

country at a time basis are likely to over-

spend and still fail to capture the criticalmass of the emergent customer base.

It is those banks that recognise the

scope of the opportunity and prepare a

strategic multi-country response, aligning

business case, current capabilities and

selecting a solutions partner with proven

experience and capabilities to deliver

while the scheme is still evolving that are

likely to emerge as the winners.

REFERENCES AND NOTES

(1) Bech, M. and Hobijn, B. (2007).

Technology Diffusion within Central

Banking: The Case of Real-Time Gross

Settlement, International Journal of Central

Banking, September, pp. 162164,

available at: http://www.ijcb.org/

journal/ijcb07q3a5.pdf (accessed 20th

January, 2014).

(2) Medina-Alvarez, R. (2012) Banco de

Mxicos Role in Facilitating and

Promoting Payment Innovation, paper

presented at the conference onConsumer Payment Innovation in the

Connected Age, Federal Reserve Bank

of Kansas City, available at:

http://www.kansascityfed.org/publicat/

pscp/2012/medina.pdf (accessed 20th

January, 2014).

(3) Ibid.

(4) Office of Fair Trading, Press Release 25

March 2009, Payment Systems Working

Better for Consumers But More to Be

Done, OFT Finds, available at:

http://www.oft.gov.uk/news-and-

updates/press/2009/3409#.UuaRb9Io

6Cg (accessed 20th January, 2014).

(5) Payments Council (2009) Press Release,

30th November, available at:

http://www.paymentscouncil.org.uk/

media_centre/press_releases/-/page/828/

(accessed 20th January, 2014).

(6) Senechal, N. (2013) Faster Payments:

Models and Retail Payment Innovation,

paper presented at NACHA Payments

conference.

(7) Payments Council (n.d.) Faster

Payments Value Limits, available at:


resources_and_publications/faster_payments_value_limits/ (accessed 20th

January, 2014).

(8) Payments Council (2013) Countdown

Starts to Mobile Payments for All, 15th

January, available at:


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18/19

media_centre/press_releases/-/page/

2378/ (accessed 20th January, 2014).

(9) Bankgirot Press Release (2012) Press

Release: Bankgirot Launches New

Payment System Payments in RealTime, 19th December, available at:

http://www.Bankgirot.se/templates/

NewsPage____12656.aspx (accessed

20th January, 2014).

(10) AB+F (2013) Australias new payments

platform under way, 2nd July, available

at: http://www.australianbanking

finance.com/technology/australia-s-new

-payments-platform-underway/

(accessed 20th January, 2014).

(11) Ali, I. (2013) The Emergence of

Real-Time Payments: A Global

Comparison, 19th August, available at:

http://www.bobsguide.com/guide/news

/2013/Aug/19/the-emergence-of-real-

time-payments-a-global-comparison.

html (accessed 20th January, 2014).(12) BIS (2012) Payment, Clearing and

Settlement Systems in the United

Kingdom, available at:

http://www.bis.org/publ/cpss105_

uk.pdf (accessed 20th January, 2014).

(13) Payments Council (2013) Clearing

Statistics November 2013, 9th

December, available at:


files/payments_council/free_industry_

statistics/monthly_clearing_statistics_nov

_2013.pdf (accessed 20th January, 2014).


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C o p y r i g h t o f J o u r n a l o f P a y m e n t s S t r a t e g y & S y s t e m s i s t h e p r o p e r t y o f H e n r y S t e w a r t

P u b l i c a t i o n s L L P a n d i t s c o n t e n t m a y n o t b e c o p i e d o r e m a i l e d t o m u l t i p l e s i t e s o r p o s t e d t o a

l i s t s e r v w i t h o u t t h e c o p y r i g h t h o l d e r ' s e x p r e s s w r i t t e n p e r m i s s i o n . H o w e v e r , u s e r s m a y p r i n t ,

d o w n l o a d , o r e m a i l a r t i c l e s f o r i n d i v i d u a l u s e .

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