SWIFT Nordics Regional

Conference 2015

Payments stream: Next stop: Real-time

payments

Copenhagen , 4 – 5 March 2015

Nordics Regional Conference - Speakers

Henrik Bergman, Senior Manager, WCM Market Infrastructure,

SEB

Stig Korsgaard, Engagement Director Nets

Dag-Inge Flatraaker, General Manager DNB Bank & Co-

Chairman of the Cards and Mobile contactless proximity payments

Working Group , Euro Retail Payments Board (ERPB)

Elie Lasker, Senior Market Manager, SWIFT

Robert Widmark, Senior Account Director, SWIFT (moderator)

SWIFT Nordics regional conference

March 5th 2015

Next stop: real-time payments

What are Real-Time Payments

Key features

24x7x365: payments can be sent and received all times of the day, every day of the year

24 x 7 x 365 Instantaneous Finality Certainty

Instantaneous*: good funds must be available on the beneficiary’s account in, typically, less than a minute

Finality: once payments are processed, they can’t be recalled

Certainty: payments sent to a beneficiary bank are individually explicitly confirmed (to both payer and payee) or rejected

*The term “Instantaneous Payments” is increasingly used to refer to retail real-time payments

Background Retail payment system landscape – client side

Multi Currency Payment Scheme Single Currency Payment Scheme

• Credit D / D+11

• Debit Later2

• Credit D / D+11

• Debit D / D+11

• Credit Instant • Debit Instant

• Credit Instant • Debit Before3

Credit Accounts

Deposit Accounts

Money Transfer Operators

(no account)

Store-Value Accounts (wallets)

• Credit D / D+11

• Debit Before3 Note 1: “D / D+1” means same day / next day / next few days Note 2: “Later” means ~30 days after transaction Note 3: “Before” means account / service needs to be prefunded

Background Retail payment system landscape – market side

Multi Currency Payment Scheme Single Currency Payment Scheme

• Clearing • Netting

• Settlement

Clearing and Settlement Mechanisms (CSM)

ACH

Multilateral

Bilateral Bilateral Multilateral

Central Bank RTGS

Inter-ACH Correspondent

Banking

PSPs

Intra Accounts

Banks

Higher

Credit

Risk

Higher

Liquidity

Risk

Correspondent

Banking

Market landscape Live in 17 markets, with 5 more in planning / development

Africa Nigeria

South Africa

Central & Latin

America Brazil Chile

Mexico Colombia

Asia Pacific India Japan

Singapore South Korea

Taiwan Australia

Hong-Kong New-Zealand

Europe Denmark Iceland Poland Sweden

Switzerland Turkey

UK Finland

Key drivers for Real-Time payments

Consumers

Banks

MIs

Regulators RT-RPS

Adoption

Customer expectations for faster payments

• Consumer protection • Financial inclusion &

cashless • Next generation platform/

Foster innovation • Macro-economic events

• Large investments/costs

• Limited revenue potential

• Disruption on operating model

• Impact on compliance and fraud detection processes

• Threat from new entrants

Threat from new entrants

GSC 2015 - Real-Time Payments

0 1 2 3 4 5

Platform Development

Consumer Protection

Financial Inclusion

Consumer Expectation/ Innovation

Macro Economic Events

Background …but regulatory mandate is the most important

factor … but Regulators Focus on

Impact to Consumers Multiple Factors Drive RT-RPS

Adoption …

Regulatory Initiative

73%

Commercial Drivers

14%

Competition from Third Party

13%

ZA KR

SE PL

GB CH SG TW TR

BR

GB MX CL NG

JP CH SG

BR IN NG MX

Focused on Consumer Impact

Background But take-up rates vary depending on mandate and

pricing Rapid Adoption Path

Rapid adoption driven by Central

Bank / Regulatory mandate and low

pricing

Slow Adoption Path

• Low participation of banks is a blocking factor in

Poland, South Africa, India and Brazil

• In India, overly complex use experience was a barrier

Typical Adoption Path

Ad

op

tio

n (

% o

f C

T/D

D v

olu

me

vs t

ota

l)

Time in Existence (Years)

P2P

B2B

P2M

B2P

4%

51%

18%

7%

20%

Segment Type Share* Payment

confirmation Funds

availability***

RTP needs

e-payment

Point of Sale (Physical)

Bill Payment**

Large value payment

e/m-commerce

Bulk Payment

Invoice Payment

Large value payment

Primary candidate

Secondary candidate

RT Candidate

*share of total non-cash payments worldwide

**including direct debits

*** Immediate vs. (Near) Real-Time

Growth trend

Secondary candidate

Real-Time Payments Use Cases

Real-Time Payments characteristics The interbank payment system is only one part of the solution

Payee / Beneficiary Customer

Payee Participant Bank

RT Architecture

Applications

Back Office

Infrastructure

Payer Participant Bank

RT Architecture

Applications

Back Office

Infrastructure Payer / Ordering Customer

RT Interbank Payment System

Clearing

Settlement

Agreements Agreements Agreements Agreements Agreements

Three key components required to allow for end-to-end RT-RPS 1. Banks’ infrastructures (front to back) must work in real-time 2. The interbank payment system must work in real-time 3. End-to-end commercial and operational agreements must be in place

3 3 3 3 3

1 1 2

Real-Time Payments characteristics But, the approach to clearing and settlement differs

Hub Approach RTGS Approach AU NPP Approach

Majority of existing RT-RPS’ - UK, SE, SG, PL

CH,MX,CZ AU

• Interactive clearing, where paying bank requests confirmation of payment details

• 24x7x365 (most) • Settlement either via pre-funding

or through deferred net settlement

• No distinction between high and low value

• No interactive clearing as combined with settlement

• No 24x7, but close

• Interactive Bank-to-Bank clearing • Settlement separated from

clearing and performed by CB as Fast Settlement Service (FSS)

• 24x7

RTGS

Hub Clearing

Settlement

A B

Bank A

Bank B

RTGS A B

Bank A

Bank B

Central Bank

Bank A

Bank B

Clearing

Settlement

A’ B’

A B

FSS

RTGS

Acc

ou

nts

Acc

ou

nts

Acc

ou

nts

A

cco

un

ts

or or

RT-RPS Characteristics Differences, but 24x7 & ISO 20022 are becoming

common

Questions

GSC 2015 - Real-Time Payments

To view drawing guides: 1. Right-click outside slide

and select ’Grid and Guides...’

2. Check ’Display drawing guides on screen’

3. Select ’OK’

Real-time clearing in Denmark Nets RealTime24/7

Nets is specialising in managing digital values through the delivery of strategic consulting and IT solutions

16

Change colour on elements Go to:Design >Colors Choose between the

five Nets Theme Color palettes

17

Strategic incentive to move - present system was from the 1970´ties - not sufficient for customer demands, business requirements and new product opportunities.

Competition – not loosing out to new market players – Apple, Google, Facebook, etc.

Support for new products and mobile proposition - initially P2P.

Push combined with DK Central Bank initiative in 2010 on intraday.

Establish with or without intraday a future proof infrastructure platform

Drivers for real-time payments in Denmark

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five Nets Theme Color palettes

Key principles or considerations

18

• Commercial yet Customised

• Solution developed as full platform based on best in class yet serving legacy

• Central system (hub), to keep development as well as operational costs as low as possible

• Hub maximum - also technological - prepared for future requirements and changes (time-to-market), yet actual usage may be quite restricted

• Optimised liquidity management and flexibility on settlement methods

• Flexibility on interfaces/integration points and products/services

• High focus on customer satisfaction

Change colour on elements Go to:Design >Colors Choose between the

five Nets Theme Color palettes

19

Real-time – a “Real” real-time system

24/7/365

High availability

Finality of payments within seconds and transaction times in milliseconds

Limitations only by banks

Real-time best practises incorporated

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five Nets Theme Color palettes

20

Modularly designed system, offering the advantage of flexible solutions consisting of standard functional modules.

ISO 20022 and SEPA compliant.

A new platform incorporating best practises for real-time systems.

Flexible to support present and future business models.

Information highway

More than “just” payments and banks

Pain, remittance information, domestic scheme etc.

Sector agreements or bilateral agreements

A wide range of different overlay services – examples e-Invoicing, Anti-Fraud, mandate management, etc.

State of the art RTP clearing solution

Change colour on elements Go to:Design >Colors Choose between the

five Nets Theme Color palettes

21

November, 2014 - big bang implementation.

Migration from day one – strong commitment from the banks.

End user from day one as well

Mobile – a product – as a big driver.

The entire Danish banking sector is participating.

The Central Bank as an active player throughout the different phases in the project.

Key success factors for real-time in Denmark

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five Nets Theme Color palettes

Real-time in a broader perspective

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RealTime24/7 supports both domestic and cross border clearing and settlement

RealTime24/7 can route according to rules

Standard SEPA compliant transaction for Europa + AOS

Added support and product offerings for domestic transactions

Prepared and ready for Europa

ISO20022 + other ISO standards

Use of existing full interbank schemes

Easy adaptions of new schemes

SEPA prepared

TARGET2

Channel agnostic – so for instance SWIFT

DK real-time is not a SILO!