Payment System Architecture

Chris Skinner 2008

Open Banking is Banking Liberalization

Basically, we are not ready for this. (Image from PwC and Deloitte Report).

ref,ref,ref,ref,ref,ref

Payment System Maturity Model

The importance of Payment Maturity Model

The development of Payment System Maturity Model (PSMM) is based on the Maturity Model that commonly found in Software Development Process. Framework such as Capability Maturity Model (CMM), originally developed in 1987 by Software Engineering Institute (SEI). Currently Framework such as Payment Maturity Model (PMM) from Aite Group and ACI Worldwide developed to help payment system to identifying current need, situation and their future model. PMM defines five stages of payments maturity: bank reliability, scalability, efficiency, responsiveness, and agility ref. Other framework that can be used is Open Group Service Integration Maturity Model (OSIMM).

Thesis: Design of a maturity model for payment process ref
A maturity model for blockchain adoption ref
Choosing the right business process maturity model
Van Looy A. , De Backer, Poels, & Snoeck (2013)

Payment System Evolution

Payment system has evolved since very long time ago along with the banking and money technology innovation. It is important to understand how and why the evolution happened to understand how the future banking direction will be. The first credit card technology can be argued dated back in 1914 when Western Union introduced “Metal Money” in 1914 ref. While another opinion might define that it started in 1950s when the first Diners Club card were issued.

Generally, from the long term perspective, the evolution of payment system can be divided into three phases which are Invention, Innovation and Diffusion. The first phases is Invention phase in 1960-70s, where the use of electronic banking begin with the innovation credit card. Money is no longer store physically but stored digital. At this stage the customer is passive, banking is actively provide technology. The second phase is Innovation in 1980-90s, where the electronic banking begin massively adopted. At this stage both customer and banking is actively interacted. The third phases is Diffussion in 2000-2020s, where customer plays more active roles, where consolidation between technology occured.

1960-1970: Credit Card (Debt)
Business Model:
1st Busines Model Battle: Against the Bank
Third Party Dinners vs Four Party VISA, Mastercard, Amex.
Results: VISA Survive, Bank embrace VISA, unlike Dinners who defeated

1980-1990: Cash Battle: Debit Card (ATM), Money Transfer (EFT)
Credit Card vs Debit Card.
Result: VISA Survive, all Debit Card using VISA as switching
Credit Card vs EFT: VISA Survive
Credit Card vs Merchant (Wallmart)
Result: VISA Survive, Honors all card
Overall Result: Basicaly the same results with the previous battle, all stakeholders embrace

2000: Online Battle: Online EFT: Paypal, Internet Payment
Paypal vs Google Checkout, VISA Checkout, Checkout by Amazon (CBA)
Results: Paypal win
Compliance: PBI9/15/2007

Phase 1: Paypal accomodating merchant that could not accept credit card due to small size. Source of revenue: interest of floating fund. Market place facilitator.
Phase 2: Paypal provide business services (seller protection)
Phase 3: Paypal off ebay

2010s: Mobile Battle: Cash/Merchant Battle
Reliance with Device: Apple
Reliance with OS: Google Pay
Reliance with Marketplace: Amazon Pay, Gopay, Starbucks Pay
Reliance with Business Model: VISA EMV SRC

2020s: Open banking
Compliance issues: SEPA, GPDR, BSPI

Timeline of payment system

1960-1970: Credit Card (Debt)
1st Busines Model Battle: Against the Bank
Third Party Dinners vs Four Party VISA, Mastercard, Amex.
Results: VISA Survive, Bank embrace VISA, unlike Dinners who defeated

1980-1990: Cash Battle: Debit Card (ATM), Money Transfer (EFT)
Credit Card vs Debit Card.
Result: VISA Survive, all Debit Card using VISA as switching
Credit Card vs EFT: VISA Survive
Credit Card vs Merchant (Wallmart)
Result: VISA Survive, Honors all card
Overall Result: Basicaly the same results with the previous battle, all stakeholders embrace

2000: Online Battle: Online EFT: Paypal, Internet Payment
Paypal vs Google Checkout, VISA Checkout, Checkout by Amazon (CBA)
Results: Paypal win

Phase 1: Paypal accomodating merchant that could not accept credit card due to small size. Source of revenue: interest of floating fund. Market place facilitator.
Phase 2: Paypal provide business services (seller protection)
Phase 3: Paypal off ebay

2010s: Mobile Battle: Cash/Merchant Battle
Reliance with Device: Apple
Reliance with OS: Google Pay
Reliance with Marketplace: Amazon Pay, Gopay, Starbucks Pay
Reliance with Business Model: VISA EMV SRC

Common knowledge said that money invented to replace barter (exchange of good), in short money accelerate trade. However, there is a new “theory” that money invented to accomodate debt.

Three theory on the banking systems,

• Financial intermediation theory of banking (traditional)
• Credit creation theory of banking (debt theory/money creation)
• Fractional reserve theory of banking (central/reserve bank)

Payment Media Evolution – A case for technology failure

Payment Media Evolution – A case for technology failure

1996 Magnetic Stripe, IBM
1994 Chip Card EMV / Smart Card, Europay, Mastercard, VISA
1997 Contactless Smart Card (RFID) Stoared Value / Prepaid Card: Octopus RFID
2000 Dual Interface Card
2004 Near Field Communication: Nokia, Philips, Sony
2011 QR Payments Alipay, Wechat Pay

The multifactors NFC Failure:

• Security, QR adopting both Customer Presented Mode (CPM) dan Merchant Presented Mode (MPM)
• Business Model, Merchant view as “Honor all cards” or “Accept all card”

ISO Payment Messaging Standards:

1984 ISO 7775
1987 ISO 8583 (ATM, Bit Map Format)
1990 ISO 9992-1
1995 ISO 15022 (SWIFT, Edifact)
2004 ISO 20022 (UML/SML, Open Standard, Rich Data, Network Agnostic)

Now adopting ISO 20022 Financial Exchange (FIX) Protocol Limited, International Swaps and Derivaties Association (ISDA), International Securities Association for Institutional Trade Communication (ISITC), Omgeo, SWIFT and VISA

SEPA payment? SEPA credit transfer is a credit transfer in compliance with the European credit transfer standard that can be used for making any type of euro payments within the SEPA. A SEPA credit transfer always includes the bank accounts of the payer and payee in the international IBAN format.

The Single Euro Payments Area (SEPA) is a payment-integration initiative of the European Union for simplification of bank transfers denominated in euro. As of 2020, there were 36 members in SEPA

TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is the real-time gross settlement (RTGS) system for the Eurozone, and is available to non-Eurozone countries. It was developed by and is owned by the Eurosystem. TARGET2 is based on an integrated central technical infrastructure, called the Single Shared Platform (SSP). SSP is operated by three providing central banks: France (Banque de France), Germany (Deutsche Bundesbank) and Italy (Banca d’Italia). TARGET2 started to replace TARGET in November 2007

EDIFACT stands for Electronic Data Interchange For Administration, Commerce and Transport. EDIFACT is accepted as the international EDI standard that has been adopted by organisations wishing to trade in a global context. A standard set of syntax rules have been ratified by the United Nations.

Masa depan E-wallet

“Payment pada dasarnya adalah closed system, interoperability (open system tendency) pada dasarnya adalah inefisiensi. The most efficient business is monopolistic closed system”

Predicting the future of payment system is complicated. In Indonesia, the biggest player is the one that based on ride hailing which are Gojek and Grab/Ovo, the other challenger might be Linkaja (state own bank consortium) and Dana (foreign company).

Recently, I read that there is an attempt for payment fintech company to think that they expand their market. For example, one of fintech company tell me that they one to kill all the ATM kiosk, saying that in the future all ATM kios will gone, replaced by their platform. Well, this is totally false hope.

This similar pattern in Malaysia (Grab, Touch n Go, Boost, Fave, Alipay), Singapore (Grab, DBS Pay Lah, Fave, EZ Link, Alipay).

Dompet Digital (e-wallet) DANA resmi diluncurkan pada 5 Desember 2018 (EMTEK, ANT Financial/Alibaba)

QRIS pertama diluncurkan oleh Bank Indonesia pada 17 Agustus 2019. Pihak-pihak yang terlibat dalam penggunaan QR Code pembayaran wajib menyesuaikan QR Code yang digunakan sesuai dengan standarisasi QRIS paling lambat tanggal 31 Desember 2019.

Daftar Penyelenggara Jasa Sistem Pembayaran Yang Telah Memperoleh Persetujuan Penyelenggaraan Kegiatan Pemrosesan Transaksi Pembayaran Dengan Menggunakan QRIS MPM

SINGAPORE ref

• SWIFT was introduced in Singapore in 1979, and by 1983 fifty banks were connected to the network. As at end of December 2000, there were 179 domestic institutional users, of which nine were locally incorporated institutions participating as full members
• Network for Electronic Transfers (Singapore) Pte Ltd (NETS) NETS is a nation-wide electronic payment platform, formed in 1985 by a consortium of local banks – the Development Bank of Singapore (DBS), POSBank (POSB)2 , Oversea-Chinese Banking Corporation (OCBC), Overseas Union Bank (OUB) and United Overseas Bank (UOB).
• MAS Electronic Payment System (MEPS) begin in Jul 1998, MEPS+, begin 9 December 2006.

MALAYSIA

• Real Time Electronics Transfer of Funds and Securities (RENTAS)
• National Electronic Cheque Information Clearing System (eSPICK), Bank Negara Malaysia had in 2008 implemented the to replace the previous Sistem Penjelasan Imej Cek Kebangsaan (SPICK) cheque clearing system. eSPICK was fully rolled out nationwide in July 2009.
• The MEPS SAN is operated by the Malaysian Electronic Payment System Sdn Bhd (MEPS)
• 2006, HOUSe is owned by four locally-incorporated foreign banks, namely, HSBC Bank, OCBC Bank, Standard Chartered Bank and UOB Bank

THAILAND

• EDC 870,000, Credit Card 22 mill, Debit Card 62 mill, ATM Card 17 mill, No of Branch 9000, QR Code 3 million
• Bank of Thailand Automated High-Value Transfer Network (BAHTNET): BAHTNET is a real-time gross settlement system that facilitates large-value funds transfer between financial institutions

JP Morgan Report ref, KPMG Retail Payment Report ref

National Payment Gateway 2025

“in consequence we see all around us in real life faulty ropes instead of steel hawsers, defective draught animals instead of show breeds, the most primitive hand labor instead of perfect machines, a clumsy money economy instead of cheque circulation, and so on” (Schumpeter, 1934:15).

In May/Nov 2019 Indonesian Central Bank (BI) release a document called National Payment Gateway (NPG) which describe its plan to build a new Payment System which called BI-FAST. Technically BI, always release this similar documents every 10 years such as in 1995, 2005 ref, however all this is not going anywhere due to financial crisis.

The case of NPG is similar with the case of MRT (Mass Rapid Transportation) that originally have been plan since 1985 -but its only can be developed after 34 years. However the case of NPG is very different with the case of MRT. While the MRT the problem more on funding and regulation, while there is zero adoption problem. The NPG have no funding or regulation, but more on adoption or innovation issues.

BI RTGS (HVPS) mulai beroperasi sejak 17 November 2000 ref, SKNBI sejak 22 Juli 2005 (PBI) Retail Value Payment System (RVPS). Thailand RTGS around 1995, Bangkok Clearinghouse in 1945, Bank of Thailand Automated High-Value Transfer Network (BAHTNET). Under the public service approach, ownership and operations of major interbank funds transfer systems are solely by the central bank

Banking on Innovation Modernisation of Payment Systems (Tanai Khiaonarong, Jonathan Liebenau)

 
1995-1997

• Penyusunan Blue Print Sistem Pembayaran Nasional (SPN) dan pembentukan Komite Reformasi SPN
• Penerapan BI-Line sebagai proyek transisi electronic funds transfer menjelang diterapkannya RTGS
• Kajian pengembangan RTGS di Indonesia

1997

• Kajian lebih detail terhadap beberapa kebijakan yang terkait dengan RTGS

1998

• Penyusunan Request For Proposal (RFP)

1999

• Pembahasan User Requirements
• Komunikasi rencana RTGS ke seluruh bank di Jakarta
• Pembahasan detail User Requirement
• Menunjuk security auditor untuk aplikasi RTGS
• System design dimulai
• Pembahasan kemungkinan penerapan Fasilitas Likuiditas Intrahari (FLI)

2000

• Pembentukan Internal Committee of RTGS pada semua bank peserta RTGS di Jakarta
• COO Conference (Jakarta, Surabaya & Bandung) tentang pengenalan RTGS dan implikasinya
• System Development dan Testing
• Pembelian perangkat penunjang RTGS
• Instalasi aplikasi RTGS untuk seluruh bank peserta RTGS
• Training RTGS usage untuk semua bank & intern BI
• User Acceptance Test (UAT) pada 17 pilot banks
• Pemasangan jaringan di 124 bank + site DRC Cilangkap
• Site DRC Cilangkap dikembangkan
• Skenario DRC dibahas & dimatangkan baik internal maupun untuk seluruh peserta BI-RTGS
• Bank & whole industry testing
• Menyusun ketentuan transfer dana (Peraturan Bank Indonesia)
• Pembentukan 17 pilot banks
• Menyusun ketentuan hubungan rekening
• Menyusun ketentuan Fasilitas Likuiditas Intrahari (FLI)
• Mereview seluruh ketentuan akunting/operations BI
• Menyusun interbank bye-laws mengenai good practice on interbank payments bersama dengan HIMBARA, Asosiasi Joint Venture Bank & Asosiasi Perbankan lainnya
• Membuat kontrak dengan seluruh bank peserta RTGS
• Membentuk Bagian Penyelesaian Transaksi Rupiah sebagai pelaksana sistem BI-RTGS
• Test simulasi selama 2 bulan untuk memastikan sistem berjalan dengan baik
• Go live sistem RTGS pada tanggal 17 Nopember 2000 di Jakarta
• Launching sistem BI-RTGS pada tanggal 23 Nopember 2000 di Jakarta

2001

• Implementasi sistem BI-RTGS di KBI Bandung pada tanggal 1/6/01
• Implementasi sistem BI-RTGS di KBI Surabaya pada tanggal 6/7/01
• Implementasi sistem BI-RTGS di KBI Yogyakarta dan Manado pada tanggal 3/8/01
• Implementasi sistem BI-RTGS di KBI Samarinda dan Balikpapan pada tanggal 24/8/01
• Implementasi sistem BI-RTGS di KBI Semarang tanggal 28/9/01
• Implementasi sistem BI-RTGS di KBI Denpasar pada tanggal 2/10/01
• Implementasi sistem BI-RTGS di KBI Medan dan Padang pada tanggal 26/10/01
• Implementasi sistem BI-RTGS di KBI Batam dan Pekanbaru pada tanggal 23/11/01

2002

• Implementasi sistem BI-RTGS di KBI Banjarmasin dan Makassar pada tanggal 25/2/02
• Implementasi sistem BI-RTGS di KBI Pontianak dan Palangkaraya pada tanggal 22/3/02
• Implementasi sistem BI-RTGS di KBI Jayapura dan Ambon pada tanggal 26/4/02
• Implementasi sistem BI-RTGS di KBI Kendari dan Palu pada tanggal 24/5/02
• Implementasi sistem BI-RTGS di KBI Bandar Lampung tanggal 21/6/02
• Implementasi sistem BI-RTGS di KBI Kupang dan Mataram pada tanggal 26/7/02
• Implementasi sistem BI-RTGS di KBI Jambi dan Bengkulu pada tanggal 23/8/02
• Implementasi sistem BI-RTGS di KBI Palembang dan Banda Aceh pada tanggal 27/9/02

2003

• Implementasi sistem BI-RTGS di KBI Solo dan Malang pada tanggal 28/2/03
• Implementasi sistem BI-RTGS di KBI Purwokerto dan Tasikmalaya pada tanggal 28/3/03
• Implementasi sistem BI-RTGS di KBI Jember dan Cirebon pada tanggal 25/4/03
• Implementasi sistem BI-RTGS di KBI Kediri dan Sibolga pada tanggal 29/5/03
• Implementasi sistem BI-RTGS di KBI Ternate tanggal 27/6/03
• Implementasi sistem BI-RTGS di KBI Lhokseumawe pada tanggal 16/10/03

CPSS Core Principles for Systemically Important Payment Systems
 

Digital Banking / Wallet

Understanding VISA Mastercard Payment Processor Business
I read this book (Electronic Value Exchange: Origins of the VISA Electronic Payment System by David Stearns, 2011) as a reminder to anyone that would like to challenge VISA. VISA is very fundamentally strong business.

1. It has a very good business model, 1960-70 (four party instead Diners, Amex third party). It has win against fierce banking industry at that time.
2. It battle proven against similar concept, 1980-1990 (ATM, EFT). Win against debit/credit by giving a debit card a platform. Win against EFT “online” technology.
3. VISA and Mastercard as is, basically a duopoly, a self regulated industry.

So I can say it will defeated the electronic money and digital wallet business in 2000-2020. Visa already win several battle:

1. online EFT, 2000 (paypal vs google checkout)
2. digital wallet, 2010 (apple pay, google wallet)

I get the notion that many fanboy here would proudly saying that “insert a name here” will replace VISA/Mastercard domination. It is like saying Google will replace Wikipedia. VISA will not be replaceable, even if Apple mandatory use of Apple Pay in its paystore.

However, although VISA/MC is very strong as payment processor, as a company they might lose. For example VISA might tempted to beat SWIFT as payment system (EFT) by creating its arm using Blockchain. VISA also tempted to build Plus (ATM/Cash Interbank).

Gojek is not a threat, I repeat, Gojek is not a threat

Fintech is a failure attempt of technology company trying to be banking. In banking, IT serve business. Just like a failure of Google trying to be a social media. Google serve social media.

Bank is trust based business, with trust you need property (land) to increase your client confidence level, with trust you need brand, you need clothing, you need to build reputation.

So I am pretty sure, although I keep on forgetting, that even Paypal, the defacto leader in online EFT can not win in this battle.

1. Will you transfer your salary to digital bank? no
   a. Digital bank get bad reputation as consumptive
   b. I prefer choose conventional big banks
   c. Less access is better, some giro remove ATM features
   d. I dont trust digital bank

2. Will you buy a motorcycle using fintech? no

3. What banks you used for mortgage? any kind of banks that approve my application, speed does not matter here.

4. Will you open term deposit using digital bank because of simplicity? no
   a. Most people even don’t have idle money
   b. Even Rabobank with higher interest having difficulties get consumer
   c. I dont trust digital bank

Belajar dari kesalahan M-Pesa

Tulisan mengenai M-Pesa populer sekitar awal tahun 2010 hingga 2014 ref, ref, ref. Tulisan tersebut biasanya menginspirasi agar meniru kesuksesan M-Pesa. Padahal ada flaw besar dari tulisan tersebut: kenapa harus dari Kenya? yang secara ekonomi tidak sekompleks Indonesia.

Tahun 2016, baru ketahuan bahwa M-Pesa gagal di Afrika Selatan yang bankingnya lebih maju ref. Sama tahun 2017, juga gagal di Nigeria yang sudah punya interbank transfer, transfer menggunakan internet biayanya lebih mahal ref.

kenapa M-Pesa berhasil, jawabannya sederhananya adalah karena traditional bankingnya tidak maju, M-Pesa pada dasarnya bank itu sendiri ref.

*Baru tahu kalau TrueMoney ini milik Charoen Pokphand, berdiri sejak 2007, masuk Indonesia sejak 2015.