Instant payments coming to Switzerland as of 2024

Potius sero quam numquam
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

Mandatory address transformation: getting through the address mess with AI

Anyone who has ever sent a letter abroad knows that address formats can sometimes differ significantly. While in Germany an address usually follows the scheme

Street – House number – Postal code – Place of residence,

in France, the house number is usually placed in front of the street name. Things get really complicated when, for example, instead of a neighbouring country, the letter is sent to Asia, where completely different structures are used. Or take the USA: the United States Postal Service requires more than 200 pages to describe how US addresses may look – which formats and abbreviations are permissible and which are not.

Financial institutions also address countless parties around the world in payment transactions every day. The reason for this is that for payments outside the European Economic Area (EEA), the payer's address must be given and the recipient should also be indicated for smooth processing. This serves to enable the necessary checks, for example with regard to money laundering and fraud prevention.

The enormous diversity of address formats worldwide was not a major factor up until now. Because addresses are specified in an unstructured manner. Within the payment file simple fields in which the address is supplied as free text, the address lines (AdrLine), are available for this purpose. Only the name must be specified separately.

SEPA 2.0 puts an end to this. Because in the future, address data must be delivered in a structured form – for all SEPA payment formats. The changes will come into force gradually as of November 2023. From November 2025 at the latest, address data for SEPA credit transfers may only be delivered in structured form. And the challenges are not purely European: Swift and other market infrastructures have the same deadline. For payments within the EEA, the provision of address data remains voluntary. However, if banks decide to provide it, this must also be done in a structured way.

This means: in future, every component of an address must be included in the designated field. The Payment Markets Practice Group lists a total of 14 characteristics that can be assigned to a postal address.

The example shown in the figure is simple. Because everyone in Germany knows that 9 is the house number and Wiesenweg is the street name. Converting this data into the new format takes only a few seconds – provided that the application has the corresponding option.

But even then, the transformation would be a massive undertaking. Because financial institutions are sitting on millions of address data records that have to be transformed. And such simple addresses are the exception. If one estimates the required activities, a simple calculation quickly yields an effort of up to 250,000 working hours for an average financial institution with 500,000 corporate customers. In addition, there is the expense of training to equip staff with the necessary expert knowledge of the worldwide address formats.

In view of the scope, efficient approaches to solutions are therefore required. Regular expressions are out of the question in this case. As shown above with the example of the USA, the possibilities of address data even within one country are manifold and do not follow a regular structure. In addition, countless test data would be necessary.

Another option is address data services, for example from Google. However, those are not only expensive, but also questionable from a data protection point of view. Moreover, such services are often limited to certain regions or even countries.

An application based on artificial intelligence (AI) can provide a remedy. This allows data to be automatically transferred into the necessary structure. The AI is able to recognise structures on the basis of predefined training data and to transfer these structures to further cases.

We at PPI are happy to help financial institutions prepare and implement the transformation of address data. This includes the selection and adaptation of the appropriate AI application as well as the choice of the necessary training and test data.

In the end, the institutions receive a powerful and reliable solution from which not only they themselves benefit. Because corporate customers will also have to supply address data in a structured form in the future. Financial institutions that take the necessary transformation off companies' hands can gain a tangible competitive advantage.

Author: Eng.D. Thomas Stuht, Product Manager at PPI