Instant payments will change the way we transact
In 2024, the largest Swiss banks will be able to receive instant payments. This will open up new, exciting opportunities in payment transactions. What does this shift to real-time transfers mean for financial institutions?
Real-time transfers set the course for the future
Increasing digitization has long since found its way into the financial sector as well. Digital bonds and assets as well as Central Bank Digital Currencies (CBDCs) are being eagerly experimented with. For example, the SIX Digital Exchange (SDX) also already launched its first digital bond at the end of last year. Thanks to distributed ledger technology (DLT), tokenized assets can be transferred in seconds.
In addition to trading digital bonds, payments are also to take place in real time in the future. Such real-time transfers - also known as instant payments - will be able to be received as early as 2024, according to Alain Schmid, Head of Business Banking at Credit Suisse. At the Credit Suisse Transaction Banking Forum 2022, he gave an exciting insight into the new innovation.
What are instant payments all about?
Alain Schmid: This involves the immediate processing of payments around the clock, every day of the week. In an initial phase, these real-time transfers will have an amount limit of 20,000 Swiss francs. And the time from entering a payment to confirmation will take a maximum of ten seconds. Switzerland already has a real-time gross settlement system, but instant payments will have additional applications beyond that. The local economy is also a strong driver here. This is because the economy is demanding that everything be done even faster and more dynamically in the future - and real-time transfers are designed to meet precisely these demands.
To what extent will instant payments change payment traffic in Switzerland?
New financial technologies rely heavily on card technology, which comes with fees for merchants. Instant Payments would put further pressure on these fees.
However, it is important for financial institutions to understand that Instant Payments is not a business model where customers can eventually be charged. Rather, investment in the operational resources of real-time remittances is becoming a necessity to remain competitive.
Instant Payments will also bring new benefits to the peer-to-peer (P2P) and e-commerce sectors.
What could be possible applications here?
An application example would be a real-time transfer while charging an electric car. Or taking out accident insurance at short notice while on vacation without any additional contracts or agreements with the insurance company. But salary payments with a high priority could also be processed easily via instant payments.
When will real-time transfers be possible in Switzerland?
The Swiss National Bank (SNB) has ordered that, in a first phase, the largest banks in Swiss Interbank Clearing (SIC) should be able to receive instant payments from the second half of 2024. The second phase calls for all SIC participants in this country to be able to receive and execute real-time transfers by the end of 2026.
If this is successful, an increase in the contribution limit to, for example, 100,000 Swiss francs or even more can be considered. However, there is no precise timetable for this yet.
When it comes to innovation, financial institutions are often held back by regulations. How do you see this in the area of instant payments?
It is important to proceed step by step to avoid risks - hence the transfer limit of 20,000 Swiss francs for the time being. The complexity will then increase when cross-border aspects come into play.
However, I think that instant payments will be limited to the local clearing system for the time being. In this case, the issue will be comparable to the current situation from a regulatory perspective.
What do you think Swiss payment traffic will look like in 20 years?
We will certainly still need agents for transactions, but the whole thing will be much faster and more dynamic. There are also likely to be moves to make payments more ESG (environmental, social, governance) compliant. I am also sure that we will see more robotic solutions available in cash management.
In addition, it should become even easier for consumers to purchase services and products, for example with even simpler payments in the supermarket. In any case, it will be exciting to see how digitization will continue to drive the financial sector and, in particular, payment solutions.