Building Bridges to the SIC-IP Service

Required knowledge

• Understanding of the use of the SIC-IP service
• Knowledge of the various players in the payment ecosystem

As of 20 August 2024, more than 60 Swiss financial institutions offer instant payments. More are expected to join by mid-2025. On launch day, the institutions successfully processed 3,308 payments, reaching the 10,000 mark three days later. The average processing time (measured from receipt in the SIC system to output of the message after clearing and settlement) fell from 2 seconds initially to 1.6 seconds in September, with SIC taking less than 20 milliseconds. In the same month, the number of cleared transactions remained in the high four-digit range, and in some cases in the low five-digit range. The average amount of an instant payment was around 1,200 Swiss francs, and transactions amounting to more than 230 million Swiss francs took place during the month.

The Power of Habit

The behavior of market participants outside the financial sector is also interesting. It is clear that payers are sticking to long-established patterns when it comes to initiating instant payments. For example, the number of daily payments submitted on weekends regularly drops to just 2,000–4,000 transactions per day, while the number of transactions on Mondays and Fridays is regularly in the five-digit range. In addition, despite 24-hour availability, the majority of payments are still submitted during business hours (between 8 am and 4 pm). This behavior, which has a lot to do with habit, will certainly change over time – and it is not particularly relevant to the instant system when exactly more or fewer payments are received.

Beyond E-Banking

The use cases are still limited in this initial phase. They focus almost exclusively on the e-banking functions of financial institutions that have already launched a customer offering. The readiness of the central infrastructure and the connected banks is not yet sufficient for the distribution of the new payment method at the checkout in retail or e-commerce. The Board of Directors of SIX Interbank Clearing therefore discussed at an early stage how the new SIC-IP service could be made available to interested providers of payment solutions (payment schemes) for account-to-account payments in the future.

The Scheme on Scheme project was launched in October 2023. It examined the possibilities of standardized and non-discriminatory access for payment schemes and evaluated the extent to which the SIC-IP service could be adapted to process payments via payment schemes in the future. In addition to the goal of promoting the use and spread of instant payments, the idea was that the development of new use cases would promote innovation and minimize counterparty risks.

In close cooperation with the SNB, a number of financial institutions, and 11 market participants who had accepted an invitation to participate, the project team developed the “Instant Payments Bridge” concept for the SIC-IP service. They defined three basic design principles (delivery always via SIC standard participants, focus on account-to-account payments, and no authorization functions in the SIC system) and discussed various requirements. These focused on individual functions for message transmission (including E2E references or identification of payment schemes in the payment message) and on useful interfaces (such as market standard for communication between financial institutions and payment schemes or availability of confirmation messages via an interface between SIC and payment schemes, referred to in the concept as “Confirmation API”). In mid-August 2024, SIX finally made the rough concept available in the form of a consultation process. Interested parties had until the end of September 2024 to submit their comments and ideas.

Lively Participation

At least 20 companies and organizations contributed to the consultation on the outline concept. Participants in the consultation came from a wide range of areas of the payments ecosystem. Eight financial institutions, four payment schemes, and three software companies provided input. A further five organizations fell into the “other” category, including a large service provider that could not be clearly assigned to any of the above categories and a major Swiss trade association. The lively participation and the fact that all participants welcomed the rough concept and many even saw it as a necessary development clearly shows that the development of an “instant payments bridge” is reasonable, if not necessary.

Technical Challenges

What about concrete contributions to the rough concept? First of all, it should be noted that it will certainly take some time to evaluate the feedback and derive the first concrete measures. We face the challenge of evaluating a free text corpus of over 100 A4 pages, which cannot be done overnight, even with the most advanced AI tools. This is partly due to the fact that the rough concept was sent to the consultation with rather vague ideas and without detailed, specified content. Many respondents explicitly criticized this, asked many questions, and in some cases requested a follow-up consultation. On the positive side, however, this – admittedly rather unusual – approach also seems to have elicited very well-founded and constructive criticism and encouraged creative ideas, which is certainly a great advantage at this early stage.

It is also foreseeable that the opinions of the various market participants are often quite different and sometimes contradictory. For example, the spectrum of opinions on a proposed market standard for the interface between payment systems and financial institutions ranges from the demand that SIX should define, specify, and operate it to the statement that this is better left to the free market. The opposite is true for almost all majority opinions. For example, in the assessment of the function of a “confirmation API”, 14 participants considered this to be useful, and in some cases even necessary, while 3 input providers firmly advise against implementation, primarily due to the feared additional costs. The different opinions are also reflected in the assessment of the published timetable: While some make the criticism that the timetable is far too long to bring the first implementations to the market, there are also a few voices that describe the concept as potentially “too early”, as more experience with instant payments needs to be gained.

Next Steps

It is clear that the challenge, not only for the financial sector but for the entire economy, is to take all aspects into account and still find a compromise that works

for everyone. This is not unusual for a joint venture such as the SIC system. However, the fact that many other market participants want to see their interests taken into account in connection with instant payments and the associated end-to-end processes takes this process to an unprecedented level. Together with the Swiss National Bank, the responsible team at SIX will first take the time to seriously evaluate the input and make it available to the public in a consultation report. By the end of the year, the Board of Directors will certainly also devote a great deal of attention to the topic, and it is conceivable that the first working groups will begin to examine individual, specific topics in greater depth as early as the first quarter of 2025.

One thing is clear: neither the SNB nor SIX nor any other market participant can fully understand the needs of the market as a whole in this context and provide the right solution in terms of specifications or technical implementation. This requires an extraordinarily important level of cooperation between a wide range of players, from financial institutions to the software sector and providers of payment solutions, as well as payment recipients from a wide range of industries – while of course taking into account all antitrust and competition law requirements. All with the aim of expanding the use of instant payments, fostering innovation, minimizing counter-party risks, and making future payment transactions as efficient as possible for all parties involved.

Thomas Hildebrandt
Head Payments Solutions, SIX