IBS Journal Supplement 2015


avoid the silo mentality of closed systems that don’t communicate with each oth- er, and take advantage of the harmoni- sation and integration already achieved with the SEPA project,’ said Yves Mersch, member of the ECB’s executive board and chair of the ERPB. There are undoubtedly major challenges associated with creating a cross-border network, but the flip side is having to potentially tackle a major pro- ject such as the protracted SEPA migration further down the line. ERPB has already agreed that there is a need for at least one pan-European instant payment solution for euro, which is open to any payment service provider in the EU. ‘The members of the ERPB understand that offerings of person-to-person mobile payments in euro, for example, may depend signifi- cantly on the availability of instant clear- ing services,’ states the ERPB mission state- ment on its website. Next on the horizon is


the US. The Federal Reserve Bank (FRB), along with all the relevant stakeholders in the US payments ecosystem, has been working to thrash out possible solutions to modern- ise the notoriously disparate and fragmented domestic pay- ments system. The process has been arduous, the US banking system is a $15 trillion indus- try after all, with stakeholders ranging from 10,000 financial institutions (credit unions, community banks, region- al banks and the major banks), payments services providers, retailers and consum- ers all having an input, but the latest report from the FRB shows that progress has now been made. ‘We refreshed our plan in the finan-


assessments of other global initiatives, develop a business case and engage with the user community. The latter in par- ticular is an area where Sean Rodriguez, senior vice-president, payment indus- try relations, at the Federal Reserve Bank of Chicago, feels key lessons were learnt from the outset. ‘What we have learnt from countries like the UK is the notion of a broad outreach to all interested parties, so people feel like they have some oppor- tunity to provide input and ultimately buy in, because once we get a direction set it’s not going to do us any favours having the best system in the world that nobody uses.’ In 2013, the FRB invited responses


from the stakeholder community, which formed the basis of the recent ‘Strategies for improving the US payment system’ paper published by the Fed which is now


structure as mentioned in point three above, but including ACH, cheque and wire payments. Each approach has its own pitfalls


and benefits, the latter two obviously rep- resent the biggest potential benefit, but also the most cost and risk (a point raised by some of the banks during the FRB’s consultation with the industry). But there are also challenges around convincing US banks to adopt public IP networks, mainly down to security reasons, whilst incremen- tal change to the existing infrastructure might not deliver the changes wanted. It stems back to the business case, says Rod- riguez, with feedback gleaned from the end-user community as part of the initial research suggesting that 80 per cent of US consumers are in favour of faster pay- ments, with as many as a third willing to pay for such a service. The FRB estimates that


‘Solutions for instant payments should avoid the silo mentality of closed systems


that don’t communicate with each other.’ Yves Mersch, ECB


cial services area of the Fed, and in 2012, based on the industry input up to that point, we said we needed to start focusing on the US payments system end-to-end, meaning from the originator of a payment whether it is a corporate or an individual, to the receiver of the payment, and look at the payment system supply chain and identify gaps and opportunities,’ says Dave Sapenaro, first vice-president and chief operating officer of the Federal Reserve Bank of St Louis. Since 2012, the FRB has worked with


a consultant to draw up potential plans, devise use cases, conduct case study


the springboard for real-time payments in the US. In parallel, the FRB engaged with a consultant to evaluate nine strategies as possible options for moving to a real- time environment. These have now been whittled down to four viable possibilities, which are now the focus for the initiative going forward. The four options comprise: o Modernising the existing ATM/PIN


network to create a real-time environment with credit push payments and real-time clearing and settlement. o Ditching a hub and spoke model


to allow real-time direct clearing between financial institutions using public IP net- works. o Build a new credit push real-time


infrastructure, operated independently (or by the FRB) providing real-time clearing, notification to the end-user account and using the existing settlement infrastruc- ture.


o And finally, building a new infra- © IBS Intelligence 2015


twelve per cent (equal to around 30 billion payments per annum) of all US pay- ments would directly ben- efit from faster settlement, clearing or notification. ‘While twelve per cent does not sound like a big number, almost 30 billion payments a year is a lot of payments, and we think that this is a very conservative estimate, over time it is likely other


payments would move to a faster pay- ments infrastructure,’ says Rodriguez. The FRB has drawn up several use cases within this twelve per cent target group of pay- ments including what type of clearing and settlement would be required. Payments such as person-to-person micro transfers, for instance, would require near real-time authorisation and clearing, near real-time fund availability but only end-of-day set- tlement. Business-to-business payments, meanwhile, would require near real-time authorisation and clearing, with intra-day settlement. The next phase of work will be picked up by the newly established faster payments taskforce, which will determine the most effective approaches in consulta- tion with the stakeholder community. This analysis is pinpointed for a 2016 comple- tion, after which a plan of action will be fleshed out. Elsewhere, the rule maker of the


domestic ACH network, Nacha, has put www.ibsintelligence.com 21


analysis: real-time payments


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24