The payments landscape: the trends that

are reshaping domestic and cross-border

payments

SWIFT Benelux forum 22 April 2015

Elie Lasker, Senior Market Manager

Lior Cohen, Product Manager Banking Markets

Where do we come from, where do we go to? Source: Correspondent banking 3.0 white paper, available from swift.com

New entrants Benelux businss forum – 22 April 2015 – Confidentiality: PUBLIC 2

1970s

Automation

SWIFT

1990s

Efficiency

GTB

2010s

Simplicity

Consumer

1.0

Correspondent

banking

2.0

Transaction

banking

3.0

Experience

banking

4.0

?

2020s

5 mega trends impacting correspondent banking

New entrants Benelux businss forum – 22 April 2015 – Confidentiality: PUBLIC 3

Real time

Open access

Compliance

Off the wire

Growth

Correspondent banking disintermediated at origination

New entrants Benelux businss forum – 22 April 2015 – Confidentiality: PUBLIC 4

Local bank Local bank

PSP PSP

ACH ACH

GTB GTB

End customer

(retail, SME, corp)

End customer

(retail, SME, corp)

Correspondent Banking

Co

rre

sp

on

de

nt

Ba

nkin

g d

isin

term

ed

iati

on

Transfer

Agent

Transfer

Agent

*Icons are representative example

of each model

Bank-grade payments system requirements

New entrants Benelux businss forum – 22 April 2015 – Confidentiality: PUBLIC 5

Addressing

real

challenges

compliant Impact on

bank’s economics

Scalable

Real-Time Retail Payment Systems

Benelux Business forum La Hulpe , 22 April 2015

Agenda

• Market trends and landscape

• Australia New Payments Platform

• Approach going forward

7

Market trends and landscape Key features of real-time (instant/immediate) payments

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

24 x 7 x 365 Instant Finality Certainty

Instant*: 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 “Instant Payments” is increasingly used to refer to retail real-time payments

8

Market trends and landscape Retail payment system landscape – client side

9

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

Market trends and landscape Key drivers and challenges

10

Customers

Banks

MIs

Regulators RT-RPS

Adoption

Customer expectations for faster payments (consumers, business / merchants)

• Customer 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

Market trends and landscape Take-up rates vary depending on mandate and pricing

11

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)

RT-RPS market landscape Live in 18 markets, with 13 more in planning / development

12

Europe Denmark

Czech Republic Iceland Poland Sweden

Switzerland UK

Bahrain Finland

Netherlands Turkey

Eurozone

Asia Pacific China India Japan

Singapore South Korea

Taiwan Australia

Hong Kong Indonesia

New Zealand Thailand

North America Mexico Canada

United States

Central & Latin America

Brazil Chile

Colombia

Africa Nigeria

South Africa

18 countries ‘live’

12 countries ‘exploring’ / ‘planning’ / ‘building’

17 additional Eurozone countries ‘exploring’

Planning

Eurozone

Live

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

13

Secondary candidate

Market trends and landscape Real-Time Payments Use Cases

GSC 2015 - Real-Time Payments

Market trends and landscape

There are different approaches to clearing and settlement

14

Hub Approach

Central Bank

Hub

Clearing

A B

Bank A

Acc

ou

nts

RTGS - Settlement

A’ B’

Shad

ow

A

cco

un

ts

Bank B

RTGS Approach

Bank A

or

Central Bank

A B

Acc

ou

nts

RTGS Settlement

Bank B

Distributed Clearing Approach

Bank A

Clearing

or

Bank B

A B

Acc

ou

nts

RT App - Settlement

A B

Acc

ou

nts

RTGS – Liquidity Mgt

Central Bank

Real-Time 24/7/365

EOD/Intra Day during Business Hours

Agenda

• Market trends and landscape

• Australia New Payments Platform

• Approach going forward

15

Australia New Payments Platform

Status

• Project was kicked-off in December 2014

• Currently mid-way through design phase, deep-deep

dive industry workshops are being conducted

• Scheduled go-live is August 2017

• Project is currently on track

16

Domestic real-time payment system (clearing & settlement ) • Low-latency in-country messaging service • High throughput and capacity • Real time settlement payment-by-payment • 24x7 ‘real-time’ operations (no down-time window) • Financial industry standards (ISO 20022) • Leverage SWIFT infrastructure components

Enable easy integration with overlay services, eg • Mobile P2P Apps • Government tax platforms

Distributed architecture model (RFP was based on a central hub)

17

Australia New Payments Platform

Key characteristics

Australia New Payments Platform How does it work?

Central Bank

Orderer’s Participant Bank

Branch

Mobile

Phone

Internet

Services

Applications

SWIFT Payment Gateway

Beneficiary’s Participant Bank

Branch

Mobile

Phone

Internet

Services

Applications

SWIFT Payment Gateway Clearing / Confirmation

Settlement

Payment Details

Payment Details Confirmation

Domestic Messaging Channel

Settlement

Settlement Confirmation

Settlement Confirmation

1

2

3

4 4

SWIFT Payment Gateway

Overlay services

Fast Settlement Service

RTGS

Bank

archive

Bank

archive

Payee / Beneficiary Customer

Payer / Ordering Customer

18

Addressing

Database

19

Approach going forward

Identify markets

selectively on a

case by case

basis

Position SWIFT in

RTP

Thought

Leadership

Explore the

winning models,

build and adapt

the solution

Solution Market

engagement

Questions

20

New entrants Benelux businss forum – 22 April 2015 – Confidentiality: PUBLIC 21

Thank you