Faster Payment

Faster Payment Systems are systems which enable clients to shop immediately without the necessity of having a bank card or any other payment instrument. For using a faster payment system there should be only a bank account. For business there is an advantage that actual cashflow will also be very close to online. Faster Payment system is quite a wide definition of a payment system which can be integrated with any existing bank system.

What Is It And Why?

Trends of the last 10 years

Direct cooperation account-to-account without intermediaries such as card systems

Advantages:

- no need to pay additional interest to card providers;
- actual cashflows are immediate;
- payments have become easier and more available;
- no need to create additional infrastructure;
- cost reduction of payments both for banks and merchants.

Faster payment system is the next stage of the retail payment systems development

- Bank and its clients always had channels for working with each other which included.
- Card systems let banks provide connection many-to-many through a special payment instrument – a bank card, which had a balance tied to a bank account.
- Electronic wallets were developed as additional services using cards as a source of funding.
- Infrastructure needed for accepting cards is expensive in installation and maintenance. Moreover the tariffs management is controlled by international companies.
- Faster payment system will help banks improve convenience, speed and managing cashless payments and also reduce costs for them.

The FPS functionality can cover many models of interaction between banks, business, people and state organizations:

P2P transfers:

- transfers between individuals;
- Me2Me – transfers between one’s own accounts in different banks.

С2B / C2G transfers:

- payments from individuals to firms for goods and services;
- investment, broker’s and pension accounts depositing by individuals;
- individuals’ payments for public services, including taxes and fines;
- individuals’ payment for transport, utility and other services.

G2C transfers:

- payment of different benefits for citizensн;
- salary payments to state employees.

B2C transfers:

- return of funds from firms to individuals;
- salary payments to employees.

B2B transfers:

- salary payments to employees;
- transfers/payments between self-employed.​

How It Works: End Users and Payment Service Provider

- Merchants and buyers use QR-code to exchange the payment information such as sum, receiver’s address and payments purpose.
- Buyer confirms their willingness to pay a given sum through the interface provided by their PSP.
- PSP verify the message and initiates a payment transaction adding its client’s data.
- Faster payment system provides transferring the money to merchant’s account.
- Merchant’s PSP gets a notification about the money availability from the faster payment system and informs merchant about the results of the payment.
- Buyer’s PSP informs them about the results of the payment.

Threat Model and Risk Management

Risk description

  • Credit risk can occur between PSP in the faster payment system. If the interbank settlements are made offline, the receiver’s PSP will advance its client money until getting them from PSP.

Recommendations

  • Credit risk which is taken by a receiver’s PSP can be managed, e.g. through limitations (on aggregate pure PSP positions), frequent settlement circles, agreements on the losses dividing, mechanisms of providing and/or preliminary financing. These mechanisms will limit the maximal pure debit position which can appear and provide resources for covering it.

Risk description

  • In faster payment systems with real time settlements there are permanent needs in liquidity and payments can be rejected, if sender’s PSP lacks money for the settlement.

Recommendations

  • Usually the system provides tools which help PSP participants manage this risk via special mechanisms of providing liquidity. In the systems with postponed settlements the liquidity will be necessary only in the end of each settlement circle.

Risk description

  • The main difference of instant payments is their irrevocability; therefore the legal basis should be created and protection should be provided when the money is legally transferred from senders to receivers.

Recommendations

  • Instant payments should be maintain by reasonable legal mechanisms according to their specific constructions, activity and use. The rules and regulations should clearly determine the relevance of laws and rules to avoid losses and failures caused by the lack or unexpected usage of the legal basis.

Risk description

  • Users expect 24/7 work with almost instant speed of depositing money to merchants. Thus each system failure demands the same instant fixing.

Recommendations

  • There should be mechanisms of providing the maintenance of the system on each level (channels, software, hardware). There also should be measures taken for immediate reacting to the top challenges etc.

Risk description

  • The fraud risk is a type of the operational risk which includes manipulations with a payer or a payment receiver turns out to be a fraud, payment instruction initiation by a fraud, attribute of a given payment instruction and picked up by a criminal.

Recommendations

  • There should be high-speed analyzing and monitoring of the payment traffic systems and also gathering the detailed information about senders, receivers, transactions etc. They will improve the fraud detection. Additionally there should be limitations for the sum of particular deals and additional authentification measures.

Risk description

  • The central bank having initiated the creating of the faster payment system has a probability to take reputational risks in case of deteriorating the quality of the service or in case of turning down the liability to provide the speed and availability of the system or causing its participants’ financial losses.

Recommendations

  • There should be created a system together with the key participants of the payment field taking into account the architecture and functionality of their IT systems and also providing PSP with consulting, methodological, technological and other forms of support both at the stage of creating and implementing the system.

Immediate payments deployments around the world

• Switzerland – SIC (1987 )
• South Korea – HOFINET (2001)
• Mexico – SPEI (2004)
• United Kingdom – Faster Payments (2008)
• India – IMPS (2010)
• China – IBPS (2010)
• Sweden – Swish (2012)
• Turkey – RPS и BKM (2012)
• Poland – Express Elixir (2012)
• Italy – JIFFY (2014)
• Singapore – FAST (2014)
• Europe – SCT Inst (2017)
• Russia – Faster Payment (2019)
• Australia – New Payment Platform (NPP)
• Hong Kong – Fast Payment System
• Canada – Payments Canada (in the process)
• USA (in the process)

Our specialist will contact you to discuss the opportunity to start working with the TARGET Instant Payment Settlement (TIPS).

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