Singapore closes in on real-time payments as Australia prepares for mandate
Singapore is set to go live with its G3 Immediate Payments system in March, putting it in an elite club – alongside the UK, Sweden and Poland – of countries with practically real-time payment systems.
G3 replaces the existing Singapore’s eGiro payment system that dates back to the 1980s. The March date is the first part of a three-stage rollout, coming nine months after it was originally scheduled, and will see leading banks move to close to real-time payments between themselves.
The second stage is expected to come in Q4 and will see the bulk of payments brought into the fold as the existing eGiro system is replaced. The last stage of implementation is expected some time in 2015 when Singapore’s electronic direct debits payments are brought onto the system.
“Singapore will be a fascinating test case for the benefits of real-time payments,” says Chris Dunne of VocaLink, architect of the system. “It is extremely tech savvy, affluent and it’s a city state. It will show other jurisdictions thinking about taking a similar step how demand can grow and how this kind of system can be used.”
Singapore’s authorities have kept relatively quiet about the specifics of the G3 project, making it difficult to gauge its progress, and it has been subject to some delays. However, it is known to be similar in concept to the UK’s Faster Payments system, with important technical differences under the hood.
Crucially, where the UK uses the ISO 8583 messaging standard, in line with the UK’s existing card payment infrastructure, Singapore has gone with the newer and internationally accepted ISO 20022 standard, the same standard used by Sepa.
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ISO 20022 allows transaction information to flow alongside the payment itself and is more flexible. “The business case for ISO 20022 is compelling, providing financial services decides to change its existing systems and commercial structure to one that is standardized around internal and external industry process and procedural standards,” says Gary Wright, CEO at BISS Research.
In developing its new payments system, Singapore looks to be attempting to do that, albeit at the behest of the Monetary Authority of Singapore (MAS).
Although observers expect Singapore’s experiment to be a success, the experiences of other countries that have implemented real-time payment systems suggests volumes will start small and build up. Volumes certainly started low in the UK after Faster Payments was introduced, while Poland’s system is still building up momentum after its debut in June 2012.
Volumes should pick up and represent a substantial proportion of payments traffic after the rollout moves into phase two, says Stephen Peters, head of Clear2Pay’s Singapore business.
As such, the benefits of the G3 project will not necessarily be obvious for years after initial implementation, with banks having to wait to recoup the money they have invested in compliance via increased volumes and an overall boost to the economy.
“In the UK, initial adoption was slow, but there is a network effect as more users come in, increasing the velocity of money and the velocity of commerce,” says Peters. “Real-time payment encourages more commerce because faster settlement makes it possible to ship goods on the day of purchase, and could also facilitate more innovations in the mobile space, such as encouraging the use of debit instead of credit cards.
“As the system gains critical mass, it should open up new opportunities in other areas of supply chain finance too.”
VocaLink’s Dunne says: “The experience of Singapore really underlines the importance of the need to build a coalition of the willing when building a new payments infrastructure, and in particular of having a strong central bank behind it, as they have tended to be the main facilitators in developing real-time payments platforms.”
This sets the Singaporean project apart from preceding projects in Sweden, for example, where the central bank did not play the same role championing the change, and where there are still relatively few participants.
This will give the Australian regulator something to think about as it ponders its own plans to develop real-time payments, with the mandate set to be awarded later this year. The Reserve Bank of Australia takes a different approach to regulation than the MAS, says Peters.
Together with the Australian banks and payment-system participants, they are analysing the different proposals to ensure that the new payment system will provide a sustainable business case for all participants, given the level of investments required.
VocaLink is regarded by many as a front-runner to win the mandate, given its successful work in the UK and Singapore. However, other players such as Fundtech – a software company with existing relationships with many global banks that built the Swedish system – and system integrator Capgemini, which built the Polish system, might also bid.
The Australian platform is expected to share important characteristics with other international real-time schemes, such as the UK’s Faster Payments system, though it is likely to use the international ISO 20022 standard, says Peters.
It is likely to develop a convenience service that allows value-added overlay services products to be developed on top of it, he adds, paving the way for the development of new services, such as Pingit in the UK. This will drive innovation from pension services to mobile payments and retail banking.
However, there will also be important differences, says Gareth Lodge, a senior analyst at Celent, if the blueprint laid out by the original proposal is followed.
“The differences are subtle to an outsider, but very important to the banks,” he says. “In the UK, there are three set settlement windows a day, and rules that define circumstances that would trigger additional settlements. Around 70% of transactions settle the next day, in the first window of the day.
“However, the Australian system is proposing to settle each transaction individually, in real-time, 24/7.”
That has important implications, says Lodge, from the cost of processing to the liquidity held in the settlement accounts. “Celent is not aware of any other system working in quite the same way, with perhaps the exception of Mexico’s SPEI service,” he concludes.