payment systems evolution: where to from here? philip lowe and stephanie weston reserve bank of...
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Payment Systems Evolution:Where to From Here?
Philip Lowe and Stephanie WestonReserve Bank of Australia27 September 2006
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Outline
• Why the RBA is interested
• General observations from international comparisons
• Some concrete examples:
– ‘online debit’
– B2B payment
– Canadian bilateral system
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Some Background
Wallis: Recommendation 63
….. The PSB should also ensure that new technologies are implemented to advance the efficiency and soundness of the financial system. The PSB should have the necessary resources, focus and powers to influence, or if necessary mandate, standards.
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RBA’s Approach
• Raise issues for discussion
• No hidden regulatory agenda
• Would like to see industry-led discussion
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RBA’s Approach
• Study international developments
– products
– architecture
• Understand incentives to innovate
• Understand importance of competition and co-operation
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Some Questions
• Product versus network innovation?
• Competition versus co-operation?
• How is co-operation achieved?
• Access arrangements for bilateral systems?
• Arrangements for promoting and developing bilateral systems?
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Products
• Australia has a generally good record– EFTPOS, bill payments, universal ATM,
reliable and stable
…. but recent developments overseas– B2B
– ‘online debit’
– CHIP/PIN/contactless
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B2B
• Extended message formats
• Attaching electronic files
– standardisation is helpful?
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‘Online Debit’
• Both merchants and cardholders seeking an alternative to credit cards online
• Systems typically connect to internet banking
• Available in an increasing range of countries
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CHIP/PIN/Contactless
• Low levels of fraud in Australia
• Faster adoption in a number of countries
• Slower take-up of ‘mobile payments’
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Architecture
• Centralised
• Bilateral
• Hybrid
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Networkswitch
VPN
Network Structures
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Bilateral Systems
✓ Useful in developing the system
✓ No single point of failure
✕ Access can be difficult
✕ Renovation can be difficult
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Bilateral Systems
• Messages sent bilaterally (no central switch)
• Can also include:
– bilateral interchange fees
– bilateral negotiations over type of connection
– bilateral negotiations over cost of connecting
– bilateral business contracts
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Access
• More difficult if:
– large number of participants
– no agreement on technical specifications
– no agreement on interchange fees
– no obligation to connect
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Renovation
• Co-ordination problem
• No entity with incentive to promote the system
• Similar issues can arise in a centralised system
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Product and System Developments
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Product Developments
• Online debit
– InteracOnline
• Business-to-business payments
– Electronic Payments Network
• Straight through processing
– Finvoice
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Online Debit
InteracOnline, Canada
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CART ACCOUNT SHIPPING HELP
CARTStep 1: Cart Summary >> Step 2: Billing & Shipping >> Step 3: Summary & Payment Options
Order Summary
Cancel Continue
Pay From Your Bank Account:
Pay using your credit card
INTERAC Online is a new payment service that allows you to pay for goods and services on the Internet directly from your bank account
Card Number:
Expiry Date:
Payment OptionsTOTAL: $65.45
Taxes & Shipping Subtotal: $15.50
Items Subtotal: $49.95
GST: $3.50
One-Day Shipping: $12.00
$49.95 1 Shakespeare-o-pedia
Quantity Description Amount
InteracOnline
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InteracOnline
PRIVACY
Interac is a trademark of Interac Inc, used under license.
PAYMENT DETAILSHELP
CANCEL
Click to choose your Financial Institution:
To cancel and return to ABC Books:
PAY TO ABC Books
INVOICE NO 12345
AMOUNT $65.45 CAD
FIRST XYZ BANK123
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123
Secure Login
Web password
Bank Card Number (or User ID)
******
1234 5678 9101 1121
Login
Forgot your User ID?Forgot your Password?
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123 HELP
INTERAC Online Payment
Confirm Details
Cheque
Send to:
Invoice:
Amount:
From Account:
ABC Books
12345
$65.45 CAD
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123
Confirm Details
HELP
Details
Send to:
Invoice:
Amount:
ABC Books
12345
$65.45 CAD
ChequeFrom Account:
Send on: 27 September 2006
Next >< Back
Clicking on “Next >” will log you out of online banking and take you back to ABC Books in order to complete the transaction.
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CART ACCOUNT SHIPPING HELP
CART – ORDER COMPLETEStep 1: Cart Summary >> Step 2: Billing & Shipping >> Step 3: Summary & Payment Options >> Step 4: Confirmation
Invoice: 12345
TOTAL: $69.45
Taxes & Shipping Subtotal: $19.50
Items Subtotal: $49.95GST: $3.50
One-Day Shipping: $12.00
$49.95 1 Shakespeare-o-pedia
Quantity Description Amount
Placed on: September 27, 2006
Shipping method: TNT CourierEstimated delivery: One business-day
Thank you for shopping at ABC Books
Payment method: INTERAC Online Shipping Address
From: 123 BankConfirmation No: W3Q5
Joe Customer350 George StTORONTO CANADA M4B 1V6
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Business-to-Business Messaging
Electronic Payments Network, United States
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• Private automated clearing house
• Processes over 40% of ACH transactions
• B2B Initiatives:
– EPN STP 820
– UPIC numbers
Electronic Payment Network
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EPN STP 820
Payables Receivables
Customer Account NumberCustomer NameInvoice Gross AmountAmount PaidInvoice NumberInvoice DateDiscountPurchase Order NumberAdjustment CodeAdjustment AmountDescription For Adjustment
Accounting Software Accounting Software
EPNnetwork
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Bank detailsBank account numberBank account titleTransaction codeAmountReference (18 characters)
Message Format
Australian Direct Entry EPN STP 820
Bank detailsBank account numberBank account titleCustomer account numberCustomer nameInvoice gross amountAmount paidInvoice numberInvoice dateDiscountPurchase order numberAdjustment codeAdjustment amountDescription for adjustment
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Straight Through Processing
Finvoice, Finland
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• Common format for electronic invoices designed by Finnish banks
• Invoices are forwarded through banks using existing connections
• Uses electronic business XML standard
• Widely adopted through Scandinavia
Finvoice
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Finvoice Message Structure
e-Envelope (ebXML)
Basic InvoiceInvoice data
Order referencePosting proposal
Payment Details
Attachment Industry
specific details
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Finvoice Processing in Accounts Payable
Accounting entry
Paymentgeneration
Automaticentry
Finvoiceinvoices
Bankconnection software
Bill paymentservice
Bankconnection software
Payment message
PURCHASING FIRM’S
ACCOUNTS PAYABLE
INVOICINGFIRM
INVOICINGFIRM’S BANK
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System Developments
Interac Association, Canada
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Competition Policy
• 1996 Consent Order required Interac to:
– remove membership restrictions
– allow indirect access
– modify the Board structure
– change pricing practices
– make the network available for new services that require on-line access to demand accounts
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Ownership and Processing
Three separate entities created:
• Interac Association– member services and scheme rules
• Interac Inc– not for profit; maintains network software for
members
• ACXSYS– for profit; licenses the network software,
InteracOnline and Certapay
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Developments• Network Upgrade
– moved from X-25 frame relay network to IP-based system
• InteracOnline– online debit solution, supported by 3 Interac members
• Certapay– e-mail money transfer system, supported by
5 Interac members
• Cross Border Debit– bridge to US ATM network, NYCE, supported by 5
Interac members