The wide-scale rollout of instant payments planned for August 2024 will require financial institutions to upgrade their payments systems, and the market participants may see fundamentals shift. Here we look at three evolutions and their impact on payments in Switzerland.
In August 2024, SIX SIC (Swiss Interbank Clearing) Phase 5 will roll out instant payments (IP). Banks will be required to upgrade their payments systems to allow for real-time settlement, fraud detection, and liquidity management. IP will reduce operational costs via automation and capture additional revenue from corporate clients and customers with high payments value and volume. As a result, greater customer satisfaction, economic benefits, and new service offerings are expected.
We look at three evolutions in which IP can change the payments landscape in Switzerland.
This blogpost is the first in our series dedicated to “The future of payments in Switzerland – strategic outlook for financial and payments services executives”.
Evolution 1: IP becoming the norm in Switzerland - Banks upgrade their operating models and increase automation
In the current system, inter-bank payments take at least one business day. The new IP system will enable immediate settlement, including payments of bills and large-value transactions. This will require banks to manage their liquidity in real-time and process related payments instantaneously, including exception handling, fraud detection, and regulatory compliance with AML regulations.
To establish their business case for IP banks must factor in upgrades to their systems and operating model and implement the required automation of their payment processes.
Savings are expected from reduced operating costs due to the enhanced automation of payment processes. To further support the business case, banks must analyse the pricing structure for their IP services and assess how to include them in retail account packages under predefined limits (in volume and value) while charging a convenience fee for transactions with higher volume or value. For corporate clients, additional sources of revenue can be found from use cases where IP packaged with cash management solutions can be sold at a higher value.
Evolution 2: IP acting as an enabler for point of sale and online payments - POS and e-commerce IP-enabled solutions
Retailers in Switzerland currently rely on card transactions and mobile payment methods such as TWINT for both point of sale and online transactions. The new IP technology will impact these payment methods: fintechs could be encouraged to build account to account payment offerings with IP charging lower fees. Switzerland’s payment processors (SIX and financial institutions) could respond to this threat by assessing whether combining a request to pay (R2P) service, such as eBill with IP should become a preferred solution, shifting payment at the point of sale to clients’ e-banking channels. To enable this a new solution for both online payments and point of sale (POS) systems would be designed.
Banks could also benefit from gathering data from IP about customer behaviour through data analytics of anonymised aggregated data.
Evolution 3: IP expediting new banking digital solutions - IP becomes an enabler for online offerings
For the retail market, there are currently already several digital banking and investment services, operating in Switzerland. Using IP for these services customer onboarding attrition can be reduced, given the ability to onboard and instantly fund a new account online. Fintech banking platforms in the Swiss market such as Neon, Yapeal, Revolut, N26 should consider its implementation. Traditional banks, such as Credit Suisse’s CSX, UBS’s 4Key, Bank Cler’s Zak and Post Finance, will need to assess how fintech’s use of IP could compete with their own digital offerings. or N26 and investment management fintechs such as Kaspar& and traditional banks digital offerings, such as Credit Suisse’s CSX, UBS’s 4Key, Post Finance and Bank Cler’s Zak should study how to optimize their customer journeys with IP to enable instant onboarding.
Similar evolution is expected on the corporate and private banking market: IP can enable solutions to be built by fintechs and banks to enable real-time cash management for corporates, funds, and high-net worth individuals powered by open banking platforms such as Swiss SIX's bLink offering.
Finally, the ongoing work on central bank digital currencies (CBDCs) by both the Swiss central bank (Project Helvetia) and the European central bank (Digital Euro) is a long-term driver for Banks to assess how best to implement their payments operations and architecture to future-proof themselves for upcoming CBDC release: IP functionalities are a required step in that journey.
Each of the three evolutions aims to provide a better customer experience, new offerings, and optimized costs. Still, their success depends on the strategic outlook of the payments’ stakeholders in the Swiss market for the following years. First-mover advantage and studying a long-term payments strategy will support navigating payments challenges successfully:
- Future-proofing the payments system architecture and upgrading it to support IP
- Digitalising operations with a focus on achieving fully digital front-to-back flows and
- Using customer data to identify long-term trends and incorporating them into building innovative payments strategies/offerings