Swiss Instant Payments Service Takes Off Soon

Banks in Europe settled the first instant payments around four years ago. It was an exciting development that the Swiss financial industry did not yet perceive and construe as a widespread customer need at that time. Then in late 2018, the European Central Bank put its instant payment infrastructure into operation. Time to observe and reflect was over in Switzerland. The conviction that instant payments can become the new norm is increasingly gaining prevalence as time goes on.

In March 2020, the board of directors of SIX Interbank Clearing Ltd gave the go-ahead for the next – fifth – generation of the Swiss central payment system SIC. SIC5 will support the new instant payments use case that Swiss banks will be able to offer their clients starting in August 2024. Instant payments can then be executed 24 hours a day, 7 days a week, and 365 days a year, with a transaction’s path from the payer’s to the payee’s account taking only a few seconds.

SIC5 is to payment transactions in Switzerland what 5G is to mobile communications: speed. The fifth generation of wireless technology transmits signals much faster than the 4G transmission rate. This vastly accelerates surfing speed and, with a reaction time of just a few milliseconds, enables virtually instantaneous communication in real time. In the future, banks will be able to execute clients’ payment transactions end-to-end in less than ten seconds. The SIC system itself processes payments within a maximum of two-tenths of a second, i.e. in real time.

“Digitalization and improvements in communications technology are boosting demand today for instant payments available around the clock,” says Swiss National Bank (SNB) Governing Board member Andréa M. Maechler. The boom in mobile payment applications is particularly bound to spur demand, according to the SNB. As the originator of the SIC system, which is operated on behalf of the SNB, it’s important to the SNB that Switzerland’s core payments infrastructure remains fit for the future and facilitates innovations in customer payment transactions. Hypothekarbank Lenzburg CEO Marianne Wildi shares this view about the introduction of instant payments: “We are definitely sensing pressure from customers to move in the direction of ever faster payment settlement processes, particularly in connection with mobile apps. Instant payments are a very important function in the platform business.”

The Swiss National Bank and SIX want to get as wide a circle of affected SIC participants as possible involved in the innovation process. Practical implementability stands in the foreground. Wildi also welcomes this approach: “Today’s systems are complex and have developed over a long time. It certainly would be easier to introduce a greenfield system from scratch. What’s important, in my view, is having the support of all bank groups and ensuring inexpensive transaction costs, particularly also compared to debit and credit card offerings.”

Where do other banks see the biggest challenges? What specialist and technical support do the big universal banks as well as cantonal, regional, standalone, and foreign banks need to successfully introduce instant payments? The responses to the consultation on the SIC5 rough concept draft in summer 2020 revealed that the participants welcome the undertaking.

All active participants in the Swiss customer payment transactions system via SIC are expected to be capable of processing incoming customer payments instantaneously by the end of 2026. The new service will become an integral part of the SIC system. As of August 2024, a little more than a half-year after SIC5 goes into operation, institutions that received more than 500,000 incoming customer payments through the SIC system in 2020 will have to be capable of receiving instant payments. Sending instant customer payments is voluntary.

As is the case with 5G, SIC5 alone likewise isn’t enough to provide the perfect infrastructure. The real added value doesn’t materialize until innovation reaches users. For that to happen, offerings for consumers and enterprises are needed from banks and business software suppliers.

Banks prospectively have an opportunity to provide instant payments to customers across their own mobile and e-banking channels. Wildi: “We’re noticing that, for example, from the customers of our FinTech partner Neon. They already expect all effectuated transactions to always be executed, debited, and simultaneously displayed on the account app instantly. Instant payments are thus a very important function in the platform business.” For this group of customers, Hypothekarbank Lenzburg would already supply a solution that is quasi-instant. “I say quasi-instant because it doesn’t follow the Swiss SIC payment system’s real-time processing standard, but can be deemed instant by our own standards. We are looking forward to this becoming possible also across banks.”

Moreover, instant payments can lay the foundation for entirely new solutions such as automated payments in connection with the Internet of Things. What innovations will actually come into being is unknown as yet and will reveal itself in the years ahead.