The Business Case for SIC IP in Switzerland and How to Solve Key Pain Points

The successful launch of SIC IP on August 20, 2024, marked a significant milestone for Switzerland's payment infrastructure. Over 60 financial institutions have gone live, with more than 95% of Swiss retail payment transactions now covered by 63 banks, as SIX Interbank Clearing Ltd highlighted. This data shows that the industry is already seeing strong buy-in, especially from larger financial institutions capable of sending and receiving instant payments. Transaction volumes are surpassing initial expectations, with up to 10,000 daily transactions, and rising, according to Mathias Sailer, Head of SIX Interbank Clearing (SIC AG).

Key Benefits:

• Efficiency and Speed: One of the most compelling arguments for adopting SIC IP is the speed at which payments are processed, reducing delays and creating opportunities for liquidity optimisation. Dennis Flad, Partner at t’charta AG, emphasised that corporates and merchants will benefit significantly from faster payment cycles, as they face costs related to credit risk, delayed invoice payments, and cash flow gaps. Instant payments will help mitigate these risks, making treasury operations more agile, as smaller sets of cash can be moved around more efficiently.
• Corporate Use Cases: Flad highlighted use cases such as payment-on-delivery in the B2B sector, where instant payments can replace traditional methods like business direct debits. E-commerce and invoicing processes also stand to gain from this faster payment capability, accelerating cash flow for businesses.
• Optimising Treasury Functions: Instant payments will transform corporate treasury strategies, reducing the need to hold large cash reserves by allowing for real-time movement of funds. This shift will enable businesses to maintain smaller, more precise cash reserves, improving overall liquidity.
• Coexistence with Existing Schemes: Contrary to fears that SIC IP might cannibalise other payment systems, the consensus in the webinar was that it would instead complement them. Matthias Sailer pointed out that the coexistence of instant payments with traditional schemes like Visa and MasterCard and domestic platforms like Twint will enhance flexibility and streamline infrastructure, reducing costs for financial institutions over time. Instant Payment Bridge (IPB), a new initiative, is designed to integrate various schemes under the SIC 5 infrastructure, fostering collaboration rather than competition between payment methods. The implementation of the IPB is yet to be decided. SIX is currently assessing the needs of the affected stakeholders.

Pain Points and Implementation Challenges

Despite the advantages, smaller financial institutions (FIs) face substantial hurdles in adopting SIC IP, particularly those in Group 2. As of October 17, 2024, 43% of the 180+ FIs in Group 2 have not yet started the implementation process, with 38% citing cost and hassle as the biggest barriers, according to the webinar poll.

Challenges to Implementation:

• High Initial Costs: Implementing SIC IP requires significant upfront investment in technology and infrastructure upgrades, which can be daunting for smaller banks and FIs. The cost includes upgrading bank’s systems, connecting them with the SIC 5 platform, and ensuring compliance with evolving regulatory requirements. This extent of investment has led many smaller FIs to delay their implementation efforts.
• Operational Disruptions: For many FIs, the transition to SIC IP disrupts their day-to-day operations. Overhauling legacy systems while continuing to serve customers is a logistical challenge that requires both time and resources. Many FIs may lack the in-house technical expertise to manage this transition seamlessly, necessitating external consultants or third-party service providers, which further drives up costs.
• Complexity of Process Integration: While larger institutions have more resources to dedicate to implementation, smaller banks may need help with integrating instant payments into their existing processes. Dennis Flad pointed out that the full benefits of instant payments take time to materialise; economies and businesses will have to learn how to optimise their processes over time. For many FIs, the need for this learning curve further complicates adoption.
• Interoperability and Standardisation: While instant payments are fast and efficient, ensuring they are fully interoperable with other payment methods and platforms remains a concern. Initiatives like Instant Payment Bridge are designed to address this, but FIs must ensure that their systems fully comply with evolving standards.

The Path Forward

The SIC IP system is poised to revolutionise payments in Switzerland, particularly for corporate users and merchants who can capitalise on faster transactions and improved cash flow. However, the path to full-scale implementation is not without obstacles, particularly for smaller FIs, grappling with the transition’s cost and complexity.

The next few years will be crucial in determining how successful SIC IP can be in its Phase 2 rollout, as roughly 180 additional banks join the platform. FIs will need to positively weigh the long-term benefits of SIC IP against the immediate cost and logistical challenges of implementation. Those who overcome these hurdles will find themselves well-positioned in an increasingly cashless, instant-driven market.

By understanding both the business case and the pain points, FIs can better prepare for the inevitable transition to instant payments, staying ahead of the curve in a rapidly evolving financial landscape.

To learn more, watch our webinar SIC Instant Payments: Impact and Lessons Learned from Phase 1 Implementation in full.