The translation of the above quote from Titus Livius, a Roman historian at the time of Emperor Augustus, is: "Better late than never.", which could also be said about the introduction of instant payments (IP) in Switzerland. As of next year, Swiss banks with a transaction volume of more than 500,000 incoming payments per year will be obliged to enable the receipt of instant payments in Swiss francs. From 2026, this regulation of the Swiss National Bank will apply to all participant banks in the national clearing system operated by SIX. What distinguishes the Swiss approach from SEPA instant payments? How could IP in Switzerland become the "new normal" like in the Netherlands? Is a scenario with low penetration like in Germany also likely in Switzerland? How are the Swiss banks currently proceeding? These are the questions that the following blog post will attempt to answer.
What differentiates IP Switzerland from SEPA instant payments?
In short: IP Switzerland is not compatible with SEPA instant payments. IP Switzerland aims to be able to settle payments in Swiss francs among participants in the national SIX clearing system in real time and around the clock for the launch in 2024. In order to not obstruct possible future interoperability in euro for the SEPA area, the majority of the standards and processes of SEPA instant payments were adopted. In contrast to the European model, the obligation to receive payments has existed in Switzerland since the beginning (initially for large and medium-sized banks, then for all banks). Analogous to the institutions in Europe, the technical challenges regarding the high availability of payments systems are also enormous in this country and are associated with large investments in the infrastructure. There is also widespread scepticism by banks as to whether IP will represent a business case for the institutions.
IP Switzerland like IP in the Netherlands or like IP in Germany?
Looking at IP offerings from the customer side, it is striking that there are huge differences in the spread of instant payments in Europe. This is what makes the forecast for the banks in Switzerland so difficult. On the one hand, they want to amortise at least part of the investments in the new infrastructures with a fee on IP payments, and on the other hand, they are aware that this is precisely what will prevent nationwide distribution among customers. Accordingly, new use cases are sought where all parties involved achieve a benefit. One possible approach is new account-to-account payment schemes (A2A payments) in commerce instead of the card schemes (debit and credit) widely used in Switzerland. From a retail perspective, as in the Netherlands, this is a promising option as lower transaction fees are expected. From the banks' point of view, this is a double-edged sword at first glance, as the existing card schemes are currently generating good revenues.
Implementation experiment: realisation in the community
In the context of instant payments in Switzerland, it is worth mentioning the procedure for implementing instant payments within a group of cantonal banks that compete with each other. At the beginning of 2022, the cantonal banks of St. Gallen, Thurgau, Aargau, Baselland, Lucerne and Solothurn formed a community to jointly implement the project. This is against the background that all banks have an almost identical system landscape, which must be adapted to the requirements of IP. Under the "construction management" of PPI Schweiz, in a first step, a conversion system analysis was carried out with the system suppliers involved, including the request of offer outlines. The aim was to achieve volume discounts for the group. Currently, the institutions are also working together for the implementation in order to save resources (their own and those of the suppliers). When it comes to the market offer, each bank is on its own again for the introduction in 2024; however, the development of the technical basis is not a differentiating factor from their point of view. Which is a novelty in the Swiss financial market.
Author: Carsten Miehling
