Association for Financial Professionals Global Payments Trends and Payments Modernization Case Studies
February 13, 2018 Agenda
Payments Trends (10 min)
Global Case Studies (15 min)
Payments Modernization Overview (15 min)
Impacts and Opportunities (10 min)
? Closing Remarks and Q&A (10 min)
Vivek Ramasubramanian Soumak Chatterjee
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© Deloitte Inc. Payments Trends
3 Introduction
Canadian Market in 2016
21.3 B $9.2 T Consumer and Business transactions Total Payments Market Value
Evolution of Payments
1960’s 1970’s 1980’s – 1990’s 2000’s - 2020’s
Paper Payments Credit Cards Available & Secure Digital and Mobile Payments Payments
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© Deloitte Inc. Canadian Payments Ecosystem
People Small Businesses
Large Government Corporates Agencies
Payments Ecosystem
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© Deloitte Inc. Canadian Payments Value and Volume Shifts
Emergence of new digital channels and contextual commerce continue to drive volume increases for credit, debit, and online transfers, while cheque usage continues to decline, the average value per cheque has increased
Value Shifts by Payment Type (2011 – 2016) Payment Type Volume Shifts by Payment Type (2011 – 2016) 2016 Values 2016 Volumes
-24% -22% $ 116 B Cash 6.6 B
23% 31% $ 225 B Debit 5.4 B
31% 38% $ 510 B Credit 4.8 B
9.40% 32% $ 3.9 T Cheques & Paper 798 M
611% 516% $ 68 B Online Transfers 177 M
809% 953% $ 63 B Interac E-Transfers 158 M
6 Sources: Payments Canada, 2017 Canadian Payment Methods and Trends, December 2017 – https://www.payments.ca/sites/default/files/cpmt_report_english_0.pdf, Central1 – Alternative © Deloitte Inc. Payments: volumes continue to skyrocket for Interac e-Transfer, 2011, Interac - Interac e-Transfer volumes reached record levels in 2016 Payments Trends (1 of 2)
Customer Expectations Open Banking
Contextual commerce is leading to 2 Introduction of PSD2 in Europe driving open payments becoming invisible banking5
63% of banks believe open banking is critical for competition6 FinTechs and non-traditional players are redefining customer payments experiences 2
Business Payments Innovation Richer Transactional Data
10% decrease in business cheques3 $4.5B cost savings anticipated over 5 years in Canada via ISO7 New B2B networks providing improved reconciliation, flexibility, and lower costs4 FinTechs are using new data sets and analytics that capture consumer insights for lending decisions
7 Sources: 1. Thomson Reuters: Canadian FinTechs Shine as Investments Near Record, 2. Payfirma, Contextual Commerce: The Future of Payments, 3. Payments Canada Trends Report 2017, 4. Business Mode Mayhem, Bob Solomon, © Deloitte Inc.PYMTS.com, 5. Accenture, Most large global banks planning major investments in open banking, 6. UK Challenger Banks: Who’s Who, 7. Payments Canada: The economic benefit of adopting the ISO 20022 payment message Payments Trends (2 of 2)
Government Led Initiatives Evolving Regulatory Posture
The ‘Policy on Open APIs for the Government of India’ OCC will now allow FinTechs to apply to enables innovation through the availability of data1 become “special purpose national banks”4
In emerging markets, initiatives to boost financial inclusion is RegTechs are emerging to digitize and scale fueling rapid growth in e-payments2 compliance solutions5
Federal Reserve Bank, and NACHA are leading The OSC LaunchPad is a regulatory sandbox efforts to accelerate payments3 working with Blockchain FinTechs6
Sources: 1. Ministry of Electronics & Information Technology – Policy on Open APIs for Government of India, 2015, 2. PwC – Emerging Markets: Driving the Payments Transformation, 3. The Federal Reserve Banks, 2015, 4. OCC – Exploring Special Purpose National Bank Charters for Fintech Companies, 2016, 5. PwC – The Changing Landscape – How to Use RegTech and Make Regulatory Compliance, 2016, 6. Deloitte – Regulatory Sandbox, 2017 8
© Deloitte Inc. Global Case Studies
9 Global Real-time Payments As of Feb 2018
Sweden
U.K Finland Payments in Real-time (PRT) Faster Payment Systems Launch: 2012 Siirto Launch : 2008 Standard: ISO 20022 Launch: March 2017 Payments Architecture (NPA) Standard: ISO 20022 in 2021+ Standard: ISO 8583
India
U.S.A Unified Payment Interface (UPI) TCH Real-Time Payments Netherlands Launch: 2010 Launch: Nov 2017 Standard: XML Based APIs Standard: ISO 20022 Instant Payments Launch: Expected 2019 Standard: ISO 20022
Australia Denmark New Payments Platform NETS (Express Transfers) Launch: Feb 2018 Launch: November 2014 Standard: ISO 20022 Standard: ISO 20022
Legend: RTP Live RTP in Planning Overall RTP Maturity 10 Sources: Flavors of Fast (2017) © Deloitte Inc. Faster Payments Service
The UK implemented its Faster Payments Service (FPS) in 2008 with the vision of enabling a multi-device 24/7 payment, the first new payment service to be introduced in more than 20 years
FPS Adoption and Recent Developments
Value & Volume Transaction Timeline UK Open Banking regulation in January enables accessibility of customer data via APIs1 Payment System Task £1,189b Force (PSTF) Initiated Volume (Million Transactions) 1,426m (½ day target) Value (£ billions) £1,041b £904b 1,247m APACS new target of £771b 1,101m few hours 24/7 after £618b 968m award to Voca & Link 811m £235b Voca & Link £164b merge to form 525m GOV.UK stated in a recent survey that corporates VocaLink £106b 426m are not ready to implement GDPR2 £33b 295m 2021+ 83m Introduction of NPA 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2021+
Direct Transaction Transaction FPS Direct New Corporate limit limit New Payments Architecture (NPA) is set to Launched Corporate Launched Launched Launched Payments Access extended Access extended 3 Mobile FPS Architecture reshape the UK payment infrastructure goes live from £10K extended to from £100K goes live (NPA) to £100K 24/7 to £250K; processing
transaction volume transaction value of total transaction volume 1.7 B processed in 20174 £1.4 T processed in 20174 19% in 20175
11 Sources: 1. The Open Banking Standard , Payment Strategy Forum, 2015. 2. Study finds organizations are not ready for GDPR compliance issues, Inside Financial & Risk, 2017, 3. New Payment System Operator takes on responsibility for UK © Deloitte Inc. payment architecture, Finextra,2017 4. 2016 UK Payments Market Summary, Payments UK, 2016; 5. Payment Statistics, Payments UK, November 2017 Single Euro Payments Area
The Single Euro Payments Area (SEPA) is an EU initiative with the vision of an integrated euro payments area, which now includes 34 countries / territories, with the introduction of the Credit Transfer scheme in 2008
SEPA Adoption and Recent Development
Value & Volume Transaction Timeline Cashless Society Project encourages a shift € 63.0 away from paper-based payments in Europe1 € 55.0 4.4m 4.0m Volume (Million € 43.0 Transactions) The Euro became an 3.4m official currency of 11 € 30.0 EU member states. € 24.5 2.8m Belgian Federal Government was a principal SEPA migration 2.2m process began € 19.2 driver of early adoption in 2012 (in 2008, tax 2.0m € 11.2 authorities sent 500K transfer forms a month) € 9.8 1.5m € 3.5 1.0m 0.4m
2006 1999 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Payment Services Directive (PSD2) is set to 3 Swiss joined SEPA Credit SEPA Direct Estonia adopts the ECB announces the SEPA migration SEPA migration disrupt payment services in Europe SEPA Scheme Transfer Debits euro. SEPA has 17 creation of the Euro mandated in Euro mandated in non- launched launched members so far Retail Payment Board Area6 euro countries6 * The figure in this graph is the approximate figure based on SEPA Statistics from 2008 to 2016
annual electronic in annual savings due to price reduction in labor costs5 122B transaction each year4 €21.9B / process efficiency5 €237M
12 Sources: 1 World Payment Report 2017, Capgemini,2017 2. European Payments Council – SEPA Fact Check: The SEPA Benefits Projected by EU Governments, 2014, 3 PSD2: How can banks seize the opportunities?, Accenture,2016 , © Deloitte Inc. 4 SEPA Timeline – European Payment Council, 5 Economic analysis of SEPA, PWC, 2014, 6. European Payments Council, SEPA Regulation: EU Legislator Mandates Migration to SEPA by 1 February 2014, 2012 Unified Payment Interface ‘India’
India’s Unified Payments Interface (UPI) was recently launched via the Immediate Payment Service (IMPS) to facilitate instant payments via virtual payment addresses
UPI Adoption and Recent Developments
Value & Volume Transaction Timeline Aadhaar1 Card Program is the world’s largest Planned 2 RBI released INR 4,048b biometric ID system with 1.19 B members in 2017 Volume (Million Transactions) INR 3,371b release of mobile 407m 436m UPI 2.0 payments Value (INR billions) guidelines – IMPS helps meet those guidelines INR 1,391b 196m Increased Adoption via FinTechs: Whats App, INR 408b Google Tez, Samsung and Amazon Pay3 INR 36b 58m 6m
2008 2010 2013 (Q4) 2014 2015 2016 2017 (H1) 2017 (H2)
IMPS UPI Launched Launched, Tax Subsidies in consideration by gov’t as an demonetizatio 4 n incentive for merchants to use digital payments Data not available from 2010 launch date to Q4 2013
mobile wallet service growth of real-time transactions targeted electronic transactions 150M provider users5 97% in 20175 25M displacing cash6
13 Sources: 2. Current Affairs UIADAI,2018 3. What’s Driving India’s Fintech Boom?, Wharton,2018 4. Govt may give sops to merchants for adopting digital payments, BusinessLine, © Deloitte Inc. 2018, 5. Digital Payments – Analyzing the cyber landscape, KPMG,2017 6. World Payment Report 2017, Capgemini,2017 Other Global Initiatives
TCH APCA Fed Reserve Real-time Payments (RTP) New Payments Platform (NPP) Faster Payments
25 member banks 13 member banks 400+ members
RTP provides features such as speed, NPP is industry led by 13 members and The Faster Payments Task Force is enhanced messaging capabilities, and provides a fast, versatile, and data-rich currently building a faster, ubiquitous, immediate transaction statuses payment system, with open access and inclusive, secure, and efficient faster multiple overlay services payments system
Go-Live: Expected Go-Live: Expected Go-Live: November 2017 February 2018 2020
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© Deloitte Inc. Payments Modernization Overview
15 Overview of Payments Canada
Established in 1980 by the Canadian Payments Act, Payments Canada is a not-for-profit member based association responsible for and legislated to:
1. Establish and operate national systems for the clearing and settlement of payments
2. Facilitate the interaction of its clearing and settlement systems
3. Facilitate the development of new payment methods and technologies
Payments Infrastructure
Standards, Rules, and Policies
Network Operator
Large Value Transfer System (LVTS) Retail System / Automated Clearing Settlement System (ACSS) Canada’s real-time electronic funds trans er system providing f Tracks the retail payment items exchanged between finality of payment and certainty of settlement participants and determines the balances due
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© Deloitte Inc. Payments Modernization - An Overview
Payments Canada’s vision is to build a Modern Payments System that is fast, flexible and secure, promotes innovation, and strengthens Canada’s competitive position
Faster Payment Transaction Data-Rich Payments Easier Payments Options Transparency
Activity-Based Open and Risk-Based A Platform for Cross-Border Oversight Access Innovation Convenience
Payments Modernization – Key Pillars
Automated Funds Lynx Real-Time Rail (RTR) SOE Rules Framework Transfer (AFT)
Replace LVTS with a new Enable a real-time Enhance AFT with additional Replace the ACSS and Develop a modern rule set high-value system capability, operating exchange windows & faster USBE with SOE for high value 24/7/365 funds availability & retail payments
Major Changes
Contextual Data Faster Payments Capabilities Open Access
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© Deloitte Inc. Impacts and Opportunities
18 Anticipated Impact to Government Payments in Canada
Payment modernization is anticipated to benefit government payments and processing efficiency, due to faster payments, proxy aliases, and enriched contextual data
Real-time Payments Proxy and Data Enriched Data
• Faster government • Allow government payments to be • Inbound government payments disbursements for special made via a proxy and aliases, can include relevant circumstances, such as emergency such as an emails or phone documentation (e.g., tax forms, relief funding numbers, resulting in a convenient receipts, etc.) improving and inexpensive option for reconciliation and STP • Reduce costs associated with unbanked individuals credit card processing and • Outbound government banking fees, due to new real-time payments can be consolidated payment options and standardized, resulting in reduced operational costs and customer inquiries
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© Deloitte Inc. Starting the Journey
Understand and Educate Forward Thinking Strategy Impacts Enablement Plan
• Identify current trends and • Analyze and develop ideas / • Identify and understand areas • Develop technology and impacts to the existing concepts to enhance current where customers, services, operational roadmaps and landscape, such as Payments and/or develop new capabilities and business models are plans to outline key initiatives, Modernization, Open Banking, impacted dependencies, and milestones Blockchain, Cloud, etc. • Identify new opportunities in the next 2 to 3 years against overall enterprise • Understand all business, strategic priorities operational, and technology impacts (e.g., ERP systems, ops processes, etc.)
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© Deloitte Inc. Closing Remarks and Q&A
21 Contact Us
Vivek Ramasubramanian Soumak Chatterjee
[email protected] [email protected]
ca.linkedin.com/in/vivekrb ca.linkedin.com/in/soumak
@soumakc
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© Deloitte Inc.