Global Trends and Developments in Instant Payments

Transcription

1 Global Trends and Developments in Instant Payments Merchant Payments Ecosystem, Berlin 14 th February, 2017 Edgar, Dunn & Company, 2017

2 What are instant payments? Instant Payments Faster payments Real-time payments Near real-time payments Confidential 2

3 Instant payments are electronic retail payment solutions available 24/7/365 and resulting in the immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee s account with confirmation to the payer (within seconds of payment initiation). * * Definition from the Euro Retail Payments Board (ERPB) Confidential 3

4 How do instant payments differ from traditional ACH payments Instant Payments Funds are cleared (posted on beneficiary s account) in real or near real-time Traditional ACH Payments Funds are typically cleared after settlement occurs Funds are available for use immediately Beneficiary may have to wait several days to use funds Settlement can vary depending on the system, but can take place at the same time as clearing or several times a day Settlement can take 1-3 days depending on the system Confidential 4

5 There are over 20 established instant payment systems across the world with several more planned in the near future Established System Planned System Planned Implementation Argentina Netherlands Australia (2017) New Zealand Belgium Norway Canada Peru Germany Philippines Finland Portugal France (2017) Saudi Arabia Hong Kong Spain Hungary Thailand Italy United States (2017) Ireland Europe/SEPA (2017) Kenya Luxembourg Malaysia Confidential Sources: Instapay, EDC 5

6 Regulation, competition and market demand is driving instant payment implementations in various European markets United Kingdom Denmark France Launched: 2008 Transfer limit: 250K Transactions completed within 1 second 3 settlement cycles/day Steps being taken to map existing ISO 8583 message protocol to ISO Launched in 2014 Based on ISO Transaction processing of less than 40 milliseconds per transaction 6 settlement cycles a day Transaction limit: DKr 500,000 Driven by need to be SCTInst compatible Planned launch in /7/365 availably Less than 1 second for C&S processing 10 seconds for end-to-end processing Multilateral net settlement Confidential 6

7 and in other markets across the world USA Australia Initiative from The Clearing House (2017) Real Time Payments (RTP) 24/7/365 Multiple settlement cycles per day Based on ISO Vocalink providing payment switch technology New Payments Platform (NPP Australia) planned launch 2017 NPP is industry response to the Reserve Bank of Australia s Payment Systems Board Strategic Review (2012) The system will be 24/7/365 Instant settlement at time of transaction Based on ISO Confidential 7

8 Typical payment flow for an instant payment transaction 8 7 Confirmation of Payment Sending Customer 1 2 Sending Bank 3 Instant Settlement Payment of System Funds Execution of payment Receiving Bank Sending customer authenticates themselves and provides instructions to their bank for transfer of funds Sending bank checks if there are sufficient funds in the account and validates payment request Sending bank submits payment to the instant payment system; at this point transaction can not be cancelled 4 The instant payment system validates transaction and sends the payment to the receiving bank 4 Receiving Customer 5 Receiving bank checks account number is valid & sends a message to the system accepting/rejecting the transaction; system sends a message to sending bank letting them know transaction is successful 6 Receiving bank credits receiving customer s account 7 Sending bank marks the transaction as complete 8 Sending bank confirms status of transaction to sending customer Confidential 8 6

9 So what is the role of ISO in instant payments? ISO20022 enables a data rich environment Not a standardised message format the 140 message characters are flexible in character lengths and types Enables overlay services such as Paym or Zapp in the UK and various add on services provided by Payment Initiation Services (PIS) providers Systems on ISO standards are not interoperable but have the potential to be ISO Real-Time Payments Group (RTPG) define a common approach to using ISO20022 for real-time payment messages and processing rules Confidential 9

10 What will be the impact of instant payments on key stakeholders Consumers Convenience Real-time access to funds Secure access to a trusted funding source (bank account) Leverages existing infrastructure (e.g. online banking) Merchants Lower costs Immediate access to funds Fast & Final No need for authorization Banks Efficient and relatively inexpensive payment processing Less transaction risk Brand recognition for consumers however, risk of commoditisation and customer disintermediation Card Schemes Potential loss of revenue Schemes are anticipating rise of instant payments and are investing in infrastructure Need to refocus on card specific added values Confidential 10

11 What are the advantages of instant payments relative to card payments particularly from a merchant s perspective Instant Payments Advantages Faster settlement times Merchants have access to funds immediately helps with cash flow Cheaper acceptance costs than payment cards (online) Disadvantages Not yet globally interoperable may lead to market fragmentation No defined common set of rules for exception handling/dispute resolution No real-time fraud detection Currently viable for online transactions only not omni-channel Card Payments Advantages Global interoperability using international card schemes Defined set of rules for exception handling/dispute resolution Payment guarantee, reserves, open amounts Omni-channel capabilities Disadvantages Slower settlement times for merchants Relatively expensive acceptance costs Confidential 11

12 Who will be early adopters of instant payments? places where consumers have instant gratification (of purchase) Grocery stores Customers have access to goods as soon as payments is made Restaurants Consumers typically have their meals prior to payment Digital content Small value transactions Content (e.g. music) is available as soon as payment is made as customers are less likely to request a return or raise issues that may result in refunds/exceptions/disputes Confidential 12

13 Who are likely to adopt at instant payments at later stages? Merchants that are categorised as higher risk merchants or require additional payment services (e.g. pre-authorization), which can lead to friction at POS Airlines Higher chance to nondelivery of goods (e.g. airline goes out of business prior to flight) Hotels Hotels often require preauthorization of payment in the event of use of additional services (e.g. mini-bar) or damages Online Gambling High risk merchant with typically higher fraud and chargeback rates Confidential 13

14 Whilst instant payments enable innovative and potentially cheaper payment options there are still outstanding questions Exception/dispute resolution Who will be responsible for developing exception/dispute resolution rules How will these be uniform across multiple markets will there be a need for an Instant Payment Scheme? Real-time fraud detection and online security What will be the impact of 2-factor authentication on instant payments What fraud detection tools will be available How do merchants operate globally with multiple domestic schemes? How to avoid market fragmentation? How will merchants/customers know what the payment limit is in each market? Confidential 14

15 THANK YOU For further information please refer to Edgar, Dunn & Company s white paper on Instant Payments Confidential 15