The Global Payment Systems Analysis: scope and main findings
Based on extensive research, the Global Payment Systems Analysis (GPSA) analysed over 1000 data points and developed a functional index to compare the 26 systems examined. The GPSA identifies specific attributes and features of payment systems to provide a framework for evaluating potential enhancements and best practices. The GPSA also conducted 20 executive interviews to reveal substantial detail about motivations and justifications underlying developments in the industry. The analysis covered in the GPSA represents the most thorough study of payment systems worldwide.
The GPSA analyses a variety of functional categories as well as operational and posting practices including settlement, return periods, fraud prevention and detection, non-payment messaging, data standards, warehousing practices, access models, and pricing. Key insights from these sections include:
- Each system has struck a specific balance between cost, risk management and level of service to suit its payment community.
- Risk management and cost efficiency guide settlement frequency. As the speed of settlement increases, the price per transaction increases as well.
- The systems that output after multilateral settlement, argue that this strikes the best balance between liquidity efficiency and low settlement risk.
- For those systems anticipating major upcoming changes to settlement in the next two to three years, service level improvements and risk reduction were the key change drivers.
- Regulators play an equally important role in driving change.
- The systems in the study show no correlation between the length of return period and direct debit usage. The existence of a return period drives direct debit usage. The length of return periods does not.
Figure 1: GPSA: systems examined
The GPSA Functionality Index aimed to use the various points in the comparative analysis in order to align the systems studied across a spectrum ranging from relative leanness to richness. The Functionality Index uncovered similarities and differences across functions, attributes, and the systems themselves. In addition to revealing best practices in each category analysed, other insights include:
- Richness or leanness has evolved in payment systems to meet various needs, and priorities change over time.
- The development of payment systems is often organic and without sustained direction.
- Divergent environments sometimes yield similar systems, and similar environments do not necessarily lead to similar systems.
- Each system has a distinctive set of functional attributes. Although systems grouped together have many attributes in common, they do not replicate each other exactly.
- The highest volume systems exhibit typical functionality due to the complexity of balancing the needs of many stakeholders.
Through a survey instrument, the GPSA asked participants to identify system priorities. Each participant surveyed identified their highest system priority. Adding new services was identified as the highest priority by the greatest number of those surveyed. Increasing volume was important to 95 percent. Achieving interoperability was also a high priority. Reducing fraud was the lowest priority, not because it was seen as unimportant, but rather because most systems surveyed were not responsible for fraud detection and prevention. Survey respondents were split about whether reforming governance was very important or not at all important.
Figure 2: GPSA: Priorities among payment systems surveyed in the next 3-5 years
Change drivers impacting payment systems
As regards the development of new payment initiation channels and other innovations, the GPSA found that real-time and mobile payments are high on the agenda of payment systems.
For a summary of the GPSA, refer to 'related links' below.
GPSA - questions and answers
Newsletter: Which factors motivated you to launch the GPSA study?
Leo Lipis: Clients asked for it! That's the simple answer. Given the drive for payment system development in many countries and regions, there is a genuine need to understand what is happening and more importantly, what is motivating those changes. The GPSA was meant to be the most comprehensive encyclopaedia of payment system features and functions to date and our clients have found it to be a useful aid for the development of future payment systems.
Newsletter: Which systems were covered by the study and how were they chosen?
Leo Lipis: 26 systems were covered in total, and within those 26, there was often more than one clearing covered. The list was selected, in part, by the sponsors, but we also made every attempt to include a wide range of systems from every continent. We also wanted to highlight a variety of system structures. Some systems combine payment scheme rule-making and clearing of payments in one entity. Other entities are solely responsible for the development of scheme rules such as, for example, the European Payments Council (), which manages the Direct Debit () and Direct Debit () Schemes for , and NACHA - The Electronic Payments Association in the United States. The GPSA also covers entities solely active in the clearing and settlement of payments as well as systems like APCA in Australia which set rules and operate a network, but do not operate a clearing house at all.
Newsletter: Given that there is a clear separation between scheme development on the one hand and clearing and settlement of payments on the other in SEPA; how do the SEPA payment schemes - and the clearing and settlement of SEPA transactions - compare to other models around the world?
Leo Lipis: The Schemes and their implementation are typical in their functionality and compare well with other payment schemes around the world. There are several areas where they really excel. One of the key differences compared to payment schemes in other regions is that the Schemes are based on a modern data standard; i.e. the ISO 20022 message standards. This standard enables interoperability among the clearing and settlement mechanisms (CSMs) within . There are certainly other points of comparison but this aspect in particular was highlighted in the GPSA analysis.
Newsletter: To what extent does play a role in this study?
Leo Lipis: Payment systems operating in were examined in a number of ways throughout the report. Two of the GPSA sponsors operate as CSMs and seven of the executive interviews were conducted with players, including the in its role as the manager of the and Schemes. The report also analysed transaction volumes, both current and expected post migration volume, in order to create a holistic representation of the global payments landscape.
Newsletter: Given the wide variation among countries in the volume of bulk payments per capita, what can countries with low penetration do to promote electronic payments?
Leo Lipis: There are indeed wide variations within , including among the lowest and the highest usages of electronic payments globally. This vast range presents a challenge to multi-national banks in to streamline processes and encourage broader adoption. Other countries around the world have taken several measures to encourage electronic payment use. A few examples include easy consumer payment origination, better consumer outreach, and faster processing.
Newsletter: What insights revealed by the GPSA specifically pertain to ?
Leo Lipis: On a general level, the insights about the impact of settlement timings and frequency on risk management are relevant to all systems, as are the sections on operational efficiency, customer experience, and access methods. Specifically, regarding the payment schemes, our study did a system comparison between NACHA and the to highlight the differences in the approach to scheme development. We also documented a number of settlement and return timelines for CSMs. The European payments industry debated the wisdom of lengthening return periods and one insight revealed by the GPSA is that, where return periods are concerned, the length is not relevant. The study also highlights the high standard of fraud prevention provided by the Business to Business (B2B) Scheme and the consumer protection stipulated by the Payment Service Directive.
On an operational level, one trend that stands out in countries is the tendency to settle before outputting. This phenomenon is increasingly common for newer systems and is a very effective risk mitigation tool. Recently designed bilateral or multilateral systems have shown a preference for output after settlement, because it manages settlement risk effectively at an acceptable cost of liquidity.
Newsletter: Are there any insights that are not directly related to but effect those schemes nonetheless?
Leo Lipis: Our study revealed a variety of insights on data standards, namely the global shift to ISO 20022. Occasionally, the implementation of ISO 20022 in has been criticised on the grounds that the Schemes limit remittance data to 140 characters. The systems outside of that implement ISO 20022 however, have also limited the remittance data allowed. These systems still see ISO 20022 as a richer and more global data standard. For others, the choice to move to ISO 20022 is often difficult because systems have created alternative channels to carry remittance data and are reluctant to shift away from these embedded practices.
Newsletter: According to your study, what are the top change drivers for payment systems today?
Leo Lipis: From a global perspective, the biggest change drivers are regulatory compliance, mobile payments, providing real-time experience, interoperability, and decreasing settlement risk. So Europe is not an exception in this regard. is a special case in terms of regulatory intervention but the GPSA has documented the way in which the pace of technological change, along with payment instrument convergence, are forcing a re-evaluation of existing methods for controlling risk, processing velocity, and increasing system access. In short, payment systems must be much more flexible than they were in the past.
Newsletter: Can you expand on what you mean by real-time experience?
Leo Lipis: It is all about how the user experiences the payment. In a real-time system, the beneficiary receives notification less than a minute after a payment has been initiated. The development of real-time payment systems has focused on the experience of real-time information to users. Real-time settlement and posting are really about risk control, not customer experience. Customers are generally happy with real-time processing and payment guarantees and less concerned about how fast a payment settles. Many systems have concluded that real-time settlement is not worth the cost and complexity and have opted for same-day settlement instead.
Newsletter: What were the most important conclusions of the GPSA?
Leo Lipis: There are a number of important conclusions, some expected and some surprising. One of the more obvious, but still significant findings is that there are correlations between settlement speed, functionality and cost. Payment systems seek to strike the ideal balance between cost, risk management and level of service. Because environments differ, systems can and do vary widely. We were surprised to find similarities between systems with no geographic relation to each other - systems in Japan and the UK, or South Africa and Brasil. In some ways, the relative importance of a conclusion depends on what issues you currently face. The GPSA does identify best practices and change drivers for each of the major topics it examines, and in that respect, has something for everyone.
Newsletter: Dr Lipis, thank you very much.
Dr Leo Lipis is Managing Director of Lipis & Lipis GmbH.
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