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The Swiss financial center is introducing beneficial standards, and also taking the opportunity to harmonize payments.
Payments – At All Times and Without Delay
Instant payments have been described as the new normal for some time. Credit transfers in a matter of seconds at any time of day. More precisely, the account of the payee is credited at the same time the payer’s account is debited – in under ten seconds. The former has immediate access to the funds, the latter has full transparency over their expenses. This is the new normal. The timely answer to the ongoing digitalization of economy and society.
Various forms of instant payments are already a reality in many countries. The central payment infrastructure (the SIC systems) is already being extended today to make them possible in Switzerland in the near future. With the release of the fifth generation of SIC at the end of 2023, SIX is laying the foundation for instant payments. As far as banks’ participation in instant payments is concerned, the Swiss National Bank decided in June 2021 to make acceptance of such payments mandatory for financial institutions (see SNB media conference). By August 2024, the biggest of the Swiss banks will have to be capable of processing instant payments, with the remaining banks following in 2026.
From the payment being initiated to the funds being credited to the payee.
Instant payments are executed around the clock, 7 days a week, throughout the year, without exception.
Instant payments are characterized by speed and immediate execution around the clock: The payer’s account is debited immediately, and the funds appear in the payee’s account simultaneously.
Speed per se is not necessarily a compelling quality yet – the focus is on the specific benefit that the new speed makes possible. The advantages that instant payments offer include:
These and many other examples show how payers and payees benefit from instant payments in different ways. Their speed and immediate execution mean that there are no uncertainties or credit risks for any of the parties to the transaction, including, especially, the financial institutions involved.
The difference between conventional transfers and instant payments is significant. With a common transfer within Switzerland, there is a delay before the funds are credited to the recipient’s account. It may take a couple of hours, a day or even longer, depending on whether they start their journey during the day, at night, during the week or at the weekend, on a workday or on a public holiday.
New players in payment traffic often use solutions that resemble instant payments. These solutions may match the definition of instant payments, but they do not have to. Immediate notification by SMS to the paying party following a payment does not necessarily mean that the payment has already been fully processed.
The issue lies in the difference between clearing and settlement. Clearing means that the payee’s bank has accepted the transaction and agreed to process it. Settlement is a harder currency, meaning that the transaction has actually been settled between the banks involved. The payee has access to the funds, and there is no counterparty risk of any kind.
SIX is working with the Swiss National Bank to develop the new infrastructure needed to process instant payments. The technology for this will be available in November 2023, at which point the onboarding process for banks will take place.
Receipt of instant payments is expected to be mandatory for Swiss financial institutions in two phases:
The road map indicates that at least 50 banks, which together cover around 98% of customer payments in Switzerland, will receive and process instant payments within seconds in late summer 2024.
Project manager Tom Hildebrandt reported on the current status of the project to implement the IP service in Switzerland at the Swiss Banking Services Forum on 7 September 2022 (Recording in German).
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Today, around 2,300 IP-enabled banks and payment service providers provide this service in 29 European countries, which equates to 60% of all institutions – albeit with significant differences between the individual countries (source: European Payments Council).
The proportion of instant payments, or more precisely, of SEPA Instant Credit Transfer (SCT Inst) payments in relation to all conventional transfers (SCT) is just under 14%, and the trend is upwards. Nevertheless, instant payments have not yet become established as standard. They are still far from being the new normal. There are exceptions: The Netherlands, for example, is a pioneer. Since the EU legislators have not yet issued a binding directive, participation in SCT Inst is voluntary for banks.
In addition to the voluntary nature of participation, there are other reasons holding back the final breakthrough. To be able to carry out instant payments, both the payer’s and the payee’s bank must participate in SCT Inst, otherwise it will not work. The fees charged for instant payments are also still very high at present. Depending on the bank and the package used, a payment of this kind costs between zero and two euros. High prices do not, however, encourage people to use instant payments – customers also expect the same conditions as those offered by neobanks and big techs: no additional costs for the new normal. The same prices and mandatory accessibility is also the object of a proposal by the European Commission.
As an innovative financial center, Switzerland has ground to make up with instant payments and cannot allow itself to be overtaken or outpaced by other countries. There should also be a level playing field for all participants in payment transactions. The pressure from big techs and neobanks will have an even greater impact in the future. For financial institutions, payment transactions are the most frequent point of contact to their customers – an advantage that should be preserved.
The Swiss National Bank therefore wants to do all that is needed for instant payments to become the new normal in Switzerland too. This will require, firstly, the expansion of the technical infrastructure and, secondly, the participation of the banks in the new process.
Even if it might feel different for consumers, instant payments have yet to be introduced in Switzerland. Seen, purchased, paid for – read on to find out when payments in Switzerland will be as simultaneous as this triad of consumerism already sounds today.