Introduction and summary
In a modern economy, we pay for goods and services and trade in
financial markets by transferring money held in accounts with banks. For
the better part of the last century in the United States, most noncash
payments were made with the paper check, a payment instrument that met
most needs for payment services. Since the mid-1990s, use of the paper
check has been in decline (Gerdes, 2008), a development that reflects
technological advances and innovations by providers of payment services
in response to needs for new and different payment instruments. Today,
individuals, businesses, and governments can choose from a variety of
payment instruments, each of which is designed to meet their specific
needs for attributes such as certainty, speed, security, convenience,
and cost (Foster et al., 2010). The most advanced means of transferring
money between bank accounts is immediate funds transfer OFT), which
allows senders to pay receivers electronically in a highly convenient,
certain, and secure manner, at low cost with no or minimal delay in the
receivers' receipt and use of funds.
Today in the United States, IFT payments made through the banking
system are mostly limited to large business transactions, interbank
transfers, and specialized financial market transactions involving
purchases of securities and the like. In total, these larger payments
account for a small proportion of the total number of payments made
throughout the economy. There is increasing evidence that the popularity
of IFT is growing for everyday use, such as consumer purchases, payments
between individuals, and small business accounts payable (Hough et al.,
2010). To date, however, most general-purpose IFT payments are made on
systems operated by nonbanks, the most familiar being PayPal. (1) The
coverage of IFT systems supported by nonbank companies is limited to
their closed customer groups, and transfers are made not in bank money
but rather in special units of account defined by the nonbanks.
A notable development in a number of countries around the world is
the everyday use of IFT for general-purpose payments using money held in
accounts at banks. In these countries, banks have invested in applied
technologies that allow them to provide low-cost IFT services to the
general public, taking advantage of established national clearing and
settlement arrangements that link all bank accounts together. As IFT
innovators, banks in other countries are working together collectively
and in cooperation with public authorities, such as central banks, to
provide national clearing and settlement for the new IFT service.
This article examines the emergence of IFT as a general-purpose
means of payment in the U.S. and in four other countries. We identify
the public policy and business issues that arise when a new means of
payment is introduced. We describe the attributes of payment instruments
that users find attractive and compare the attribute profiles of
different kinds of instruments, including IFT. We examine demand for IFT
in the U.S. and present four international case studies of IFT. Finally,
we discuss barriers to adoption of IFT in the U.S.
Payment attributes
Payments are made to satisfy personal or commercial obligations
between and among individuals, businesses (including nonprofits), and
governments. Cash is the most basic and widely used means of payment by
individuals in industrialized countries for transactions up to about $25
(Rysman, 2010; Smith, 2010). Apart from small-value payments, however,
cash is not a preferred means of payment. (2) Most money is held in
transaction accounts at depository institutions. (3) Payment instruments
that provide access to this "deposit money," such as checks
and debit cards, are the primary means of making payments (See box 1 for
discussion of the bank payment business). Payment instruments are
generally either credit transfers, whereby a payer (sender) directly
authorizes the movement of money, or debit transfers, whereby a sender
indirectly authorizes the movement of money via the payee (receiver).
Regardless of payment type, the end result is the same; deposit money is
transferred from sender to receiver. (4)
In the U.S., various payment instruments, supported by core
processing systems in banks and interbank clearing and settlement
mechanisms, are used to transfer deposit money. These include paper
checks, payment cards, electronic debits and credits, and wire transfers
(which, as we discuss later, are a specialized form of IFT). Senders
select a payment instrument based on how well its attributes match the
purpose of the payment (for example, point-of-sale transaction or trade
payment between businesses). Because payments are two-sided
transactions, the needs of both the sender and receiver are relevant in
selecting the payment method to be used. (5)
The primary attributes considered by senders and receivers when
selecting a payment instrument are as follows:
* Certainty--assurance to the sender and receiver that funds are
transferred as ordered;
* Speed--timeliness of funds transfer from sender to receiver;
* Security--assurance that payment is protected against fraud and
completed as ordered;
* Control--the sender and receiver have good information about and
are able to control the timing of payment;
* Universal acceptance--the payment instrument is broadly accepted;
* Versatility--useful for a variety of personal and business
transactions, including the ability to transmit remittance information;
and
* Low cost and transparent pricing--reasonable cost relative to
value; fees are clear to sender and receiver.
Providers of payment services attempt to deliver these attributes
in combinations that best meet the needs of the customers they serve.
Technology is a principal catalyst leading to improvements in such
services as one or more attributes can be strengthened without degrading
other attributes.
A comparison of attributes across different payment instruments,
including IFT, is shown in table 1, along with some common examples.
Here, we discuss the attributes by type of payment instrument as
summarized in table 1.
Payment types--Debit transfer
Debit transfers support the movement of money between accounts held
with banks. Paper check and direct electronic debit are the most common
debit transfer instruments. Historically, the paper check has been the
most widely used method for making debit transfers. Paper checks have
many attractive attributes, including payer control over the timing of
payment and near-universal acceptance by payees. Checks are also very
versatile in that they can be used for most personal, commercial, and
government payments. Businesses in particular are heavy users of checks
due to established back-office processes that link paper-based invoicing
and accounts payable systems to check-based payment systems. In general,
the need to link remittance information with a payment is a key factor
in a business's choice of a payment instrument and, historically,
the remittance process has been paper-based.
For individuals, the cost of a check payment is not necessarily
transparent because most banks bundle check fees with other transaction
account fees. Some banks offer "free checking," which does not
reflect the true cost. Businesses and governments are typically charged
explicit per-item transaction fees by their banks, which, in combination
with back-office processing costs, make checks relatively more expensive
than electronic substitutes (Wells, 1996). Despite higher costs, many
business users find established payment processes effective and the cost
of switching to an electronic workflow, including persuading
counterparties to accept electronic payments, prohibitive (AFP, 2010).
Historically, the process of clearing checks, which involves moving
the check from sender, to receiver, to receiving bank, to paying bank
(possibly through intermediary banks or a central clearinghouse), was
labor and capital intensive. Today, checks are converted to digital
images for electronic processing once they enter the clearing process.
This may happen at a merchant location, even as early as the
merchant's point of sale. (6) Even though most checks are cleared
electronically, funds movement is still a relatively slow process.
Depending upon when checks are entered into the collection process by
the receiving bank, provisional credit is available to a receiver either
the same day or the next day, and deposit money is transferred from the
sender's bank within one or two days.
Another type of debit transfer is the electronic equivalent of a
check, called direct debit. Direct debits are marketed to individuals as
"autopay" or "direct bill." This instrument allows
individuals to make payments directly from their bank accounts by
supplying their bank account and routing number to the payee. The true
cost of direct debit is hidden because it is typically free, or bundled
with account service fees. Direct debits are used primarily to pay bills
and, more recently, for online purchases. Acceptance of direct debit is
limited because not all payees offer this option to individual payers.
Businesses are heavy users of direct debits to make and receive
trade payments, because fees are lower than for checks and because
electronic payments support greater back-office operating efficiency.
Direct debits are typically as versatile as checks because remittance
information may be included electronically with payments. Yet,
acceptance is limited because both the sender and receiver must agree to
use electronic payments.
Direct debits are cleared and settled via the automated
clearinghouse (ACH) network, to which payees gain access through their
account-holding banks. Payment transactions are sent in batch form to a
central operator for processing with settlement at pre-scheduled times
during the day. Sending and receiving banks subsequently update the
accounts of senders and receivers. The ACH was designed as a batch
system because checks are processed in batch form, and this processing
model persists to this day. Because of batch processing, ACH debit
transfers are relatively slow--there is a one-day gap between the time a
payment is initiated and the time deposit money is transferred. Thus,
direct debits, though electronic, are not necessarily quicker for
end-users than check payments.
As shown in table 1, checks and direct debits fall short in terms
of certainty, control, and security. Because payees initiate the
movement of funds from the accounts of payers, payers are uncertain
about the timing of the movement of funds. The lack of certainty and
control for payers has a direct bearing on payment fraud, because
someone who has obtained bank account and routing information from a
stolen check, for example, may be able to initiate an account debit
without a payer's knowledge by fraudulent means. Fraudulent
payments, once identified by the payer or the payer's bank, may be
returned, but returned payments undermine certainty and security.
Credit transfer
Credit transfer is accomplished in a variety of ways, principally
as electronic credit and IFT. (7) Electronic credit transfers are used
by businesses and governments to make recurring payments to individuals
for obligations, such as payroll and social security payments. They are
also used for business trade payments. Recurring payments are received
by individuals as "direct deposit." Direct deposit is used for
nearly all government-to-individual payments, but not all businesses
have adopted direct deposit. The cost of direct deposits is not
transparent to individuals because they are typically not charged to
receive them, whereas business users pay an explicit per-transaction
fee.
Direct deposits and some other types of electronic credit transfers
are processed on the ACH network. As in the case of debit transfers, ACH
credit transfers are relatively slow, with a one- or two-day lag between
the time the payment is initiated by the sender and the time deposit
money is transferred to the receiver. As shown in table 1, electronic
credits offer more certainty, control, and security for senders, who
directly authorize the movement of money.
Immediate funds transfer is used today primarily for large-value
business and financial market transactions, through bank wire transfer
services. Wire transfers constitute a small portion of the overall
number of payments and a large portion of the overall value of payments;
their daily value exceeds a trillion dollars. Wire transfers are
expensive, typically costing about $25 to $35 per transaction, and are
thus not widely used by individuals. Wire transfers are not only
immediate, they are final. That is, wire transfers are irrevocable and
unconditional and offer the highest certainty of any payment type. Wire
transfers are accepted by most banks.
Clearing and settlement of wire transfers takes place over one of
two specialized systems: Fedwire, which is operated by the Federal
Reserve Banks, or the Clearing House Interbank Payment System (CHIPS),
which is operated by The Clearing House Payments Company L.L.C. In the
case of Fedwire, banks transfer balances directly between accounts they
hold with the Federal Reserve Banks. CHIPS is a closed network whose
members exchange payments, which are settled by means of continuous
multilateral netting. As indicated in table 1, wire transfers are quick,
certain, and secure, and accordingly they are relied on in interbank and
financial markets worldwide and are often made using real-time gross
settlement (RTGS) systems (World Bank Group, 2008). Virtually all RTGS
systems, including Fedwire, are operated by central banks, which for
these purposes are functioning as universal bankers' banks. Wire
transfers involve the transfer of deposit money that banks hold in
accounts with central banks (sometimes referred to as "central bank
money"). Public oversight authorities have made the use of RTGS a
virtual requirement for systemically important payment systems (BIS,
2001).
Much of the innovation in U.S. payment instruments over the past
decade has centered on general-purpose IFT. Nonbanks have been at the
forefront of this innovation. The approach taken by nonbanks is twofold:
1) offer payment services directly to end-users that substitute for and
compete with the services provided by banks; and 2) provide banks with
the business processes and technical capabilities that allow them to
offer IFT services to their account-holding customers. (8)
Under the first approach, nonbanks directly provide general-purpose
IFT services to individuals and small- to medium-sized businesses. A
nonbank payment provider must first establish a funding source for IFT
payments that are initiated by its customers, as it cannot tap directly
into the customers' bank accounts. The nonbank provider would
typically do so by setting up an omnibus account with its bank, to which
its customers make deposits. The customer funds pooled in the omnibus
account are then reflected in ledger accounts set up by the nonbank on
its computers that are denominated not in commercial bank money, but in
parallel units of value identified with the nonbank provider (for
example, PayPal dollars). Collectively, these ledger accounts constitute
a closed, proprietary network that supports transfers of value units
among the users of the nonbank providers' services. Payments to
receivers outside the network are supported, but in this case a
conversion back to bank money is required. The conversion back to bank
money is accomplished by sending deposits in the omnibus account back
through the bank payment network to the bank account of the receiver,
which is not part of the nonbank network. The nonbank payment networks
rely on modem, applied technologies to support immediate funds
transfers, and in-network transfers occur virtually instantaneously.
Out-of-network transfers that rely on the banking system may take
several days to complete. (9)
Under the second approach, banks use a technology platform supplied
by the nonbank company in combination with their own in-house
authorization systems to provide IFT services to their account-holding
customers. Banks following this approach brand the services as their
own. Again, however, the resulting network is closed, and proprietary,
connecting accounts at the limited number of banks that use a particular
nonbank vendor's platform. So long as a payee and payer hold
accounts at banks that use the same nonbank provider's technology,
they can transfer funds directly to each other's accounts. (10)
Out-of-network transfers are possible, but again the transfer may take
several days to be completed.
Debit cards
Debit cards are a unique type of payment. While payments made by
debit card are cleared and settled like debit transfers, they offer
IFT-type attributes to both cardholders and merchants, as shown in table
1. In particular, debit card payments offer speed, certainty, and
control to both parties. Specialized authorization systems
instantaneously check, at the point of sale, whether payers are able to
fund purchases from their bank accounts. Once a transaction is
authorized, merchants have the certainty of knowing that payment will be
received. Unlike IFT, however, funds are not transferred from the
individual's to the merchant's account until the end of the
day at the earliest. Yet, the pre-authorization makes the payment seem
immediate to cardholder and merchant. (11)
Debit cards offer limited versatility, as they are used primarily
at the merchant point-of-sale, with merchants who have agreed to join a
debit card network. The cost of debit cards is not transparent to
cardholders (typically transactions are free), and merchants pay ad
valorem fees, which are a percentage of the transaction amount. (12)
Debit cards are subject to unauthorized use if stolen, and the card
networks have security measures in place to limit unauthorized
transactions as well as rules on limited liability for merchants.
(Credit cards are not taken up directly because, as described in box 2,
their principal purpose is to provide credit services.)
IFT innovation--General-purpose payments
The foregoing discussion of payment instruments and their
attributes shows that wire transfer and general-purpose IFT offer
attractive combinations of attributes compared with other types of
payment instruments, especially certainty, speed, control, and
versatility. The average price of a wire transfer makes this payment
instrument unattractive for general-purpose use, and a primary advantage
of IFT is its low price. As we discuss in the next section, evidence of
latent demand and revealed preferences for certain combinations of
attributes support the view that there is an unmet need for broadly
available IFT in the U.S.
Demand for IFT
Latent demand ++ Research conducted by the Federal Reserve System
on payment system user preferences provides evidence that users desire a
service with the attributes of IFT. In a 2002 survey on the future of
retail electronic payments (Board of Governors of the Federal Reserve
System, 2002), respondents appealed for the development of a low-cost
way for individuals and businesses to make online real-time funds
transfers, (13) Survey participants also noted the need for a new,
uniform "deposit directory" of account numbers and account
status, or some other means of account verification, as well as a
directory to route electronic payments more easily to recipients.
Further, in a 2006 survey on barriers to innovation in payments (Board
of Governors of the Federal Reserve System, 2006), payment industry
respondents indicated that wire transfers would be an effective
mechanism for making smaller value payments at an acceptably low price
(presumably the price would need to be lower than the typical bank wire
transfer fees) and with remittance information easily linked to
corporate billing systems. These two surveys reveal a clear interest in
IFT, subject to the availability of directory and routing information
and responsiveness to specific user requirements, including low cost and
improved support for remittance information. (14)
Revealed preferences
Other evidence to support the view that IFT may be broadly
desirable in the U.S. is the increased use of payment instruments that
offer attributes most closely related to IFT. For example, the use of
debit cards, which offer more control, certainty, and speed than other
payment instruments, has grown more rapidly than that of any other means
of payment for point-of-sale and online purchases by individuals. In
2008, individuals held more debit cards than credit cards and, on
average, used debit cards more often than cash, credit cards, or checks
individually (Foster et al., 2010). In 2008, $1.00 of every $5.00 was
spent with a debit card in the U.S., up from $1.00 of every $14.00 in
2001 (Herbst-Murphy, 2010).
A portion of the increase in debit card usage can be explained as a
secular trend of growing familiarity with electronic payments in
general. As shown in figure 1, the percentage of noncash payments made
by electronic methods has grown in the last ten years, which reflects
this trend. Other reasons cited for debit card preference include
increased convenience and speed of payment (Rysman, 2009), which make
debit cards more attractive than checks. Part of the growth in debit
card usage and decline in check usage shown in figure 1 can be
attributed to the substitution of debit cards for checks.
Business use of payment instruments with attributes that closely
resemble those of IFT has grown as well. In 2010, one of the
fastest-growing transactions processed on the ACH network was direct
credit for sending bills paid through online banking sites to biller
receivers (Digital Transactions, 2010). Direct credits offer advantages
over checks and direct debits for bill payment in terms of certainty and
security, much like an IFT.
[FIGURE 1 OMITTED]
Experience with IFT in other countries provides insights into the
potential for this type of payment in the U.S. In the next section, we
present four international case studies of the successful introduction
of IFT. In each case, IFT has been introduced as a universal or
near-universal payment instrument supported by clearing and settlement
mechanisms that connect virtually all bank accounts within a given
country. Universal support for IFT has been accomplished through
industry-wide cooperation, sometimes facilitated and promoted by public
authorities.
IFT case studies
As we noted earlier, wire transfer is a standard means of payment
worldwide and is most often supported by RTGS systems operated by the
central banks. These RTGS systems are capital intensive, benefit from
economies of scale, and in most cases are operating well below efficient
scale (Allsopp, Summers, and Veale, 2009). The services provided by RTGS
systems in at least seven countries have been expanded to
general-purpose payments. These countries are China, the Czech Republic,
Serbia, the Slovak Republic, Switzerland, Turkey, and Ukraine.
The banking systems of at least three other countries have created
transaction processing infrastructures specifically designed for IFT.
These countries are Mexico, South Africa, and the United Kingdom (UK).
Consequently, although their implementation approaches may differ
somewhat, the banking systems of at least ten countries have taken
coordinated steps to provide IFT services. Here, we discuss the cases of
Mexico, South Africa, Switzerland, and the UK. (15) These case studies
help us to identify several business and public policy considerations
that arise when a country seeks to establish a national network to
support a new payment instrument. A common consideration is reliance on
the national RTGS system to provide finality for IFT payments, either
directly by means of transaction processing or indirectly by means of
interbank settlement of IFT obligations.
Mexico
Immediate funds transfer was introduced in Mexico in 2004, with the
implementation of a new RTGS system by Banco de Mexico. The new RTGS
system, known by the acronym SPEI, takes advantage of new processing
technologies that allow continuous upward scaling of transaction
processing volumes at low marginal cost, with strong security based on a
public key infrastructure (PKI). During the SPEI project, some
commercial banks indicated that they considered two credit transfer
systems (the other being the Mexican ACH) to be wasteful. Accordingly,
Banco de Mexico designed SPEI to support a variety of credit payments on
one processing system, providing banks with a choice between using the
new RTGS and ACH. Banco de Mexico has promoted the use of IFT through
advertisements in the mass media.
The central bank also provides payment services to the Mexican
government and had been using its old RTGS for large government
disbursements and the ACH for smaller disbursements. It was clear that
so long as the Mexican government continued using the ACH for any
disbursements, commercial banks would be forced to maintain their ACH
systems. In 2008, the government agreed to Banco de Mexico's
request to use SPEI for all disbursements. Further, the government
decided to centralize its payroll processing and use SPEI for government
payrolls by the end of 2009. To support government payments, Banco de
Mexico instituted an earlier opening time for SPEI in order to allow
commercial banks to maintain their established processing schedules. The
government and banks use the straight-through processing capabilities
that SPEI offers, with the expectation that both efficiency and service
levels will increase throughout the payment system. (16) Most SPEI
payments take less than a couple of minutes to reach the
beneficiary's accounts. By law, all SPEI payments are final,
regardless of their size or the beneficiary. Payments are final as soon
as the beneficiary's bank receives a settlement notice.
Mexican commercial banks offer their customers IFT payment services
mainly online. The payer must provide the bank routing and account
numbers for the payee. One-off payments are therefore difficult to make
because of the information that is needed on the payer side.
Point-of-sale transactions are not currently supported, in part because
of stringent security requirements established by the Mexican Banking
Commission. Small mobile payments are, however, now being supported by
new regulations and by a security agreement between banks and the
commission.
Banks follow a variety of practices for pricing IFT payments. Large
banks charge per-transaction fees of up to $0.35 or bundle credit
transfer services with their Internet banking offerings for a fixed fee.
The typical fixed fee for Interact banking service in Mexico is around
$2.50. Prices for over-the-counter payments usually are higher than for
Interact banking transactions. Some banks charge about half as much for
ACH credit transfers as for real-time credit transfers, whereas other
banks charge the same for both payment services.
South Africa
The introduction of IFT services for use by the general public in
South Africa is a direct result of a recent initiative by commercial
banks. The South African payment system has supported a number of
general-purpose payment options, including the paper check, the check
card (a means of initiating a credit transfer from a checking account at
the point of sale, upon authorization, and usually available only to
high-net-worth customers), debit and credit cards, and ACH-type
electronic funds transfer (EFT) debit and credit payments. Access to
check payments would take from one to seven days; and EFT and Internet
payments would take on average one day for the transfer of funds
intrabank and three days for the transfer of funds interbank.
Commercial banks in South Africa identified the need for a payment
instrument that would give the general public the ability to transfer
funds quickly and in a manner that made funds available to the payee
immediately. Seven banks began collaborating in 2005 to develop a new
clearing and settlement mechanism called Real-Time Clearing (RTC), in
cooperation with the South African Reserve Bank, and the capability was
implemented in March 2007. The banks provide services via Internet
banking for consumers, online initiation through corporate banking
solutions for businesses; and offline, over-the-counter initiation at a
bank branch or by telephone. In each of these cases, the payer must
follow an authentication procedure and provide routing information (bank
and account number) for the payment. While no point-of-sale facilities
are currently available, mobile services over cell phones are supported;
and in theory, a merchant could be paid by mobile IFT, although no
confirming message would be sent to the payee.
Immediate funds transfer payments made by the RTC method are
governed by rules established by the Payment Clearing House (PCH), which
banks are bound to in bilateral agreements. In addition to rulemaking,
the PCH functions as the system operator. It clears RTC payment
instructions and provides the interface to the South African Reserve
Bank RTGS system, known by the acronym SAMOS, which clears and settles
the interbank obligations arising from RTC. Once an RTC payment
instruction is cleared by the PCH, the receiving bank credits the
beneficiary's account within 60 seconds. The interbank RTC clearing
and settlement obligations built up in the PCH are sent to SAMOS on the
hour every hour during the business day, which significantly reduces the
risks associated with RTC payments.
Banks charge higher prices for IFT than for other Internet banking
and mobile payments. Pricing has two parts, a per-transaction fee and a
charge based on the amount transacted for purchases, with a cap on the
maximum total cost of the payment. At about $1.00, IFT per-transaction
fees are about three times the per-transaction fees for regular Internet
and mobile payments. The charge based on the transaction amount is the
same across all three types of payments at approximately $0.07 per
$1.00. Finally, the cap on the total price per payment is $5.00 for IFT
payments, compared with $1.40 for regular Internet and mobile payments.
It should be noted that IFT is differentiated from the pure RTGS wire
transfers, not only in terms of operational process and timing (up to a
one-hour delay for IFT compared with real-time for RTGS) but also in
pricing. In the event that a bank client requests RTGS as the payment
method, an even higher premium is charged.
Switzerland
Credit transfers have a long history in Switzerland, where the
postal service has offered giro payments using a national standard
format for over 100 years. (The credit transfer format known as
Einzahlungsschein [credit slip] dates to 1906 and prevails to this day
in a comparable form.) Traditionally, a credit slip has been used to
initiate recurring and one-off payments, either over-the-counter at the
post office or bank or, more recently, through the mail. The payee
company would send a credit slip to the payer with pertinent information
filled out, including bank/post and personal address; account number;
and, if relevant, a reference number to assist the payee company in
processing the payment. For payment purposes, account details are
typically not perceived as confidential information by Swiss consumers
and companies and are provided on a need-to-know basis to facilitate
payments.
Today, IFT is available to businesses and individuals as an
extension of the traditional credit slip. In addition to the traditional
paper method, IFT is available through Internet banking and ATMs. (17)
To illustrate the payer experience with IFT, imagine a computer terminal
securely connected to a bank or PostFinance (the Swiss Post's
financial institution) website. The payer clicks on "making
payments" and receives a menu of choices among different types of
credit slips, for example, payments to accounts at the same bank, at a
different bank, payments with or without reference numbers, and so on.
When it is selected, a digital credit slip opens and the payer fills out
the necessary fields using the information received from the payee
company. To reduce manual intervention, electronic payment-slip readers
can be used. When the payer completes the instructions, the
"electronic credit slip" is immediately verified by the system
online and, assuming it is complete and correct, delivered to the bank
for processing. The payer would typically not be aware of the particular
infrastructure used to settle payments.
Credit transfers are typically settled through the Swiss RTGS
system, called Swiss Interbank Clearing (SIC). This system is overseen
by the Swiss National Bank (SNB) and operated by SIX Interbank Clearing
Ltd. on behalf of the SNB. Swiss Interbank Clearing is owned by the
Swiss commercial banks and PostFinance. General-purpose credit transfers
have been more widely settled in SIC since PostFinance became a
participant in 2001. The extension of SIC services beyond traditional
large-value transfers is a cooperative development involving the
commercial banks, PostFinance, and the central bank, and reflects their
collective interest in supporting more efficient credit transfers, in
this case making greater use of SIC and avoiding duplicative
infrastructure for processing small-value payments. In this way, the
banking system benefits from economies of scale in operations and
pooling of liquidity. In addition, standards are followed to facilitate
efficient processing (for example, increasing use of the international
bank account number or IBAN) for routing information.
Pricing of IFT payments in Switzerland depends on the bank
providing the service and the customer segment being served. Banks often
include consumer payments as a component part of their bundled account
service packages. Charges for account service packages depend on the
balance that is maintained. Domestic payments would typically not carry
a per-transaction charge. An exception would be paper payments that
require manual processing steps for the banks or PostFinance. These
payments would typically carry a surcharge as an incentive for the
customer to use online banking.
United Kingdom
Faster Payments is a new IFT service in the UK that makes
near-real-time and irrevocable credit transfers available to all bank
customers at nonpremium prices. Introduced in May 2008, Faster Payments
is available across the banking industry and is supported by common
rules and a shared processing infrastructure. Faster Payments is a
voluntary initiative of the banking industry, agreed to by the Payment
System Task Force, which was organized and chaired by the UK's
Office of Fair Trading (OFT). The OFT organized the task force in
response to a mandate from the Chancellor of the Exchequer. The official
mandate was reinforced by the threat of government-sponsored legislation
to remedy perceived inefficiencies in the payment system, resulting from
insufficient competition and overly slow cooperation among banks. Of
principal concern to the government was a three-day delay in the
interbank clearing of electronic payments.
The Payment System Task Force told the payments industry to devise
a same-day service. The industry's response was to propose a
near-real-time service, delivered through a special purpose
infrastructure designed and operated by VocaLink. The company that is
responsible for the Faster Payments Service (a name that is acquiring a
brand identity for purposes of marketing the service to the public) is
the CHAPS Clearing Company. The company provides two main services:
CHAPS Sterling for systemically important payments and Faster Payments
for time-dependent payments.
The 13 banks that originally agreed to develop the service now
originate Faster Payments on behalf of their customers, and
approximately 68 credit institutions, representing an estimated 90
percent of all transaction accounts in the UK, receive such payments.
Membership in the Faster Payments Service is open to all credit
institutions that have settlement accounts with the Bank of England and
can connect their networks to the payment system infrastructure
continuously, 24 hours a day, seven days a week. Indirect access is also
permitted, whereby an institution offers the Faster Payments Service and
settles through a member.
Customers can originate Faster Payments through their banks either
by phone or Internet connection 24 hours a day, seven days a week; it is
estimated that approximately two-thirds of all UK phone and Interact
payments are now made by this method. Support for mobile Faster Payments
is an important component of the UK's payment system strategy; it
is seen by some as a viable alternative to reliance on the paper check
(VocaLink and PriceWaterhouseCoopers, 2009). One-off payments are
received by the beneficiary usually within minutes, but always within
two hours. These one-off payments can be ordered on the payment date or
submitted as forward-dated payments to be made on designated days in the
future. Standing order payments are also possible, although these will
be processed for same-day settlement and then only on bank working days.
A direct corporate access feature has recently been added that enables
companies with large volumes of payments to submit files directly to the
Faster Payments Service infrastructure, provided they are sponsored by a
member bank. This new feature is intended to increase the attractiveness
of the service for firms that have a large number of expenses to pay,
including payrolls, and is analogous to the services provided to
corporate users of the ACH system in the UK.
A Faster Payment becomes final at the time the sending bank submits
the transaction to the processing system; sending banks manage their
risk by authenticating the instruction received from the originator of
the payment and checking the customer's account to ensure that the
balance is sufficient to fund the payment order. The Faster Payments
Service processing system verifies that all of the required details are
provided in the proper format and forwards the payment to the receiving
bank. The receiving bank verifies that the funds are being directed to a
valid account and sends a validation message back to the Faster Payments
Service. The receiving bank is then credited with the funds.
Confirmations of complete transactions are issued to the sender and
receiver.
The prices charged for Faster Payments are a fraction of those
charged for traditional CHAPS transfers, which can cost up to $35.00
each. Marketing information published by banks indicates that per
transaction prices are below $1.25, ranging downward to about $0.50.
Transactions for retail customers are typically free. A size limit for
transfers of GBP 100,000 has been set as a risk-management measure; this
may be raised or eliminated in the future.
Summary
The four case studies are summarized in table 2. For each country,
the table identifies the catalyst behind the introduction of the
service, the delivery channels through which the banks provide the
services to their customers, the back-end system for clearing and
settling payments, the routing number scheme, and the prevailing fee
structure. The four case studies illustrate two general approaches to
interbank IFT processing. In Mexico and Switzerland, the national RTGS
systems are relied upon for interbank processing, extending existing
RTGS functionality to a broader set of underlying payments. In South
Africa and the UK, the banks have created new, shared utilities that
handle all of the interbank processing for the individual transactions
and, in turn, rely on the national RTGS for final interbank settlement
of netted IFT transfers periodically throughout the day.
In two of the four cases (Mexico and the UK), public authorities
led in motivating a coordinated response across the banking system. In
Mexico, the central bank served as catalyst and did so in part through
its operational role as a provider of RTGS services. In the UK, the OFT,
which shares responsibility for aspects of payment system oversight with
the central bank, provided the motivation as a regulator concerned about
the quality of payment services available to the general public. In
contrast, in South Africa and Switzerland, banks identified an unmet
service need (and opportunity) and took the lead, enlisting the central
bank to provide support where necessary.
Table 2 highlights the areas where banks cooperate and compete in
the provision of IFT services. Cooperation in planning is necessary to
support nationwide services. In South Africa and the UK, the operational
cooperation extends to governance over creation and enforcement of the
rules that apply to the IFT network, as well as sharing in the
investment and ongoing operating costs for the interbank processing
system. With regard to routing of payments, note that only in
Switzerland has the banking system adopted a standard routing number
scheme, which facilitates processing for all parties to transactions
and, further, makes it easier for senders and receivers of payments to
manage the exchange of bank and account number information that is
needed to route the transactions efficiently and accurately. As we
describe later (in note 18), in the UK the banking clearinghouse
provides bank routing information directly to the public.
The last column in the table summarizes the price structures and
prices that apply to general-purpose IFT. In each case except South
Africa, the price structure is essentially "cost-plus," that
is, fees are based directly on the cost of production plus a markup
reflecting service value and profit. In the case of South Africa, the
banks not only charge per-transaction fees, but also an ad valorem fee
component related to the value of the transaction; this is similar to
payment card price structures. The two approaches to pricing highlight
an important two-part public policy question concerning the optimal way
to price payment network services when credit risk is mitigated through
the use of the immediate funds transfer model. First, is par clearing
(receipt of the amount designated in the payment without deductions) a
desirable goal? Second, can and should prices charged to end-users be
based on production costs?
Issues with IFT implementation
What are the business and public policy issues that would need to
be considered prior to the national introduction of IFT as a
general-purpose means of payment in the U.S.? Three primary issues in
addition to pricing are network reach, payment routing, and governance.
Each of these issues has practical implications for the feasibility of
IFT as a new payment service and each is important from a public policy
perspective.
Network reach
IFT services are now available in the U.S., but are limited to
closed proprietary networks. The process of clearing and settlement for
these proprietary networks works efficiently only for the members who
use a particular service provider's technology. In the case of a
transfer destined for a receiver who is not a member of the proprietary
network, the transaction must be routed through a bank payment system,
such as ACH, using the national banking network. From a public policy
perspective, the emergence of multiple, incompatible, and proprietary
payment networks is not an efficient or effective way to provide IFT
services.
A national clearing and settlement mechanism, however, does not
guarantee that the payment network supporting an instrument such as IFT
will connect all bank deposit accounts. As illustrated by the case
studies, bankers may not be required to provide the service to their
customers by regulation or by the terms of their clearinghouse
memberships. An obvious practical problem with voluntary network
participation, well illustrated in the case of Faster Payments in the
UK, is that senders need to know whether their intended receivers hold
accounts at a bank that can receive IFT transfers. A national directory
sponsored by the UK clearinghouse is available online to help senders
get this information as efficiently as possible. (18)
While not the subject of this article, the chartering and
regulatory status of new, nonbank suppliers of payment services also has
a bearing on the network reach issue. The innovators should not be
prohibited from joining and helping stimulate improvements in the
banking payment network by offering payment accounts, so long as they
can meet basic tests of soundness and reliability, as do regular banks.
As members of banking clearinghouses and associations, the nonbank
innovators would contribute to the bank payment network's
expansion. Moreover, to the extent that they innovate through the use of
"disruptive technologies," these nonbank companies would
stimulate technological innovation in services such as IFT. The U.S.
financial regulatory authorities should consider how payment innovation
can be encouraged by allowing nonbank firms to offer deposit accounts on
terms that are reasonable and prudent. (19)
Payment routing
The principal operational advantage of payments such as checks and
electronic direct debits is that they provide routing information that
the payer would otherwise have to request. On a paper check, for
example, the payer's bank routing number and account number are
printed in magnetic ink at the bottom of the check. Thus, the payment
instruction automatically contains the data needed by the payee's
bank to present the instrument for payment. Routing information is
provided with debit card payment instructions as well. For electronic
credits and IFT, the payer needs to obtain payee routing information and
provide that information to its bank. Acquisition of this information
adds complexity and cost, especially for transactions between two
parties that are not well known to one another.
Account numbers are sometimes considered to be part of one's
"transactional identity," which is sensitive information that
should be protected. Because of this concern, receivers may be reluctant
to give their account number to a payer for an IFT payment. Such
concerns, however, should be reduced by the IFT payment flow and
authorization model. First, IFT results in money deposited to the
receiver's account, not withdrawn from it. Second, bank controls
are designed to restrict the power to initiate transfers of funds to
properly authenticated parties. Thus, there is limited opportunity for
anyone to fraudulently order an IFT based on knowledge of an account
number and routing number.
As mentioned, paper checks contain complete routing information
that is in plain view to anyone handling the check. This is prima facie
evidence that routing information is not unduly sensitive. It is not
considered so in the countries examined in connection with the four case
studies. Further, it is notable that the IFT payment services provided
by nonbanks often rely on widely known and used "addresses"
for routing and information exchange over networks, including telephone
numbers and email addresses. The new approaches to routing appear to
point to the serviceability of highly public addresses for transferring
financial information, including funds transfers, in a well-controlled
environment with strong information security protections.
A somewhat broader issue that arises when considering routing of
payments and the use of account numbers is that of standardization and
portability of financial addresses. If bank account numbers are not
standardized across the banking system and are not portable, bank
numbers change whenever an account holder changes banks. Switching banks
becomes more complex because all established payment relationships must
be updated with new account information. Progressive banking practice
and good public policy call for both standardization and portability of
bank account numbers, both to increase the efficiency of the payment
system and to increase competition among banks by making it harder to
lock in customer relationships through high switching costs. This is not
an unreasonable expectation in an information-intensive industry like
banking. Public policy that is concerned with the efficiency and
competitiveness of payment services could be informed by practices and
expectations in other information-intensive industries, for example,
telecommunications. (20)
Payment system governance
Each of the four case studies discussed in this article provides an
example of payment system innovation coordinated at the national level.
The catalyst may be from the public sector (central bank or other
governmental authority, such as the UK's Office of Fair Trading) or
the private sector (groups of banks), but in each case IFT innovation
proved successful due to a national governance approach. In addition,
the governance approach followed in the four countries recognizes the
boundary between cooperation and competition among banks.
This type of national, coordinated approach would be difficult to
achieve in the U.S. in light of its highly decentralized payment system
management, which is reflected in part by the absence of a truly
national clearinghouse. Currently, multiple publicly and privately
operated payment systems operate in parallel in a competitive
environment. Sweeping national change in the U.S. payment system in this
century so far has come about through legislation--the 2003 passage of
the Check Clearing for the 21st Century Act, which facilitated
electronic check clearing; and the 2010 Wall Street Reform and Consumer
Protection Act, which mandated limits on fees that banks charge
merchants for debit card transactions. Without an explicit legislative
mandate or some other form of encouragement from the government, it is
unlikely that banks in the U.S. will find a cooperative basis for IFT
innovation. In addition, because IFT may disrupt banks' revenues
from high-priced wire transfer services, coordination and cooperation
may not be readily forthcoming. Further, unless IFT clearing and
settlement relies on existing mechanisms (as in the cases of Mexico and
Switzerland), a national IFT system may have high start-up costs that
the industry might be unwilling to bear. Overall, the complexity
involved with implementing a national IFT solution may be unworkable
within the existing U.S. banking structure.
Conclusion
General-purpose IFT is a means of payment that offers attractive
combinations of attributes to both senders and receivers, such as
certainty, speed, control, and versatility, all at relatively low cost.
There is evidence of strong latent demand for IFT in the U.S. by
individuals, businesses, and governments, but to date this demand is
being met only to a limited extent and principally by nonbank providers
of payment services. To satisfy the demand for IFT, it will be necessary
to provide access to money held in banks by linking all bank deposit
accounts through an immediate if not real-time clearing and settlement
system.
Within the last few years, IFT has become a fully functional
nationwide means of payment in a number of countries, including four
that we have examined in detail in this article. International
experience with IFT shows that technology is a necessary but not
sufficient condition for innovation in payments and that enabling
real-time and universal access to deposit accounts at banks is the key
to meeting the public's needs for more certain, faster, and
universal payment services. Perhaps the most critical enabling factor is
strong sponsorship by a national body with the responsibility and
motivation to stimulate continuous improvement in the national payment
system. This body might be a consortium of private banks collaborating
through a national payment association, a public authority such as the
central bank, or a public-private partnership. It is not clear that such
sponsorship can be readily found in the U.S., at least not at the
present time, because there is no national body that takes
responsibility for the development of the national payment system. As a
consequence, IFT and other national payment innovations are likely to
progress in a halting and incomplete manner and at a pace that lags
innovation that is observable in other countries, such as those examined
in this article.
APPENDIX: MODELS OF PAYMENT TRANSACTIONS
Two basic payment models frame the classification of all types of
payment transactions. These are 1) credit transfers and 2) debit
transfers. The end result of these transfers is the same: Deposit money
is transferred from payer to payee. The process that results in the
transfer of deposit money, however, is quite different. In a credit
transfer, deposit money is moved directly from a payer's or
sender's transaction account to a payee's or receiver's
account. A credit transfer is sometimes referred to as a "credit
push" payment, meaning that money is delivered directly to the
receiver based on instructions made by the sender to the sender's
bank. In a debit transfer, deposit money is moved in a less direct
manner and requires the receiver to request a transfer from the
sender's bank, based on authorizing instructions provided by the
sender. A debit transfer is sometimes referred to as a "debit
pull" payment, meaning that the receiver must present the
sender's instruction to the sender's bank before deposit money
is transferred. Operationally, payment transactions are more complex
than described in the foregoing paragraph. For purposes of modeling, a
generic payment transaction can be visualized as consisting of two
discrete information flows involving "instructions" and
"funds movement," which are illustrated in figures A1 and A2
for credit and debit payments, respectively. (1) Instructions are shown
as solid lines and funds movements are shown as dotted lines. For credit
transfers, as shown in figure A1, a sender instructs his/her bank to
deliver funds to a designated receiver. (2) These instructions result in
a debit to the sender's transaction account and initiate movement
of funds from the sender's bank to the receiver's bank and
credit to the receiver's account. For debit transfers, as shown in
figure A2, a sender does not directly instruct his/her bank to transfer
funds. Instead, payment instructions follow a chain from sender to
receiver, then from the receiver to his/her bank, and finally from the
receiver's bank to the sender's bank to transfer money from
the sender's account. (3) These instructions result in a credit to
the receiver's account; however, because the receiver's bank
is uncertain at the time instructions are delivered to the sender's
bank whether the sender's bank will honor the instructions, final
credit to the receiver's account is delayed by the time it takes
the sending bank to determine whether it will honor the payment.
Accordingly, funds transferred by the debit transfer method are
typically made available to receivers as provisional funds and are
subject to reversal. If the sender's bank honors the instructions,
then the sender's account is debited and provisional funds become
final.
[FIGURE A1 OMITTED]
[FIGURE A2 OMITTED]
(1) Depending on the payment method and the system used, funds
movement may also include data related to the payment, such as invoice
or remittance information and reference numbers.
(2) The discussion in this paragraph closely follows Geva (2009).
(3) For both credit and debit transfers, one or more intermediary
banks may stand between a sender's bank and a receiver's bank
to execute the transfer of deposit money. In addition, senders in both
models may use agents, such as a payroll processing company, to initiate
instructions on their behalf.
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NOTES
(1) See https://www.paypal.com.
(2) The exception to the norm is Japan, where cash is more widely
used than in any other industrialized country due to factors such as
relatively low crime rates, effective anti-counterfeiting measures, and
low-cost nationwide ATM networks (BIS, 2003).
(3) Depository institutions include banks, thrifts, and credit
unions. In this article, the term "bank" means all depository
institutions.
(4) A full discussion of credit transfers and debit transfers is
provided in the appendix.
(5) Two-sided markets require the participation of two separate
parties in order to succeed (Rochet and Tirole, 2003). A sender and
receiver of a payment must use the same payment system in order to
exchange monetary value.
(6) Some checks are converted to electronic format at the point of
acceptance and are cleared through the automated clearinghouse (ACH)
network, as described later.
(7) A cash payment is also a credit transfer.
(8) As noted in the introduction, the most prominent example of the
first approach is PayPal. Examples of the second approach include
CashEdge (www.cashedge.com/) and Obopay
(https://www.obopay.com/consumer/welcome.shtml).
(9) These closed proprietary networks were first described by
Kuttner and McAndrews (2001).
(10) The same description applies to transfers among accounts held
at the same bank, called intrabank or "on us" transfers.
(11) Some cardholders are aware of the delay in the transfer of
deposit money and "play the float" with these transactions.
For those cardholders, debit card transactions are not perceived as
immediate.
(12) Debit card cost structure has become controversial to the
point that recent banking reform legislation directs the Board of
Governors of the Federal Reserve System to regulate merchant fees and
includes a provision to allow merchants to offer discounts for customers
who pay with cash or check. (Wall Street Reform and Consumer Protection
Act, [section] 1075).
(13) Respondents included corporations, technology firms, banks,
payment processors, and infrastructure providers.
(14) In a joint April 26, 2010, press release, the Federal Reserve
System and The Clearing House Payments Company L.L.C. announced plans to
implement enhanced message formats to support extended-character
business remittance information for U.S. dollar wire transfers on
November 11, 2011.
(15) The findings in this section are based on correspondence with
central bankers and examination of the public websites of payment
services providers, including commercial and central banks and the
financial services arm of the post office. The authors acknowledge and
are grateful for the assistance provided by Ricardo Medina (Banco de
Mexico), Dave Mitchell and Mike Stocks (South African Reserve Bank),
Philipp Haenc and Dave Maurer (Swiss National Bank), and Paul Smee (UK
Payments Council), none of whom bear any responsibility for the
descriptions, analysis, and conclusions presented in this article.
(16) Straight-through processing (STP) is an operational design
based on standards that allow for fully automated processing of a
payment from its origination by the payer to its receipt by the payee.
(17) Also, mobile payments for small accounts using cell phones
have been introduced by PostFinance for payments between PostFinance
account holders.
(18) The directory can be found at
www.ukpayments.org.uk/sort_code_checker/.
(19) One approach would be to charter so-called "narrow
banks" that specialize in payments. This approach has the advantage
of encouraging innovation, while at the same time prudently extending
the public safety net of deposit insurance to new market entrants
(Litan, 1987).
(20) Mobile phone numbers, for example, are portable from one
carrier to another.
Bruce J. Summers is a consultant to the Financial Markets Group and
Kirstin E. Wells is a business economist in the Financial Markets Group
at the Federal Reserve Bank of Chicago. The authors acknowledge and are
grateful to the following for their helpful ideas and comments on
earlier versions of this paper: Nancy Atkinson, Sujit Chakravorti, Harry
Leinonen, Jeff Marquardt, Bruce Parker, Louise Roseman, the participants
in a March 16, 2010, seminar at the Federal Reserve Bank of Chicago, and
an anonymous reviewer.
BOX 1
Transaction accounts and the payment line
of business at banks
While considered part of the "payment business,"
bank transaction accounts offered to individuals
and business customers are estimated to account
for only a fraction of banks' total payment business
revenue. Revenue from transactions accounts
is attributable to net interest income earned from
balances on deposit (typically the largest component),
transaction fees, penalty fees, and a variety
of other fees. The payment business also includes
issuing credit cards to consumers, which is the
largest piece of payment business revenue. Other
payment businesses include issuing commercial
cards, card services for merchants, money transfer
services, issuing prepaid cards, and other smaller
business lines (McKinsey & Company, 2009).
The fact that the majority of payment revenue
does not come from transaction accounts, which are
typically considered "core" banking services, can
be explained by banks' ability to generate higher
marginal returns from credit-related services. The
transaction-account payment business has until
recently emphasized "free" account services provided
at very low fees, perhaps even below cost,
as an inducement for customers to build accounts
and grow net interest income.
BOX 2
Credit cards
Credit cards are also commonly used by individuals
at merchant locations, yet credit card transactions
are not debit or credit transfers. Credit cards are a
means of providing access to short-term consumer
finance, whereby merchants receive funds from their
banks at the end of the day but cardholders do not
authorize the transfer of deposit money until they
pay their monthly credit card bill to the bank that
issues them the card. This bill is for the aggregate
amount owed to cover multiple transactions and is
not required to be paid in full. Thus, credit card
transactions, while often considered payment transactions,
do not fall under either the credit transfer
or debit transfer model. The distinction between a
credit card transaction and payment transaction
holds true even though an estimated 40 percent of
cardholders, so-called convenience users, do not rely
on short-term credit and pay their balance in full
each month (Herbst-Murphy, 2010). Convenience
users typically use credit cards for other reasons,
such as garnering reward points or simplifying
their cash management by accumulating payments
over a monthly grace period.
TABLE 1
Attributes and examples of payment instruments
Attribute Check Direct debit
Certainty Provisional Provisional
payment payment
to receiver to receiver
Speed Minimum Minimum
one day one day
Security Checks may be Bank account
stolen and/or and routing
forged information from
check can be
used to originate
debit transfer
Control of timing Payer controls Payer controls
instruction but instruction but
cedes control of cedes control of
funds movement funds movement
to payee to payee
Universal Yes Sender and
acceptance receiver must
agree to use
Versatility Most types Bill payments,
of payment business-to-
transactions business trade
payments (with
remittance
information)
Low cost and Not transparent Not transparent
transparent to individuals; to individuals;
pricing per-transaction per-transaction
fee to businesses fee to businesses
Clearing & National check ACH system
settlement system
Example Business accounts Utility payment
payable
Attribute Direct credit Wire transfer
Certainty Payment Payment guaranteed
guaranteed to receiver with
to receiver immediate finality
Speed Minimum Real-time
one day
Security Fraud is limited Fraud is limited
because payer because payer
directly sends directly sends
funds from funds from
account account
Control of timing Payer controls Payer controls
transaction transaction
Universal Sender and Yes
acceptance receiver must
agree to use
Versatility Recurring payments, Financial market
business-to-business transactions (with
payments limited remittance
(with remittance information)
information)
Low cost and Not transparent High cost for
transparent to individuals; sender and
pricing per-transaction receiver
fee to businesses (transaction fee)
Clearing & ACH system Accounts held
settlement with Reserve Banks
or CHIPS
Example Payroll deposit Purchase and sale
of bank reserves
Attribute General-purpose Debit card
IFT (a)
Certainty Payment guaranteed Payment
to receiver guaranteed
to receiver
Speed Within minutes Real-time
authorization
and guarantee;
funds transferred
end-of-day at the
earliest
Security Fraud is limited Card numbers
because payer may be stolen;
directly sends use of PIN with
funds from certain cards limits
account unauthorized
transactions
Control of timing Payer controls Payer controls
transaction transaction
Universal Closed system Limited by
acceptance with limited number merchant
of users (b) acceptance
Versatility Most types of Point-of-sale
transactions but (POS) and
limited POS online only
Low cost and Not transparent Not transparent
transparent to individuals; to individuals;
pricing ad valorem fee to ad valorem
merchant (PayPal) fee to merchant
Clearing & PayPal system Card networks
settlement
Example Purchase of goods Grocery payment
and services
(a) Information in this column is based on the features of PayPal,
which is the nonbank IFT service most commonly used today by
individuals (Shevlin, Fishman, and Bezard, 2010).
(b) As we discuss in the text, IFT in other countries links all or
most transaction accounts held at banks.
TABLE 2
International experience with immediate funds transfer
Country Catalyst Channel
Mexico Central bank Online banking,
mobile
South Africa Commercial Online banking,
banks mobile, over-the-
counter
Switzerland Majority of Online banking,
banks and ATM, over-the-
central bank counter
UK Competition Online banking,
(Faster authority mobile, direct
Payments) corporate access
Country Clearing and Routing
settlement
Mexico RTGS (SPEI) BAN (a)
South Africa Real-Time BAN
Clearing (RTC)
Switzerland RTGS (SIC) BAN, IBAN (b)
UK Faster Payments BAN
(Faster Service (FPS)
Payments)
Country Fee
Mexico Fixed per transaction
(could be bundled),
$0.35-$2.50
South Africa Fixed per transaction,
$1.00 + ad valorem,
$0.07/$1.00)
Switzerland Typically bundled with
account service fees
UK Fixed per transaction,
(Faster typically free of explicit
Payments) charges for retail
customers, $0.50-$1.25
(a) Bank account number.
(b) International bank account number.