Real-time payments race ahead
Real-time (or ‘immediate’ or ‘instant’) payment systems have been delivered in several countries in recent years, with more in preparation today. In this article we take a look at some recent and ongoing developments.
The story so far
Since the year 2000 a dozen countries* have successfully implemented real-time payments systems. These are central infrastructures which clear and post relatively low value sums to mainly retail and corporate beneficiary accounts within a few seconds, usually with deferred net settlement of interbank positions. This wave of real-time payments systems deployment can be seen as ‘part two’ of a longer process which initially delivered high-value inter-bank RTGS systems in the 1990’s.
* List of the main real-time payments systems launched since 2000:
- Brazil – SITRAF (2002)
- Chile - TEF (2008)
- Denmark – Realtime24/7 (2014)
- India – IMPS (2010)
- Mexico – SPEI (2004)
- Nigeria – NIP (2011)
- Poland – Express ELIXIR (2008)
- Singapore – FAST (2014)
- South Africa – RTC (2006)
- South Korea – EBS (2001)
- Sweden – BiR (2012)
- UK – Faster Payments (2008)
A few examples are much older than these. Japan’s Zengin system, which caters for both high and low-value payments, was launched in 1973. In line with consumer and business demand most of these systems operate on a 24/7 basis, and most though not all use ISO 20022 messaging to deliver such benefits as fuller remittance information.
Now let’s take a look at some current ongoing projects:
Australia is currently developing its New Payments Platform (NPP) infrastructure, with a go-live date in the second half of 2017. Supported by a growing roster of banks, it will provide businesses and consumers with 24/7 services. The NPP will use ISO 20022 messaging.
In what is becoming a common strategy in the real-time payments space, the basic infrastructure (built and operated by SWIFT) will support several overlay services - tailored services which individual financial institutions may choose to offer their customers. In late 2015, bill payment system provider BPAY contracted to deliver the first overlay service.
The system design includes an alternative addressing service, which enables accounts to be identified by other means than the full bank ID and account number, such as an email address or phone number.
A slightly unusual feature of the system is that rather than use deferred net settlement at the interbank level – the choice of most real-time payments systems to date – in Australia the central bank will settle NPP payments individually in real time. The Reserve Bank of Australia is building the Fast Settlement Service (FSS) for this purpose, as a new component of the Reserve Bank Information and Transfer System (RITS), Australia's high-value payments system. Other countries using real-time settlement include Mexico, Sweden and Switzerland.
EBA Clearing are currently building a pan-European solution. In early 2016 they signed a letter of intent with SIA Group to deliver a real-time payment infrastructure by Q4 2017. (SIA is, among other things, the technical operator of STEP2, EBA Clearing’s pan-European ACH).
The functionality will allow Payment Service Providers (PSPs) to process instant payments in line with the European Payment Council’s SEPA Instant Credit Transfer Scheme Rulebook (SCT Inst) – formally published in November 2016 - both domestically and across European borders. The service will use ISO 20022 messaging and interbank settlement will be via TARGET2.
Elsewhere in Europe, a consortium of Dutch banks announced plans to build an instant payments system by 2019. The first phase, the design of the infrastructure, has been completed and the building phase has started. The building phase will continue into 2018, after which testing is scheduled to take place, with a go-live date in 2019.
In December 2016 the National Bank of Hungary announced plans to introduce a real-time payments system by 2019, with payments in line with the SCT Inst Rulebook mentioned above. Full details of functionality are not yet available, but it will be a 24/7 service and it will support alternative account addressing, with ISO 20022 messaging including ‘Request to Pay’ messages. The aim is for a go-live date in the second half of 2019.
In April 2016 Switzerland went live with its upgraded SIC service, which handles both high value transactions and also retail direct debits and card payments. The revamped service features ISO 20022 messaging.
In the USA, The Clearing House (TCH) has selected Vocalink to provide a real-time payments system. To deliver this Vocalink have been further enhancing their ‘Immediate Payments Solution’ (originally deployed in the UK’s Faster Payments Scheme and then Singapore’s FAST), among other things to process a wider range of ISO 20022 messages. Functions will include Request to Pay, Request for Refund, Request for Information and Remittance Advice. The TCH service will allow third-party service providers to offer PSPs access to the service as an alternative to being sponsored through a major bank.
Further developments in the UK
The UK launched its highly-regarded Faster Payments Scheme (FPS) in May 2008, using a technical infrastructure provided by Vocalink.
Seen at the time as a market leader, this service has continued to evolve. In 2014 the Paym service was introduced to provide alternative addressing, specifically allowing a mobile phone number to be used as alias for a sort code and account number.
In 2015 FPS introduced the ‘New Access Model’ whereby a PSP can connect to FPS via a technical aggregator that combines demand from multiple PSPs, creating economies of scale. Using this new model, PSPs can get a guaranteed real-time payments service, available 24/7, at a lower per-transaction cost than the PSP can achieve by connecting directly to the FPS infrastructure.
FPS was originally designed to use a bespoke form of the ISO 8583 standard, popular in card processing systems. On 10 January 2017 it published official conversion mappings between the ISO 8583 based message set and ISO 20022.
An ambitious roadmap for FPS was sketched out in the Payment Standards Forum report of November 2016, which included a proposal to replace FPS and several other systems with a completely new architecture (for more on this see our article ‘Shaking up the UK Payments Infrastructure’). This would be a layered architecture with provision for overlay services and supporting additional message types such as Request to Pay messages.
The emerging consensus
The projects developing real-time payment systems today attempt to satisfy current customer needs while attempting to future-proof the solution in a world of ever-accelerating innovation by providing open-ended architectural features.
Using a layered architecture allows any number of additional services to be layered over the basic payment transaction. Provision is increasingly made for non-bank participants to access the service (for example the UK’s New Access Model), though in general participants will still need a relationship with a sponsoring deposit-taking institution in order to carry out the final settlement with the central bank.
Alternative addressing allows for a variety of aliases to be used in place of the account number, including phone number, email address and business tax reference.
The ISO 20022 standard supports data-rich messaging with remittance information either being provided with the payment or as a separate message, and importantly allows for new functions such as Request to Pay.
Capabilities of Transformer
Trace Financial and Transformer are world leading when it comes to the challenges of working with diverse and complex messaging standards. Organisations such as SWIFT, Earthport, Currencies Direct, global banks and market infrastructures all rely on Transformer to address challenges such as cross-border payments, diverse ACH formats, standards interoperability (MT-MX); ISO 8583 and faster payments; evolution of ISO 20022 and canonical models.
Transformer uniquely allows analysts or developers to address all aspects including mapping, validation, enrichment, testing and maintenance without resorting to coding or scripting. In the scenarios described above the challenges largely centre around transitioning from variants of ISO 8583, SWIFT MT and other standards to ISO 20022 over a period of time and during which organisations will need to support legacy and new standards simultaneously.
Transformer offers PSPs and infrastructure providers the tools they need to create, model and work with multiple ISO 20022 based message definitions as well as to build transformations between ISO 20022 and other formats. Transformer's libraries capture all of the details of an ISO 20022 based standard in a highly business-friendly way, including user-friendly names and full descriptions for all fields, components, and data range values, and fully support cross-validation rules. In a similar way Transformer's ISO 8583 library captures every detail of each ISO 8583 variant down to a sub-field level and presents it in a way that is meaningful to the analyst.
Transformer dramatically shortens the time taken to build solutions involving complex standards. The analyst using Transformer creates solutions directly in the intuitive Design-Time GUI. There is no coding stage, even when the required data transformation is highly complex. In this way projects remain clearly articulated and easy to maintain, and removing the old-fashioned ‘spec handover’ from analyst to developer eliminates a major source of risk and delay. Testing is fully integrated at all stages.
Once configurations are complete and tested they are deployed into any runtime architecture that suits the client. A Transformer configuration can be deployed into the multitude of technical infrastructures found at a client site including Java, .NET, RESTful services, etc.
Transformer is a truly strategic solution to all the challenges and delivers one best-of-breed solution for any messaging standard; for deployment in any technical infrastructure; for integration in any version control system and automated testing environment; and can be used by analysts or developers without any need to resort to coding or scripting. Transformer is an essential tool for coping with these evolving and complex demands.